HOUSE SPECIAL COMMITTEE ON OIL AND GAS March 21, 1995 10:05 a.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative Scott Ogan, Vice-Chair Representative Gary Davis Representative Bill Williams Representative Tom Brice Representative Bettye Davis Representative David Finkelstein MEMBERS ABSENT All Members Present COMMITTEE CALENDAR HB 207: "An Act relating to adjustments to royalty reserved to the state to encourage otherwise uneconomic production of oil and gas; relating to the depositing of royalties and royalty sale proceeds in the Alaska permanent fund; and providing for an effective date." HEARD AND PASSED OUT OF COMMITTEE WITNESS REGISTER THOMAS WILLIAMS, Alaska Tax Counsel (Teleconference) BP Exploration - Alaska, Inc. P.O. Box 196612 Anchorage, Alaska 99519-6612 Telephone: 564-5955 POSITION STATEMENT: Supports HB 207 BRADLEY PENN, (Teleconference) Marathon Oil Company P.O. Box 196168 Anchorage, Alaska 99519-6168 Telephone: 564-6428 POSITION STATEMENT: Supports HB 207 KEVIN TABLER, (Teleconference) Union Oil Company of California P.O. Box 196247 Anchorage, Alaska 99519-6247 Telephone: 263-7600 POSITION STATEMENT: Supports HB 207 STEVEN MAHONEY, Managing Tax Counselor (Teleconference) ARCO ALASKA P.O. Box 100360 Anchorage, Alaska 99510-0360 Telephone: 265-6527 POSITION STATEMENT: Supports HB 207 JOHN SHIVELY, Commissioner Department of Natural Resources 400 Willoughby Avenue Juneau, Alaska 99801 Telephone: 465-2400 POSITION STATEMENT: Available for questions JACK CHENOWETH, Attorney Legal Services Division Legislative Affairs Agency 130 Seward Street, Room 409 Juneau, Alaska 99801 Telephone: 465-2450 POSITION STATEMENT: Available for questions PREVIOUS ACTION BILL: HB 207 SHORT TITLE: ADJUSTMENTS TO OIL AND GAS ROYALTIES SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR JRN-DATE JRN-PG ACTION 02/27/95 501 (H) READ THE FIRST TIME - REFERRAL(S) 02/27/95 501 (H) OIL & GAS, RESOURCES, FINANCE 02/27/95 501 (H) FISCAL NOTE (DNR) 02/27/95 501 (H) 2 ZERO FISCAL NOTES (DNR, REV) 02/27/95 501 (H) GOVERNOR'S TRANSMITTAL LETTER 03/08/95 665 (H) CORRECTED FISCAL NOTE (DNR) 03/09/95 (H) O&G AT 12:00 PM CAPITOL 17 03/09/95 (H) MINUTE(O&G) 03/14/95 (H) O&G AT 10:00 AM CAPITOL 124 03/14/95 (H) MINUTE(O&G) 03/15/95 (H) O&G AT 05:00 PM BELTZ ROOM 211 03/15/95 (H) MINUTE(O&G) 03/16/95 (H) O&G AT 10:00 AM CAPITOL 124 03/16/95 (H) MINUTE(O&G) 03/17/95 (H) O&G AT 05:00 PM CAPITOL 124 03/17/95 (H) MINUTE(O&G) 03/20/95 (H) O&G AT 05:00 PM CAPITOL 106 03/20/95 (H) MINUTE(O&G) 03/21/95 (H) O&G AT 10:00 AM CAPITOL 124 ACTION NARRATIVE TAPE 95-16, SIDE A HB 207 - ADJUSTMENTS TO OIL AND GAS ROYALTIES Number 000 CHAIRMAN NORMAL ROKEBERG: Good morning, everyone. The meeting of the House Special Committee on Oil and Gas is called to order at 10:05 on March 21st, 1995. For the record, committee members present are Representative Bettye Davis, Representative Gary Davis, Representative Scott Ogan, Representative Tom Brice, and the Chairman, Representative Norman Rokeberg. A quorum is present. On today's calendar we have House Bill 207, Royalty Reductions. I believe we are in teleconference with Anchorage, is that correct? Okay. The purpose of this discussion: A committee substitute was adopted in our last meeting on Monday, March 20th, 1995. A new draft has been prepared that removed Section 1 dealing with the royalty reductions for net profit leases. There has been no testimony at this time that would justify that, and there's been requests that it be removed from the bill at this time. In addition, after our discussions yesterday, the regulatory language has been removed as was recommended by I believe the overwhelming sense of the committee. The language dealing with the appeals by the applicant has been removed, based on the testimony primarily from Attorney General Pat, Patrick Coughlin, and the testimony by Director Boyd, and then the language restricting the exact, but I meant regulations, has been removed. It revolves around the entire issue of the relationship of the statute to the regulations. Now that we have a new document available, the committee should rescind the regulation adopting work draft CH (indisc. - noise on tape), dated 3/20/95. If there are any objections to rescinding our motion, are there any objections to this motion? REPRESENTATIVE (?): Could you repeat that, sir? CHAIRMAN ROKEBERG: Okay, we're going to rescind, we're rescinding the committee substitute we had yesterday, -- put it low and 4- wheel drive, 4-wheel drive, okay. REPRESENTATIVE (?): Okay, I'm in oil and gas now, now where were we? CHAIRMAN ROKEBERG: We are rescinding the committee substitute from yesterday. REPRESENTATIVE (?): Oh, committee substitute. CHAIRMAN ROKEBERG: Yeah. Are there any objections to this motion? Number 067 REPRESENTATIVE SCOTT OGAN: I'll object for the sake of discussion. REPRESENTATIVE (?): Mr. Chairman. REPRESENTATIVE (?): Disgusting. REPRESENTATIVE (?): (Indisc. - many speaking) adopted the new one. REPRESENTATIVE GARY DAVIS: Yeah, that's what I was just going, I was just going to move to adopt a new one for a new work draft 9CH0039-1. Thank you. REPRESENTATIVE OGAN: Thank you, I'm in this committee now. Number 075 CHAIRMAN ROKEBERG: Thank you, Representative Ogan. And we have a motion by Representative Gary Davis. Are there any objections to that motion that we accept Draft 9CH0039F for discussion purposes. If there are not objections, hearing none, then the new committee substitute for House Bill 207 is now before the committee for discussion. Is there anyone here that wishes to testify on the committee substitute for House Bill 207? There are, I would ask, there are four people in Anchorage that wish to testify and, on the teleconference, and then Commissioner Shively is also here. Mr. Commissioner, would you prefer to hear the Anchorage testimony first? COMMISSIONER JOHN SHIVELY: (Indisc. - static). Number 095 COMMISSIONER ROKEBERG: In that case, the, we will proceed with the teleconference testimony, and please indicate your name and (indisc. - static) and telephone number and the affiliation for testimony. First, we'd like to hear from Tom Williams. Number 101 TOM WILLIAMS, BP EXPLORATION-ALASKA, INC. (Teleconference): Mr. Chairman. My name is Tom Williams. I'm with BP Exploration- Alaska, Incorporated. My telephone number is 564-5955. I was, I put down to be, to testify in order to get different questions that you had of BP, but otherwise, I don't really have a statement to make today, Mr. Chairman. Number 109 CHAIRMAN ROKEBERG: Mr. Williams, might I ask if you have the latest, if you have had an opportunity to review the latest committee substitute? It just was faxed north about, within the last hour or so. Number 113 MR. WILLIAMS: We just got it up here and, and I have had that chance to look at it very briefly, Mr. Chairman. Number 114 CHAIRMAN ROKEBERG: Okay, you do have it in hand in that room though? MR. WILLIAMS: Yes, we do. Number 114 CHAIRMAN ROKEBERG: Well, thank you, Mr. Williams, for standing by. If questions do develop we will direct them towards you. MR. WILLIAMS: Thank you, Mr. Chairman. CHAIRMAN ROKEBERG: Next is Bradley Penn. Mr. Penn? Number 121 BRADLEY PENN of MARATHON OIL COMPANY, ANCHORAGE (Teleconference): This is Bradley Penn. I work for Marathon Oil Company in Anchorage. Address, P.O. Box 196168. Phone number is 564-6428. I, like Mr. Williams, don't have any comments, probably be having some advice in the review of this latest draft. My comments that I had prepared were on Draft C, but those concerns are taken care of in Draft F. That's all I have to say, Mr. Chairman. COMMISSIONER ROKEBERG: Well, thank you, Mr. Penn. Next we get, like to hear from Kevin Tabler, please. Number 134 KEVIN TABLER, UNION OIL COMPANY of CALIFORNIA (Teleconference): Yeah, my name is Kevin Tabler. I'm with Union Oil Company of California, P.O. Box 196247, Anchorage. Phone number: 263-7600. And like the other members in this room, I, I just had a chance to briefly look at it and appears that the questions and concerns that were, any statements or comments that I would have had, have been addressed in this most recent draft. I would like to say that I appreciate the work that's been put into this and the committee's efforts to address the concerns of Unocal, these are the two points that we raised. We'll stand by for any questions you may have of myself as well. CHAIRMAN ROKEBERG: Thank you, Mr. Tabler. Next, there is Steven Mahoney. Number 152 STEVEN MAHONEY OF ARCO ALASKA, Managing Tax Counselor, Anchorage (Teleconference): I do have a very short statement, Mr. Chairman. My name is Steve Mahoney. I am the Managing Tax Counselor at ARCO Alaska in Anchorage. We would first like to say that we're impressed with the progress at the hearing last night, and the extensive efforts of the committee to understand these complex and important issues. (Indisc.) the results of the hearing and what I see and what I heard (indisc.) the CSHB. We believe we're making progress towards the CS that ARCO can support. Specifically, we agree with removing the regulatory language from the bill itself. ARCO believes still that there is no necessary or particular necessity of any oversight over the commissioner. But if the committee so desires we would again suggest that the AG is sufficient to oversee (indisc.) with the concurrence the commissioner could provide for royalty reductions as needed. One of the important parts that we've seen that's of course not in the CS is legislative intent stressing the need for the interest of the committee in encouraging the cooperative development of the state's resources and sending a message to the industry that Alaska will be competitive and has a long term eye towards the development of its best resources. We support the fellow Cook Inlet producers who respect and recognize needs for increasing flexibility in regard to existing marginal production, which again, it didn't draft that. And before I go, I'd again like to reiterate ARCO's request that the intent to be brought by the committee in both the preamble of the bill and any imported documents produced is essential to the effect of, the success of this legislation. All too often the legislature's intent is lost in the application of the details. If the committee's intent is to provide a level of flexibility to the development of its marginal resources, encourage this committee to state that intent as clearly as possible to avoid any misinterpretation in application of your design. Thank you very much for your work, and that's all I have to say today, except if questions arise. Number 193 CHAIRMAN ROKEBERG: Thank you, Mr. Mahoney. Are there any questions at this time for the people that testified, from the committee members? Hearing none then I'd ask Commissioner Shively to take his place. Number 200 COMMISSIONER JOHN SHIVELY, DEPARTMENT OF NATURAL RESOURCES, Juneau: Mr. Chairman, for the record, my name is John Shively. I'm the Commissioner of Natural Resources. We would concur that the new draft does take care of some of the major concerns I believe that Patrick Coughlin and Ken Boyd raised last night. I would like to just raise several concerns and I'm not sure that these absolutely have to be addressed at this time, but you might want to consider them. One, we think the legislative intent language might be a little too restrictive. I don't know that I can, that any commissioner could actually determine that decision would be based on the investment being made only if a reduction was, was granted, I mean, that's a high standard. Number 213 CHAIRMAN ROKEBERG: May I just interrupt you for a moment, sir? For the purpose of the committee members, and this is, there is some intent language here that has been circulated, but it's not part of the CS, so. Just so you're all aware of that. Then there was some revised language too that, nothing we can discuss, but it has been moved. So, I just want to make sure that everybody was aware of that. Go ahead. Excuse me for interrupting, Commissioner. Number 220 COMMISSIONER SHIVELY: That's fine. Thank you, Mr. Chairman. Mr. Chairman, on page 2, lines 30 and 31, as I understand the intent of that is that fields might be shut in or abandoned, the royalty could actually go to zero. We have not supported that concept. And, and we think that the additional flexibility that this legislation gives in terms of looking at marginal fields and fields that might, that are shut in or might be abandoned, vastly improves the opportunity for royalty reduction, but we think the state should retain some opportunity for some income. We recognize that the existing legislation, as I think was pointed out by Unocal last week, would allow the commissioner theoretically to get to zero, but the legislation doesn't work, so, I don't, that, I think this, that would, keeping it at the, at the 25 percent for all three kinds of situations we think is, is reasonable. In terms of the oversight, we believe that one-step oversight is better. I think our preference is on page 3 of would be 8A, but I think one or the other. If you do two it just adds to the process. The thing with the royalty board is that that will probably have, I'm not sure what you mean there. If it's a royalty board meeting we're going to have to public notice it. It's another 30 days. If it's just going and finding three members of the royalty board to agree I'd, I'm not sure, that's not unacceptable to us, but I think you ought to choose one or the other and I think there's some difference of opinion even in the oil industry as to which of those two are better. And then on page 4, we don't have strong feelings about the lines 7 through 21, we don't have strong feelings about transmitting copies of the determination to these officials. I think Representative Davis early on talked about providing notice of the decision and then if people wanted the full document they could ask for it. We think that's a reasonable approach. And we'd certainly be able to, be willing to provide notice to all members of legislature at the same time as a way to simplify that, but, you know, that, again, since it's the legislature it's your call as to whatever you would like see. Mr. Chairman, those are my comments. Number 266 CHAIRMAN ROKEBERG: Thank you, Commissioner Shively. Are there questions of the committee? Representative Davis. Number 267 REPRESENTATIVE GARY DAVIS: Thank you, Mr. Chairman. Commissioner, on the zero royalty, that's just an option isn't it. It gives you, you have the flexibility within your negotiations to, to either go from zero to whatever, so you know, as far as... COMMISSIONER SHIVELY: You're correct. REPRESENTATIVE G. DAVIS: Okay. COMMISSIONER SHIVELY: I could, you know, any commissioner could refuse to go to zero. That is correct. Number 275 REPRESENTATIVE G. DAVIS: Okay. If I might continue. On the, but, of course, I can't help but comment on the distribution of documents. I agree that a notice that a report is available with an executive summons, and there will be intent language added to the, to the agency legislation today, or tomorrow, that indicates the intent is to provide an executive summary, in short detail as apposed to just a letter, this report is available. So, I'll, I'll see what, what we can do to clean that up in here. Thank you, Mr. Chairman. Number 286 CHAIRMAN ROKEBERG: Representative Brice. Number 287 REPRESENTATIVE TOM BRICE: Thank you, Mr. Chair. A couple of questions. I had to pop out of the room there for a second (indisc.). page 3, lines 12 and 3, the confidentiality clause. It says it shall be kept confidential under AS whatever upon the lessee's request, is that, is that going to require positive action by the lessee then? Or is, can it just be kept confidential period? Number 295 COMMISSIONER SHIVELY: No, the way I would interpret that is that they will have to say this part of the information we're giving you is confidential. I mean, some parts of the information (indisc. - static) where the name of the fields, those kinds of things obviously aren't, I wouldn't think, certainly are going to be kept confidential but there may be some part of their economic analysis or some part of their field development analysis that it would like to be kept confidential and they will have to tell us, as I think is currently provided in regulation, what they want kept confidential. So, it's a positive action by them. Number 305 REPRESENTATIVE BRICE: On specific areas... CHAIRMAN ROKEBERG: Representative Brice. REPRESENTATIVE BRICE: ...and further on down in Section, or further on down the page on line 18, we have a Section 7, which says "...may require the lessee or lessees making application for the royalty reduction to retain and pay for the services of a contractor selected from a list provided by the commissioner...". I know we're implying that it's the lessees, lessees who get to select from that list. I guess my concern is that we don't want implications, we don't want it implicitly in there, I guess. Would you have problems making it a little bit clearer, that it's the lessees that we're talking about that select from the list versus (indisc. - static). Number 320 COMMISSIONER SHIVELY: Mr. Chairman, Representative Brice. I have no problem in clarifying it if you think it needs to be since that's the intent. I, if... Number 323 REPRESENTATIVE BRICE: Yeah, I just want to make sure that the intent's on record too. And one last question. Under Section 8 on page 3, on line 28, "...obtains the concurrence of the attorney general...". Now, is the attorney general going to making policy decisions? Is that what the department's expecting, or is this just a process by which the attorney general checks off to make sure that procedurally things have gone according to Hoyle here? Number 332 COMMISSIONER SHIVELY: Mr. Chairman, Representative Brice. I think it is primarily the latter that the attorney general would look at whether or not the process is laid out and the legislation had been followed by the commissioner; however, there's nothing in this legislation that would prevent the attorney general if he felt that part of the process was not carried out appropriately to do further investigation into the merits of the decision. CHAIRMAN ROKEBERG: Representative Brice. Number 340 REPRESENTATIVE BRICE: Yes, I think my concern lies in that when we're saying that it contains the concurrence of the AG is that it does give the AG veto power over the decision making process. And maybe if we can think about, Mr. Chair, (indisc. - static) to make sure that the AG's determination is based on the appropriate use of a process versus using, using that veto for a policy call by the AG. In fact, you do want to make sure that that's clear as well, that being something that.... Number 351 COMMISSIONER SHIVELY: Mr. Chairman, Representative Brice. Since, of course, the administrative's position was that we didn't want any review at all on anything that further constrains the review, we think it expedites the process, and therefore, we would support it. Number 355 CHAIRMAN ROKEBERG: Well, Representative Brice, if I might (indisc. - static) on what level of review here, or what, what concurrence means? Number 358 REPRESENTATIVE BRICE: Well, I, I think, yeah, well actually, we can do this when we're getting down to, you know, offering the amendments and discussing that, but I would just say take out Section 8 period. We can discuss it. CHAIRMAN ROKEBERG: Representative Davis. Number 363 REPRESENTATIVE G. DAVIS: Thank you, Mr. Chairman. Yeah, since we're on that, I, I too have some, some real concern about the oversight. We, we've got, the commissioner now is, is making the decisions, so who's going to, the AG and the commissioner work for the same person, so there's kind of cut and dried how that, the majority of those decisions will come out a lot, lot of times. So, and, and, but I think the biggest questions there is the technical nature of, of the data. I mean, who in the AGs office, nobody in the Ags office has the expertise to properly analyze the data, so they would have to contract or, or question someone else. So who else would they, who would they question? So, initially, they would probably go back to the Division of Oil and Gas who was involved in it in the first place. So, so that takes them out. So, you know, that's, that's the dilemma, and I think, I think the oversight is, is the legislature. We went through last year on production and public debate on oversight, and, and input into findings, and I think after all of that, you know, I came down to, you know, putting the technical data and the recommendation of the commissioners as, as final on that other than you always have the legislature and you always have special interest groups that are there to continually bird-dog and watch, watch the process. So you always have, have those to fall back on. Number 390 REPRESENTATIVE BRICE: And, and to follow up on. You know, I think that's why we want to make it very clear that we keep the Attorney General and that it's clear that he's addressing a process by which the commissioner came to a decision. Now the economics the commissioner's taken into account more, various other aspects. So, the necessary redundancy that would otherwise be, the redundancy that would otherwise be necessary in, in, you know, in expertise on the decision making process is not there. Number 402 CHAIRMAN ROKEBERG: I'd like to just say maybe we can, to move along here... REPRESENTATIVE BRICE: Yeah, exactly. We'll talk about this later. CHAIRMAN ROKEBERG: ...I just, yeah. And I, I really think that what we need to keep in mind here is what's been by one wag been referred to as the "evil commissioner" theory, and they my concerns raised and some other further testimony about from the one hand the skulduggery, the other hand stupid decisions. That's what we're really talking about. I think that's what you are agreeing, what you're saying, Representative Brice, is that well, we were just reviewing the process here and, to see if these extremes have been exceeded. Number 412 REPRESENTATIVE BRICE: Well, to make sure that, you know, the steps to acquire, number one to acquire the information necessary to make the decision, the steps necessary to make the decision have been followed. And that that's appropriate, not that X plus Y equals Z, and therefore, the determination's appropriate. Number 414 CHAIRMAN ROKEBERG: Right. I think that's, that was the obvious extent. Representative Finkelstein. Number 418 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, just let me pick an alternative we ought to consider another one of these (indisc.) just as a compromise to eliminate the reference to the Attorney General, and to make the, make it go to the Royalty Oil and Gas Board only when there is an appeal, not make it mandatory that it go before them every time, but if there's an appeal then it goes before them, and if not, the decision of the commissioner stands. CHAIRMAN ROKEBERG: Thank you, Mr. Finkelstein. Representative Ogan. Number 426 REPRESENTATIVE OGAN: May I comment on that? I think the whole idea of having the oversight is not for an appeal process, but as a check and balance process. Number 430 CHAIRMAN ROKEBERG: Thank you. Mr. Shively, do you want to continue on anything? Or are we going to ask the questions that were raised? COMMISSIONER SHIVELY: Mr. Chairman, I'm through with my.... CHAIRMAN ROKEBERG: Oh, okay. Representative Finkelstein. Number 433 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, I apologize for being late. Commissioner, could you just say in a few words, the problems that you had, if any, with your review here? I know the subject you just mentioned the (indisc. - papers rattling). Number 435 COMMISSIONER SHIVELY: We, of course, have not supported having the royalty be able to go to zero for a shut in or fields, fields that might be abandoned. We think one review process is enough, that we don't need two, and we suggested a notice of the decision to the legislature, all the legislature, but I mean, whatever the legislature wants in that section we will do. And then I had a comment about the legislative intent. We felt it was a standard that we couldn't necessarily meet to say that we'd have to know that they would make the additional investment before we would reduce the royalty. It goes with the comments I gave you. Number 450 CHAIRMAN ROKEBERG: Commissioner, if you'd indulge me. If we could go to page 2, Subsection 3 there. I'd like to review that in the light of the public hearing and make sure we have a complete understanding of what this language means, and it starts on line 16 where it says "...the commissioner shall...", oh, incidentally, I want to go back to line 12 for the record where the, we had had earlier discussions about the "...may not grant a royalty reduction..." etcetera, etcetera, "...unless they make a clear and convincing showing...". It's my understanding that, that the method of drafting statutory language in Alaska prohibits the use of "shall" so we left "may not." I mean, that was just for your information because we had some further discussions about this historically. I mean, in the past week or so. Just to go on though, to go to line 16. It says "...shall, if the royalty reduction agreement is approved in the royalty reduction agreement condition a royalty reduction granted under this subsection in any way necessary to protect the state's best interest. Under this subsection, the commissioner shall include provisions of increase or otherwise modify the state's royalty share by a sliding scale royalty or other mechanism upon the occurrence of a change in the price of oil and gas." To focus on line 23, the word "shall" there and may, did you, have you considered this with advice of counsel and the effect of the way this language is put together? Or have you had a chance to do that yet? Number 472 COMMISSIONER SHIVELY: Well, I haven't 'cause I just got it. I mean, I think it's certainly an improvement over the previous substitute. I think it allows more flexibility than we felt the previous committee substitute. It's, it allows us to, it gives you, it give us the idea of some things you think are relevant to consider, allows us the flexibility to consider other things which we felt was important that whenever you try to list things, I mean, you can never list everything. And so, we think that's good. Number 482 CHAIRMAN ROKEBERG: Well, I'm concerned specifically, Commissioner, about the mandate here as I read it that in your original bargainer, your agreement with the applicant? You would have to have some kind of a provision for an oil price, or some kind of a provision or a trigger mechanism in the event they were pricing, a major price increase or something. My understanding of the language is that you would have to bargain, deal up front. You couldn't come in there unilaterally with a reopener later, but you could have a reopener clause inside the original agreement. COMMISSIONER SHIVELY: Yeah, I... CHAIRMAN ROKEBERG: I think that overcame some of the fears that some people had about just having like a unilateral right to reopen later downstream. And, so I'm, that's what I want to talk about, make sure we're all in the same page or same track here with that because it makes a, there's a distinction there between whether you should require it. Well, we're going to require that, or we should give you a suggestion that you should look at it. I mean, that's the difference. Number 495 COMMISSIONER SHIVELY: Mr. Chairman. It certainly was never our intent that the commissioner would have the unilateral right to call up an oil company that got the royalty reduction and say, well, tomorrow your royalty is going up. I mean, so, conceptually, I don't have a problem with what you're doing here, saying that there has to be a sliding scale or some other mechanism and the sliding scale may not be appropriate to, so that the state, if there is change in the price of oil, or in the volume of the field, which are certainly two of the things that are most easily looked at, that the state gets an increase. That's always been part of our concept, so I certainly, I don't have a problem with the intent, and I'm going to have to talk to Patrick about the actual language, but certainly, the intent is precisely as, as we have stated it on the record. CHAIRMAN ROKEBERG: Representative Finkelstein. Number 506 REPRESENTATIVE FINKELSTEIN: Just, I missed something there. The two factors, the price of oil and volume? Is that what you said? Number 508 COMMISSIONER SHIVELY: Those are two factors. They are not the only two. Those are the two easily, most easily measured. Number 511 REPRESENTATIVE FINKELSTEIN: Because it, on line 26, 27, it says that (indisc.) the change in oil and gas. It sort of picks that out as the one, the only one that the royalty sliding scale will be based on. Number 514 CHAIRMAN ROKEBERG: Well, no, the intent, excuse me, Representative Finkelstein, that, that would be, that's dictated. The ones may be considered in any kind of formulation you want to do. Number 516 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, the, since, you're certainly right about the intents of the, it's confusing because the sentence starts off not talking about sliding scale royalties, but the initial sentence is "...shall include provisions to increase or otherwise modify..." etcetera. Very general stuff and I tend to see the, and may consider other relevant factors applying to that. This sub, the little piece in here, which is, we can tell it 'cause it's separated by commas, is the reference to royalty share upon the occurrence of the change in the price of oil and gas, and so we may want to ask the bill drafter about that because I would take the rest of it after the comma, referring back to the beginning, which isn't sliding scale rules. It's just "...shall include provisions...". Number 526 CHAIRMAN ROKEBERG: Well, yeah. Let's pursue that in a moment, but I wanted to get some, focus on line 23, after the "shall", "...the commissioner shall include..." that's, you know, we could change that to "may" and then it would give you more flexibility. That's a policy decision that we need to make as a committee, I think, about whether we want to dictate the commissioner shall include that provision in there, or allow them to have the flexibility to do that. Is that how you see it, Mr. Commissioner? Or.... Number 533 COMMISSIONER SHIVELY: Yeah. Mr. Chairman, if the intent here is to both, I mean, sort of take care of two interests in one, the concern that the commissioner would only go down and would forget what might happen if, if it could go up on one side. And on the other side of the equation if there was, this concern was expressed by Unocal that the commissioner could come in unilaterally and just raise it, this language takes care of those two concerns, then I don't have a problem with it. I, I think we may want to fiddle a little bit with the wording, but conceptually, I do not have a problem with what you're doing. Number 540 CHAIRMAN ROKEBERG: We're going to ask Mr. Chenoweth to advise us on this right now if we want to talk about this. Would that, do you want to do that? Number 542 REPRESENTATIVE FINKELSTEIN: I don't if we need to or not. CHAIRMAN ROKEBERG: Okay. REPRESENTATIVE FINKELSTEIN: I think the intent's clear. It's just, the language reflected, it's, the language may well reflect what you're saying. I just was.... Number 543 CHAIRMAN ROKEBERG: Yeah, I was just, actually, what I was trying to elicit from the commissioner, I know it's tough when you in a short review with no input, but if you'd prefer to put the word "may" there rather than "shall" on line 23. Number 544 COMMISSIONER SHIVELY: Well, of course, commissioners always prefer may over shall. But.... Number 548 CHAIRMAN ROKEBERG: Okay, just so we have it on record. That's just what I was looking for there. Okay, is there any other questions of the commissioner at this time? Representative Finkelstein. Number 551 REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. The, just some tech things, if you missed it before, but to save people from, kind of clear thoughts of them. You, at this point, don't have any concerns about the companies hiring and employing the contractor? COMMISSIONER SHIVELY: No. REPRESENTATIVE FINKELSTEIN: That is, that's acceptable to you. they won't work for you. They'll work for the oil companies. Number 554 COMMISSIONER SHIVELY: Mr. Chairman, Representative Finkelstein. No, we think that that's an estab... as long as we control who those initial, which company is going on that initial list, no, we do not have a problem since we get to choose those, so we, therefore, do not have a problem. Number 556 REPRESENTATIVE FINKELSTEIN: What about that idea that came up previously that if a certain amount of (indisc.), if development doesn't occur within a certain occur within a certain amount of years the royalty reverts back to the peak level for performance criteria, that you only get this if you actually do something, and you don't get it as sort of a speculative venture. Would you have any objections to something like that? Number 562 COMMISSIONER SHIVELY: Mr. Chairman, Representative Finkelstein. If we take care of the upside of the field size and oil price, I, in the agreement which we're being mandated to do presently, I don't really have a concern about that. On the other hand, if the committee feels that there should be a time frame I don't know that we would oppose it. I don't think we feel that it's, it's necessary. Number 562 CHAIRMAN ROKEBERG: Mr. Commissioner, Representative Finkelstein. I think the, what that issue would be is just another relevant factor here. It's the level of importance we want to rise it up to stick in here. As we heard Director Boyd say yesterday, you could have a hundred things on this laundry list. I expect that the author's desire here was to make sure that these, these other three factors were taken into consideration as a more or less statutory reminder of the conditions to the commissioner. So, I'm not sure what he's saying, and correct me if I'm wrong, Sir, that's something you'd consider, but you don't think it's necessary to put in the bill. Number 572 COMMISSIONER SHIVELY: Yes, Mr. Chairman. And, and clearly, we could do it under the current language. I mean, we could condition the royalty reduction on them going into production in a certain amount of time. REPRESENTATIVE FINKELSTEIN: Mr. Chairman, the... CHAIRMAN ROKEBERG: Representative Finkelstein. Number 579 REPRESENTATIVE FINKELSTEIN: ...another one I had was, this came up. We discussed it previously, the idea of keeping some criteria in law other than being in the state's best interest, which is now basically in the intent of, or is it an amendment that's going to be considered? But, it's, to put some words back in, such as maximum possible, economic term possible under the circumstances, something that refers to the kind of things you've always described as what your decision would be based on, maximizing state returns in the long run rather than just.... Number 586 COMMISSIONER SHIVELY: Mr. Chairman, again the difficulty was with that is defining what maximizing return is. That's the problem I have with that, and, and because there are other potential reasons in a best interest finding other than for that particular field maximizing the state's economic interest. It may have to do with how much oil we want in the pipeline, how it relates to other production facilities that might be shut in. There are a variety of other things in a best interest finding that could have you keep a field operating, particularly at the end of its cycle, or even bringing a marginal field on, that don't necessarily tie to maximizing the state's economic benefits on that one field. So, I think it's limiting and therefore, I just don't think it, it would work well. Number 598 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, one last, one of the... CHAIRMAN ROKEBERG: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: We had discussion before and you were, said you were, didn't support the general concept of a sunset provision, but what about a sunset that just covered, like a sunset of five years only for future leases that are sold and all the provisions stay in effect for existing leases, but if you sell some in the future after that, they, unless this provision was extended it wouldn't apply to them. Then the arguments that you had that you want to get, five years is too short a period to give people the chance to come in and take advantage of the provisions and, and to build their plans on these provisions of the lease being there permanently, that concern wouldn't be there because it would be there permanently for any existing leases, but leases you sell beyond that would only be subject to it if the provision was extended. Number 607 COMMISSIONER SHIVELY: Well, Mr. Chairman, Representative Finkelstein. We've had royalty reduction statutes on the books in the state since 1959. Something, when you and I discussed this some time ago I was unaware of, I was, that legislation has been changed a variety of times over the years as I suspect this legislation, if it passes, will someday be changed, as we try to meet current conditions or find problems with the legislation as we did with, with the previous, with the current law that just makes it very difficult to operate. So, I think it's still our preference that we not have a sun, or I know it's still our preference that we not have a sunset. On the other hand, a sunset, you know, for, you know, some leases are all part of it. I don't think it's something that we would say we're going to veto the bill over, but to me it doesn't, doesn't make a lot of sense. REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. Number 619 CHAIRMAN ROKEBERG: Representative Finkelstein, the Chair observes the fact that you would add this to a future lease and then put a sunset in that when we have a, I believe, 10-year lease provision development time frame (indisc.) testimony to the record is going to take at least six years to turn around any decision now that would be based on this particular new statute before there's any proven level of production to predict its efficacy, if you will, so we could look at a 16-year time frame is possible 'cause what a sunset law is one of the problems, well, I think heard in testimony that it obviates the need for the sunset provision. Plus, I have every confidence that this committee would do such a good job here on this bill that we won't need to. Number 630 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, I think you're right and I was trying to find a compromise, because the existing leases are based, are the biggest portion of what's going on. I mean, if you keep it applied to them forever, you only sunset for future leases, that's just a tiny percent of what's going to happen. Number 634 CHAIRMAN ROKEBERG: Okay, is there any other questions of the Commissioner at this time? Representative Finkelstein. Number 636 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, did the, did the, on the subject of a floor coming up, not going to zero royalties, is your recommendation that it be 25 percent, 50 percent, or the original version, which had a two different levels? Number 640 COMMISSIONER SHIVELY: Well, the original version had two different, I'm sorry, Mr. Chairman, Representative Finkelstein. The original legislation had two different levels because it was geared to the permanent fund. The administration supported the concept proposed by the Chairman to make it reduce to 25 percent of the existing royalty with the implication that the permanent fund would get its appropriate share of whatever money the state got and the remainder would go to the general fund. We supported that. We have not supported allowing the royalty for abandoned fields, or fields about to be shut in to go to zero, which is in the current legislation, even though that is something that theoretically could be done as an existing law if the existing law would work for those fields, which, in my mind, it doesn't. Number 649 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, you're considered recommendation is 25 percent for all. Number 650 COMMISSIONER SHIVELY: Mr. Chairman, Representative Finkelstein. Yes. CHAIRMAN ROKEBERG: Representative Ogan. Number 651 REPRESENTATIVE OGAN: Thank you, Mr. Chairman. Commissioner Shively, on page 2, line 27 there's some verbiage there that says, the whole end of that paragraph "...may consider other relevant factors..." through line 29. Now is that going to limit you? Does this specific wordage limit you only to these factors? Or should, would it be prudent to put in some language like "and may consider, but not limit to other relevant factors" or... COMMISSIONER SHIVELY: Well... REPRESENTATIVE OGAN: ...does this cover all the bases or just going to tie your hands here? COMMISSIONER SHIVELY: Mr. Chairman, Representative Ogan. I think the words "such as" gives the flexibility to say this, these aren't the only criteria which I can, or any future commissioner, can use. Again, I haven't gone back over this section with our attorney, but, and you do have your own attorney here who may want to comment on that, but my reading of this is that you did not intend to limit the number of, the factors that a commissioner could consider, but you were giving him some hints of the ones you thought might be important. REPRESENTATIVE OGAN: Thank you, Sir. Mr. Chairman, one more? CHAIRMAN ROKEBERG: Representative Ogan. Number 667 REPRESENTATIVE OGAN: On page 3, line 8, Section A, it says "...may not require disclosure of data relating to production for the lessee or lessees obtained ownership of the lease if the reduction application involves a lease described in 1B or 1C of this Subsection...". Now, is this, do you foresee any problem with this, like for example, they have some, some, suddenly a lot of different leases changed hands and because it would be advantageous not to provide information of production before that person owned it, sort of as a shell game kind of scenario. Number 677 COMMISSIONER SHIVELY: Mr. Chairman, Representative Ogan. I mean, I don't know the answer to that question. I would say probably not. For one thing, for those leases in 1B or 1C, for the most part, I think the production data is going to be known because they will have reported it to the state. It's, I think where there was a problem with the Texaco situation, as I understand it wasn't in, and depending on how you define data relating to production, but the problem was in the expense side of it, that the new company could not go back and create, or get the records as to what had gone on and we were requiring, which is something we no longer require in this legislation, that we look at the return of the investment of the whole field. So, I, I don't really think that that would be a problem. So. REPRESENTATIVE OGAN: That was my concern. Number 689 CHAIRMAN ROKEBERG: Very good. Any other questions of the commissioner at this point? Hearing none, I want to thank you very much, Commissioner, for this long and arduous ordeal or journey we've been on. Number 691 COMMISSIONER SHIVELY: Well, Mr. Chairman, I'd like to thank you for all the time you've taken and all the work you've put in on this progress we've made. Thank you very much. Number 694 CHAIRMAN ROKEBERG: I appreciate that, Sir. Excuse me. Jack, could, Mr. Chenoweth, could you come up here and try to help us out a little bit? TAPE NUMBER 95-16, Side B Number 000 JACK CHENOWETH, ATTORNEY WITH LEGISLATIVE LEGAL COUNSEL, LEGISLATIVE AFFAIRS AGENCY: Thank you, Mr. Chairman. CHAIRMAN ROKEBERG: Thank you, Mr. Chenoweth. Would you please identify yourself, Sir? MR. CHENOWETH: Jack Chenoweth from the Legal Services Division. Number 003 CHAIRMAN ROKEBERG: Thank you, Sir. This is a, I just want to make sure the committee understands this, and the Chairman understands the language as found in, on page 2 of line 16 down through 29 there as it relates to the requirements of the commissioner to include or discretionarily include certain provisions in his, or in his agreement, if you will. Could you, as this bill is written now on that Section 3 there, starting on 16, could you explain what the, the impact of the shell versus may language is, or what it says. Why don't you explain what it is now? Number 027 MR. CHENOWETH: Well, I, I guess I would encourage the committee to give a little bit more attention to this thing and try to refine it. The first part, beginning on line 16 requires the, the commissioner to condition the royalty reduction granted under J in any way necessary to protect the state's best interest. It's a mandatory duty. And there's no discretion involved in that. He's got to at least consider and make an educated decision as to how to do that to protect the state's best interests. And I don't, I don't have any problem with the way that's drafted. It seemed to me that it's clear enough. Beginning then on line 22, after that semi-colon with the words "under this subsection" and on down, I think we ought to try to be a little bit clearer. It seems to me that there are three problems here. First, your question about whether the commissioner shall include provisions to increase or otherwise modify, or whether that should be whether the commissioner's authority should be, discretion should be broadened by substituting the word "may." That's a choice the committee will have to make. It is a policy call. It's drafted as "shall" at this point in time. You may want to think about changing it. The second is, is this phrase "to increase or otherwise modify the state's royalty share by a sliding scale royalty or other mechanism upon the occurrence of a change in the price of oil or gas." The operative event is "a change in the price of oil or gas" and I assume that we're talking about, it could go up, it could go down. If we're concerned about either of those opportunities, either of those situations, then I'm not sure that we need to retain the word "to increase or otherwise," the words "increase or otherwise." It seems to me that if you're going to give the commissioner this authority, it, it is enough to say "The commissioner shall include provisions to modify the state's royalty share by a sliding scale royalty or other mechanism upon the occurrence of a change in the price oil or gas." That way there is no presumption that it's going to go in any one direction. If, however, you, you are concerned about the fact that this thing ought to increase when the price of oil or gas increases, then, and that is the law now. The law now talks about an increase in the price of oil or gas. We've bracketed that word "increase" then I suppose it's wise to keep the word "increase" and I'm not sure what the "or otherwise modify" what circumstances you're trying to cover there. I, I mean, it seems to me that this sliding scale thing is going to go up or down, and that's all it's going to do. It's going to increase or decrease. So, it seems to me we ought to try to make the construction of this phrase parallel within itself, and, and avoid things that may give rise to questions at a later date. Finally, on line 27, the way this is drafted, the words "and may consider other relevant factors," my questions to you in the memo was "For what reason, for what purpose?". If you're requiring the commissioner to impose or include something that says that provisions are there to increase or otherwise modify the state's royalty share when the price of oil or gas changes, what purpose do you have in mind when you ask him to, or when you authorize him to consider "other relevant factors"? What are you getting at? And my, my suggestion in the memo was: Do you, do you want to give him the additional authority to change the royalty share to the state when some of these other factors come into play, proven reserves, well productivity, capital investment in the oil or gas field pool and so forth and so on. Is that what you have in mind? Number 093 CHAIRMAN ROKEBERG: Yes. Number 094 MR. CHENOWETH: All right. Then it seems to me we need to straighten that out. We need to make, again, make, make these two halves, "the commissioner shall" and "the commissioner shall include provisions" and the "may consider provisions" work toward that end. That is to say he will have the, the duty to include provisions that change the royalty share upon the occurrence of a change in the price of oil, and in addition to that, he has the authority, the discretionary authority to change the sliding scale or other mechanisms taking into consideration other relevant factors such as proved reserve, well productivity or capital investment. To the question earlier about, I think it was Representative Brice, questioning, do we need to substitute "included" or "included but not limited to" for the "such as," you could substitute "including proved reserves" but "such as" I think is as the commissioner indicated is sufficient to give notice that these are examples of the kinds of things that the commissioner ought, commissioner ought to take into consideration when he exercises authority in this discretionary grammar(?). So, I think we need to try to find that, I'm no expert in this. I'm, I'm, there may be reasons it's drafted the way it is, but from somebody trying to figure out what is this trying to do? I would suggest that those three points deserve your attention. Number 125 CHAIRMAN ROKEBERG: Well, Mr. Chenoweth, do you, I know it's a short notice here and so forth, and understanding about (indisc.) would you have any recommendations that we could consider there to do that? Number 128 MR. CHENOWETH: Well, you mentioned the "shall" or "may" on line 23. That's a policy call and you've had that discussion. The, and I've mentioned that if you're, if you're going to give the commissioner the opportunity to move the royalty share on a sliding scale or other mechanism as the price of oil or gas changes, then I'm not sure that you want to include the words "increase" or "otherwise." It may be enough to say "The commissioner shall, or may, include provisions to modify the state's royalty share by a sliding scale royalty or other mechanism upon the occurrence of a change in the price of oil or gas." Number 139 CHAIRMAN ROKEBERG: Well, I think, as I recall, I think the, it was in the Governor's language. It was in the prior statute and also as a reminder to the commissioner that that's what he has to do. I don't, because I agree with what you're saying, but you know, it's a.... REPRESENTATIVE OGAN: Mr. Chairman. CHAIRMAN ROKEBERG: Representative Ogan. Number 144 REPRESENTATIVE OGAN: In that point, Sir, what would you say would be in the best interests of the state in that situation? In.... Number 147 CHAIRMAN ROKEBERG: Excuse me, Representative Ogan. If I might interject, that's a whole different topic, if you will. Number 150 REPRESENTATIVE OGAN: Well, no... CHAIRMAN ROKEBERG: Or if, I mean, what's.... REPRESENTATIVE OGAN: My point would be I think it would be, I guess, it, it, with all due respect to my oil company friends, they're getting a price break here to go into, into this field. Now, I don't, I feel that people need to take a certain amount of, I mean, I always feel the oil companies take a certain amount of risk to, as all business people do, to, to exploit a resource and I just feel like if we're willing to make compromises to make the risk a little bit more palatable, shall we say, that if the price goes down that's the risk they take with, with all their oil fields. And if the price goes up we've always compromised the price on that. I wonder if we shouldn't consider just the idea, I think, if we, we've already adjusted it down. If we need to readjust it, it's probably up. CHAIRMAN ROKEBERG: Representative Finkelstein. Number 173 REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. The, I think the, it might solve the problems we've got on this, on these items here, the "shall" or "may." We could pick either one. I think (indisc.- papers rattling) the point that Representative Ogan is making is a good one, but the point that Jack was making is basically just an English kind of construction thing and it would be covered either way, and I don't think we should worry about it too much either way. He's basically said it works the same no matter whether we leave in the words "increase or not," but I would agree with the point the representative made just for the intent, and when it gets to the final thing I think we should say the price of oil and gas, or other relative factors, such as crude reserves, something like that so that the comma and may consider, which seems to take these other things and put them on to some B list instead of an A list, at least they'd all be on the A list. CHAIRMAN ROKEBERG: Good. Mr. Chenoweth. Would you care to comment on that last statement, or? Number 190 MR. CHENOWETH: There are many ways to address this and I, I don't know enough about what it is that prompted, the point, the observation that this came from the administration's bill is correct. The original bill on its line 23, talked in terms of the commissioner making additional royalty reduction granted under this subsection in any way necessary to protect state's best interests including and then their words "increasing or otherwise modifying the state's royalty share" and so forth and so on. I don't know what they had, why they distinguish between "increasing" and otherwise modifying." If there's a reason to do that, if there's a good reason to do that, fine. Then leave it. If not, I suppose that the construction here ought to do what this committee ought to be done. If you want the commissioner to have flexibility to move this royalty share or other mechanism as the price of oil goes up and down, that it's enough, it seems to me to just say modify, without the word, without the predisposition word "increase." If you want this to somehow move, give, I don't know, give notice that this thing, that this price may go back up if the price of oil or gas increases then, then we're going to have to do some, some fiddling around here. I just point out to you that this is not as clear as it could be in terms of trying to tell the commissioner how to structure this provision that is to be included to make it work, and I think it's both in the interests of the department and the interests of producers when they look for this thing to have clarity on this point so there's no stumbling around on it later on. Number 221 CHAIRMAN ROKEBERG: Thank you, Sir. If I might ask you, the substance wouldn't change, or the language. The fiddling you refer to is more a matter of clarity though. MR. CHENOWETH: That's right. That's right. CHAIRMAN ROKEBERG; And, if I might ask the commissioner, do you have any knowledge about why that language was in there initially, about why that language was in there initially about the increase, or otherwise modify, if you might want to just interject that here? Or, you have an idea on that. Number 230 COMMISSIONER SHIVELY: Mr. Chairman, John Shively, for the record. I believe the reason that the "increasing or otherwise modifying" was that there are some things you can do that, other than just increasing the state royal, or royalty. For instance, on some kind of net profits need a modification that wouldn't be necessarily an increase in the royalty. There might be others, and of course, I'm not a real expert in this field, and, and it's my recollection that's why the language was written the way it was, to give us flexibility to get the state's share up by doing things other than just, just (indisc. - static, papers rattling). Number 240 CHAIRMAN ROKEBERG: Thank you, thank you, Mr. Commissioner. Any other questions on this point? Mr. Chenoweth, in your memorandum you indicated that when we remove the regulatory language there was two items, one of which was the requirement for written findings, and another one for, for the applicant to make an application, which were removed by the, by the latest CS draft that you did. And incidentally, I want to thank you for all your efforts there on that. The, that, I, I think at this point it's my contention that these are implicit in there, or do you think it's necessary or would you recommend as a matter of drafting to reinsert, somewhere in here, those provisions? Number 252 MR. CHENOWETH: It would probably be necessary if we had left this bill as it had been in the previous version, that is to say, without leaving the commissioner regulatory authority. But at this point, if the commissioner is clear on the fact that both written findings are expected and that this is an application cross, that is to say that the lessee or lessees initiate this process, then I think that it's perfectly in order for the department to draft the regulations, their procedural regulations, or amend their procedural regulations to pick up on those points. The fact is the legislature expects an application to be forthcoming and at the other end, that there be a written deter., findings and determination. Number 265 CHAIRMAN ROKEBERG: But there are, just for my own clarification and those of the committee here, there are existing regulations that go through the, this royalty reduction application procedure, there are now. It is my understanding that if we pass this bill as is drafted now, that only that, those portions of the regulations would be affected? And the existing regulations would stay whole, if you will, but only be affected by stipulated portions of, or specific portions of this, this bill? Number 273 MR. CHENOWETH: Provisions that, provisions of the current regulation that conflict with what the legislature is proposing to do here ought to be repealed so there's no confusion on the point in statute would govern. Otherwise, I would think that the gover., that the administration, the commissioner would take a look at the regulations and decide whether there was any further need to amplify or modify what's in there in order to conform to what the legislature has put forth here. CHAIRMAN ROKEBERG: Representative Finkelstein. Number 282 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, you said they ought to be repealed, but it isn't in effect that they, since they are repealed... MR. CHENOWETH: They are repealed. I mean, as a practical matter, this will override the regulation. Number 284 REPRESENTATIVE FINKELSTEIN: ...right. But by being, we don't have to do anything, it just happens. Number 285 CHAIRMAN ROKEBERG: Well, that's what I wanted to try to clarify. Right. That was mu understanding. That's why we changed from our discussion yesterday. I just wanted to get that out, because what we're doing here is giving the commissioner the opportunity to adopt any regulations he so desires, but we're not mandating that he do anything. Is that correct? MR. CHENOWETH: Right. CHAIRMAN ROKEBERG: And then because there is a, one section in the regulations that would be overridden by this bill, then that would be negative anyway, so. Is that, would that be correct, Mr. Chenoweth? Or? MR. CHENOWETH: Yes. CHAIRMAN ROKEBERG: Commissioner, you have a comment on that? Number 294 COMMISSIONER SHIVELY: Mr. Chenoweth. Yeah, I don't think that the regulations are totally overridden by this bill. I mean, they would have taken effect so that the application process, the public notice process, unless those regulations were absolutely revealed would continue to be in effect, and any place, as I think Mr. Chenoweth has indicated, where the law conflicted with these regulations we would go in and modify the regulations. They're not repealed, you're not repealing these regulations (indisc.) law. Number 302 CHAIRMAN ROKEBERG: Right, that's what my understanding so I think we're okay there by being silent on that. And then something that Commissioner, if he wants to, he desires to modify them and go ahead and do the regulatory routine, process, so. (Indisc. - static). Number 305 MR. CHENOWETH: Yes, I'm satis., yes, Sir. CHAIRMAN ROKEBERG: Okay, is there any other questions of Mr. Chenoweth by the committee members? Number 310 REPRESENTATIVE BRICE: Maybe we can get, when we get down to discussing amendments to the work draft, maybe we can have him drop back. Number 313 CHAIRMAN ROKEBERG: I appreciate you're making yourself, hopefully, we can get through and make some progress right here, so we can go to lunch. Thank you, Mr. Chenoweth. Any other discussions at this point? I'll move the, move the CS and... REPRESENTATIVE BETTYE DAVIS: Wait for a minute. CHAIRMAN ROKEBERG: Excuse me? Number 318 REPRESENTATIVE B. DAVIS: Are you ready for an amendment? Number 321 CHAIRMAN ROKEBERG: Yeah, did we, oh, yeah, are we... REPRESENTATIVE B. DAVIS: You're supposed to (indisc.) for amendments. CHAIRMAN ROKEBERG: Right. We do. Okay, excuse me. We are ready for amendments. What's the role of the body here? Representative Brice. Number 324 REPRESENTATIVE BRICE: On page 3, line 19. I just, I would feel a little bit more comfortable if we, we made it very clear that when we're discussing who gets to pick the, pick from the list provided by the commissioner, that it's very clear that it's the lessee, not the commissioner himself, and you know, maybe something and pay for the services of a contractor (comma) the lessee or lessees have selected from a list provided by the commissioner. CHAIRMAN ROKEBERG: I think there's.... REPRESENTATIVE BRICE: Okay, let me read, let me read it to you as it, as I would like to see it. CHAIRMAN ROKEBERG: Okay. Number 337 REPRESENTATIVE BRICE: Okay, Section 7 would read: "may require the lessee or lessees making application for the royalty reduction to retain and pay for the services of a contractor select.," okay "the lessee or lessees have selected from a list provided by the commissioner to assist the commissioner in evaluating the application, and financial and technical data." Number 344 CHAIRMAN ROKEBERG: So, you're just adding in the lessees and lessors having selected from a list? Number 345 REPRESENTATIVE BRICE: The lessee or lessees have, and then it'd be "they have selected from a list provided by the commissioner." So, it's explicit that they're the ones getting to do the choosing. Number 349 CHAIRMAN ROKEBERG: Any discussions on the amendment? Representative Davis. Number 350 REPRESENTATIVE G. DAVIS: I don't, I think that's redundant. You're adding lessee and lessee again. Number 352 REPRESENTATIVE BRICE: I think, I think it's, it is redundant in the sense we understand what the implication is of Section, Section 7. I think we want to be very clear that folks making the application are the ones who get to make, who get to choose from this list provide, this list that the commissioner provides. CHAIRMAN ROKEBERG: Representative G. Davis. REPRESENTATIVE G. DAVIS: They're, let me see. REPRESENTATIVE BRICE: See, it could be read that the commissioner can select a group of three or four contractors and then select one of those. It can be read that way. Number 365 REPRESENTATIVE G. DAVIS: And that, Mr. Chairman, and that might be a case that the commissioner, the department may even want some additional expertise in a specific area and they may want to contract with someone so that this gives them that, that ability. Number 369 CHAIRMAN ROKEBERG: No, that's not, excuse me, that wasn't the intention of it. Number 370 REPRESENTATIVE B. DAVIS: They can do that anyway. REPRESENTATIVE BRICE: They can do that anyway. REPRESENTATIVE B. DAVIS: So we don't have to put that in here. I understand what Brice is trying to do, Representative Brice is trying to do. I guess I'd like to hear from the commissioner and anyone else from the oil industry if they see that as a problematic problem the way it's worded, because.... CHAIRMAN ROKEBERG: Thank you, Ms. Davis. Commissioner Shively, would you care to comment? Number 377 COMMISSIONER SHIVELY: Mr. Chairman, I think Representative Brice's language probably does clarify that it's the lessee or lessee that gets to select them, so we do not have a problem with this suggested language. And that is the intent. Number 380 CHAIRMAN ROKEBERG: Any further discussion on the amendment? Mr. Chenoweth? Number 382 MR. CHENOWETH: Would you let us change the language to read, after the comma on that line, "selected by the lessee or lessees from a list provided by the commissioner." REPRESENTATIVE BRICE: That would probably be clear. CHAIRMAN ROKEBERG: That would do it. REPRESENTATIVE BRICE: That would probably clear, yeah. Number 384 CHAIRMAN ROKEBERG: That's Mr. Brice's amendment. Is that correct? Any objections? So moved. The Amendment Number 1 has been adopted. Mr. Chenoweth, are you going to provide us with the written language there? MR. CHENOWETH: We will produce either a CS or amendments as you instruct. CHAIRMAN ROKEBERG: Yeah. Okay. You're taking notes? Good. That's all I'm concerned about. Okay. Moving on. Representative Brice. REPRESENTATIVE BRICE: Thank you, Mr. Chair. CHAIRMAN ROKEBERG: Man. REPRESENTATIVE BRICE: Chairman, Chairwoman, Chairmen/women. CHAIRMAN ROKEBERG: Okay. Number 390 REPRESENTATIVE BRICE: On page 3, line 28, I think it would be nice if we scratched "obtains the concurrence of the Attorney General" and have the role of the AG become more of a, of an oversight, I mean, it's to the process, so maybe language along the lines of, Mr. Chenoweth might be able to help us here. Number 402 CHAIRMAN ROKEBERG: Well, do you have an amendment, Mr. Brice, or? Wait a minute. Excuse me. Representative Finkelstein, you want to interject here? Number 403 REPRESENTATIVE FINKELSTEIN: No. I was just going to offer specifics on what he's saying, but he wants to (indisc.) that's fine. CHAIRMAN ROKEBERG: I was just looking for something to put our teeth into, Tom. Number 406 REPRESENTATIVE BRICE: Okay, yeah. Let me give you some language that's something that just, off the top of my head, and see what drafters says here. Okay, instead of "obtains the concurrence of the Attorney General" we'll strike that and put in "provides the Attorney General with a determination for review to ensure the process for making the determination was followed." And I am by no means a lawyer, but I think what I would like to see clarified is that the AG is, is not making policy calls, but making process calls. Number 416 CHAIRMAN ROKEBERG: Okay, if I could, could you read it again? Number 418 REPRESENTATIVE BRICE: Okay, "provides the AG with the determination for review to ensure the process for making the determinations was followed." Number 412 CHAIRMAN ROKEBERG: Any discussion on the amendment? Representative Finkelstein. Number 423 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, I tend to think that we ought to just (indisc - paper rattling), get rid of the reference to the AG. CHAIRMAN ROKEBERG: There is some, right. Excuse me, Representative Brice. You may be able to... REPRESENTATIVE BRICE: In the best, in the best... Number 427 CHAIRMAN ROKEBERG: If you want to hold your amendment in abeyance here for a moment, maybe we can talk about the overall issue, and then get back to amendments. REPRESENTATIVE BRICE: Then, well, let me, but... CHAIRMAN ROKEBERG: Representative Gary Davis. Number 430 REPRESENTATIVE GARY DAVIS: And I would respond to Mr. Brice's concern about, about the process. I think in, in the findings if there's any question about the process, isn't the AG automatically involved in it? I mean, if there's, so, so... Number 432 REPRESENTATIVE BRICE: Let me amend my, and strike from page 3, line 25 through page 4, line 21, Section 8 basically. I think if we go back to the idea where the commissioner makes the decision, business decision on behalf of the state, we have prescience for those types of decisions being made. And the Attorney General, when he is negotiating tax settlements and that type of thing. CHAIRMAN ROKEBERG: Excuse me, Representative Brice. Let me interject right here. REPRESENTATIVE BRICE: Go ahead. CHAIRMAN ROKEBERG: Just, why don't we talk about this whole oversight before we start, we act on your amendment because, because what you're doing here is throwing the baby out with the bath water. We want to leave the Royalty Board in here. REPRESENTATIVE OGAN: Mr. Chairman. CHAIRMAN ROKEBERG: So, I mean, that's, that's, why don't we discuss that and get a sense of the committee before we... Number 442 REPRESENTATIVE OGAN: Point of order. CHAIRMAN ROKEBERG: Representative Ogan. REPRESENTATIVE OGAN: There's an amendment on it, and it's been moved and I've objected. CHAIRMAN ROKEBERG: Okay. REPRESENTATIVE BRICE: That's something, well, we could discuss that. CHAIRMAN ROKEBERG: Okay. We're discussing. REPRESENTATIVE BRICE: We're discussing. CHAIRMAN ROKEBERG: Right, we're discussing. Right REPRESENTATIVE BRICE: Correct, and Mr. Chairman. CHAIRMAN ROKEBERG: Representative Brice. Number 450 REPRESENTATIVE BRICE: Regarding, you know, having the Royalty Board provide the oversight, it's, you know, I don't know, I don't believe that, you know, that they are the appropriate body if there would be an appropriate body. I, I just, I'm not very comfortable having, having oversight thrown, of this type, thrown to a board or commission. And that's the concern I have. Number 459 CHAIRMAN ROKEBERG: Okay, so on a straw poll basis type, you're against both the Royalty Board and the AG? Anybody else want to throw their two cents in here? Representative Gary Davis. Number 462 REPRESENTATIVE G. DAVIS: Mr. Chairman, thank you. I, I agree with that. I think we, in testimony, we, we've tried to find some oversight. We've discussed all the, all the logical oppositions, or, or logical avenues, those that deal, those in, in, that we pay for that deal with this issue. We've discussed all of them, and it's come down to the testimony I think has indicated that none of them have, are, that's not their job. That's not what they're selected to do, the technical aspects of what they would need to do to properly evaluate the procedure of either the Royalty Board or the Oil and Gas Conservation Commission, neither one of those it's been testified that, that they don't have the technical expertise to deal with that, so I, you know, from that standpoint, I, I tend to agree with the proposal Representative Brice is putting forward. CHAIRMAN ROKEBERG: Representative Bettye Davis. Number 475 REPRESENTATIVE B. DAVIS: From my standpoint, Mr. Chairman, I thought the Royalty Board would be the ideal group to use, but I know there are some people that's against that; however, if we're going to do anything I would just advise that we probably just delete line 28 with the Attorney General on it, and leave the Royalty Board there, or whatever we decide to come up with. I think somebody needs to be there. Number 482 CHAIRMAN ROKEBERG: Well, the Chairman hasn't done a previous nose count so. REPRESENTATIVE BRICE: We're going to count noses. CHAIRMAN ROKEBERG: Yeah. We're kind of counting noses. Gee, Bill's getting out of here now. Representative Finkelstein. You going for the coffee pot? Bring me a cup of coffee, Bill. Number 486 REPRESENTATIVE FINKELSTEIN: I like keeping the Oil Royalty Board and taking out the Attorney General. REPRESENTATIVE BRICE: So do I. CHAIRMAN ROKEBERG: Okay, let me get this down here. You got two for... REPRESENTATIVE BRICE: You've got seven different options. CHAIRMAN ROKEBERG: This is, (indisc.) is this the committee process, and not... REPRESENTATIVE FINKELSTEIN: Who says? UNKNOWN FEMALE: You should, you should ask, ask Representative Brice if he will withdraw his motion. CHAIRMAN ROKEBERG: I know. UNKNOWN FEMALE: Take them one at a time. Number 492 CHAIRMAN ROKEBERG: I know that. Right. We were trying to, we were trying to hear the, we were discussing this for purposes of formulation of an amendment, but I'd like Representative Brice to withdraw his amendment if he wouldn't mind, so, so we could... Number 495 REPRESENTATIVE BRICE: Well, I just, I mean, I started on the discussion of the AG to begin with, and we wanted that withdrawn, and I... Number 497 CHAIRMAN ROKEBERG: Well, we're trying to find out which one, how we're going to deal with this. Let's do one amendment and be done with it. Number 500 REPRESENTATIVE G. DAVIS: Mr. Chairman, I think, I think that this is proper discussion. The motion is to delete both. CHAIRMAN ROKEBERG: Right. REPRESENTATIVE G. DAVIS: So, if someone has a problem with, with the motion to delete both of them, I think the discussion is going in order. CHAIRMAN ROKEBERG: Thank you, Representative Davis. Representative Ogan. Number 501 REPRESENTATIVE OGAN: I'd like to amend the amendment to split the question. REPRESENTATIVE BRICE: There's three different areas here. REPRESENTATIVE OGAN: Do the same thing. You're hung up procedurally right now. CHAIRMAN ROKEBERG: Bill, do you have anything to say? Representative Williams. Number 505 REPRESENTATIVE WILLIAMS: I, we, we come in here talking about how much regulatory problems we're having and here we are putting more regulatory issues in a bill. I think that, and we did discuss this earlier on with the, with the industry and industry people and the administration both thought, didn't think that this was appropriate, or it would be very cumbersome. I have to agree with Representative... REPRESENTATIVE G. DAVIS: (whispering) Davis. REPRESENTATIVE WILLIAMS: Oh, yes. ...Davis on this amendment. I think that deleting Section 8 is good, this amendment that is before us. Number 517 CHAIRMAN ROKEBERG: To remove both. Right? REPRESENTATIVE WILLIAMS: Yes. CHAIRMAN ROKEBERG: Excuse me, is that the amendment before us? Where are you looking? Representative Finkelstein. Number 518 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, just to expedite things, I think Representative Ogan's suggestion is a good one. This, usually the procedure is just divide the question and vote on the first half of it, vote on the second half, and then instead of having to amend the amendment or some (indisc.) procedure. Number 521 CHAIRMAN ROKEBERG: Why would, then we should split the amendment and vote whether we want the AG in or out, and then the other, Royalty Board, is that right? And then we can make the appropriate fixes then. Representative Ogan. Number 524 REPRESENTATIVE OGAN: That was the motion that I made was to split the question, and I think we should probably deal with that, and then argue each question separately and vote them up or down and then go from there is the correct procedure, I believe. CHAIRMAN ROKEBERG: Representative Bettye Davis. Number 528 REPRESENTATIVE B. DAVIS: I thought that the motion that was before us was to leave Section 8, so what is it to split? Number 531 CHAIRMAN ROKEBERG: You turn it down or the Royalty Board or both, I mean, get rid of the AG, get rid of the Royalty Board or get rid of both of them. REPRESENTATIVE B. DAVIS: The motion says to get rid of them both. CHAIRMAN ROKEBERG: Excuse me, we're at ease here. Is there any opposition to splitting the question? Number 537 REPRESENTATIVE B. DAVIS: I don't think it's appropriate that it be split, but if that's the way you want to do it that's fine with me. The motion was to delete it period. And I don't see anything to split. Number 539 REPRESENTATIVE OGAN: Point of order. CHAIRMAN ROKEBERG: Representative Ogan. REPRESENTATIVE OGAN: I made a motion to split the question, the amendment, a motion to amend his amendment to split the question. That's, that's what we should be doing right now. Number 542 CHAIRMAN ROKEBERG: And, and the amendment before us is to remove all of Section 8. Is that correct? Representative Finkelstein. Number 544 REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. I think Representative Ogan's motion is helpful because we will find if we go through A that some people want to take out A, some people want to take out B. I don't think anyone wants to take out C, which is just a transmittal thing so when we get to that one, (indisc. - paper rattling) that out. REPRESENTATIVE BRICE: And add it to the stack of things (indisc.). CHAIRMAN ROKEBERG: I know, it's just trying to cut it down. REPRESENTATIVE G. DAVIS: Mr. Chairman. Mr. Chairman. CHAIRMAN ROKEBERG: Representative Davis. Number 549 REPRESENTATIVE G. DAVIS: I think a real quick solution is to move on Representative Brice's motion and to entertain any other amendments after that. REPRESENTATIVE OGAN: Point of order. I have a motion on the table to split the question. REPRESENTATIVE G. DAVIS: Object. UNKNOWN: Get out the rule book Number 559 CHAIRMAN ROKEBERG: We'll vote. Let's get on with this. Let's vote on Representative Ogan's motion to split. Go ahead and call the roll Mr. Secretary. JIM NASH, SECRETARY, HOUSE SPECIAL COMMITTEE ON OIL AND GAS: Chairman Rokeberg. CHAIRMAN ROKEBERG: No. MR. NASH: Vice Chairman Ogan. REPRESENTATIVE OGAN: Yes. MR. NASH: Representative Gary Davis REPRESENTATIVE G. DAVIS: No. MR. NASH: Representative Williams. REPRESENTATIVE WILLIAMS: Nay. MR. NASH: Representative Brice. REPRESENTATIVE BRICE: No. MR. NASH: Representative Bettye Davis REPRESENTATIVE B. DAVIS: No. MR. NASH: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: Yes. CHAIRMAN ROKEBERG: We've got a motion before us then it's the Rule Book Section A. Procedurally here, we can vote on this and we can go back and amend, is that right? Okay. So, let's, there's a motion before us to remove the entirety of Section 8, and I, is there any objections? (Two objections) Okay, would the secretary take the roll call? MR. NASH: Chairman Rokeberg. CHAIRMAN ROKEBERG: No. MR. NASH: Vice-Chair Ogan. REPRESENTATIVE OGAN: Okay. I need a clarification. CHAIRMAN ROKEBERG: Okay. At ease. REPRESENTATIVE OGAN: Okay, no. MR. NASH: Representative Gary Davis. REPRESENTATIVE G. DAVIS: Yes. MR. NASH: Representative Williams. REPRESENTATIVE WILLIAMS: Yes. MR. NASH: Representative Brice. REPRESENTATIVE BRICE: Yes. MR. NASH: Representative Bettye Davis. REPRESENTATIVE B. DAVIS: No. MR. NASH: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: No. REPRESENTATIVE FINKELSTEIN: Mr. Chairman? Number 559 CHAIRMAN ROKEBERG: Representative Finkelstein. The motion has failed. Number 571 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, could I move just to delete just the Attorney General, or I move to delete the A, so that just B would become A and C would become B. Number 572 CHAIRMAN ROKEBERG: Right. Any discussion on this motion? Just leaves the Royalty Board in place and deletes the Attorney General. Any discussion? Hearing none, any objections? Are there no objections to this motion? Hearing no objections, the motion carries. Additional amendments or discussion? Representative Finkelstein. Number 578 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, I have one. This is just to the floor, and just says that the floor of 25 percent applies to, to all as the commissioner suggests. CHAIRMAN ROKEBERG: All right. Would you move your motion, please? REPRESENTATIVE FINKELSTEIN: I move the motion, Mr. Chairman. Number 583 CHAIRMAN ROKEBERG: Any objections? REPRESENTATIVE (?): (Aside) Number three. CHAIRMAN ROKEBERG: Oh, this is Amendment Number 3? Okay. REPRESENTATIVE BRICE: Number three, yes. CHAIRMAN ROKEBERG: Any objections? REPRESENTATIVE G. DAVIS: Object. CHAIRMAN ROKEBERG: Discussion. REPRESENTATIVE G. DAVIS: Mr. Chairman. CHAIRMAN ROKEBERG: Representative Gary Davis. Number 585 REPRESENTATIVE G. DAVIS: Yeah, I, I object. I think, you know, we had discussion about Cook Inlet fields, and there is some, you could pump 80 million, you could pump millions of dollars in those fields and that's going to continue with jobs. It's going to continue with infrastructure tax base, and the royalty, and to recover those dollars you're, it's marginal. They're, they get down to a place where they're losing, losing money, so they're going to cap them off. So then we lose everything. So if you allow for the zero you still keep, you still maintain the jobs, and it's still the discretion and it's still the discretion of the commissioner whether that is an economically feasible thing to do. It's not, it's not a mandate. It just gives them that flexibility, so you know, and that's the whole intent. The best interests of the state, is it the best interests of the state to cap oil fields that are pumping two thousand barrels a day? And, and costing the oil companies money where they're going, they're going to cap them, maybe not two thousand barrels a day, five hundred barrels a day, whatever. So, that's, that's the argument and I, I think that flexibility is very viable and very valuable, and is in the best interest of the state. So, so I think I oppose the amendment from, from that standpoint. CHAIRMAN ROKEBERG: Representative Finkelstein. Number 600 REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. I think the question is, is, obviously, if you're trying to do what Representative Davis suggests, but is there some level, would you get some very bottom line return to the state? Because these are going to be places where the ELF is already resulted in a severance tax going down to zero and the royalty reduction here would be, let's say it started at 12.5, it'd be down to three percent. I mean, it's a pretty major reduction. Is there some little teeny bottom line bit that's going to go to the state out of this all? And I think that's a reasonable expectation. The, you've got to remember the economic activity actually, you know, brings costs to the state as well. We provide public services, education. There's a variety of costs that go with this activity that we have to bear as a state, and some very, very bottom line level of return to the state I think is reasonable. Number 610 CHAIRMAN ROKEBERG: The Chair would remind the Representative from Downtown Anchorage that the activity, this economic activity creates jobs too as well as burdens, so that, that would be the intention, I think, of this type of thing is to allow for the commissioner to (indisc. - coughing) a sliding scale royalty that accounted for very, very marginal fields in the future. There's, I can think of a fact pattern whereas a platform in Cook Inlet could be producing from a pool of gas field, if you will, on an economic basis paying its full royalty, and because the platform happens to be there, there may be an additional oil well from that platform that's extraordinarily marginal, and the case could be made where, I mean, it would be just as well to pump that thing where the, you know, there could be a decision where if you could get down to zero royalty they could still pump it, or if not, they would just shut it in. So, I mean, why not have the flexibility, allowing the company to come to the commissioner and ask him for some relief in that circumstance? That's all we're trying to do. So, I'm going to vote against your amendment. Any other discussion? Number 625 REPRESENTATIVE OGAN: I concur, Mr. Chairman. CHAIRMAN ROKEBERG: Anything else? Question. REPRESENTATIVE G. DAVIS: Mr. Chairman. CHAIRMAN ROKEBERG: Representative G. Davis. Number 626 REPRESENTATIVE G. DAVIS: I don't to like to belabor it, but I, I, you know, I can, I can, I can certainly see where Representative Finkelstein is coming from, but even the modifiers in there to change, you know, should, it may be zero now, but, but after the recovery of, of investment dollars, I can see with all this flexibility, I just don't see a problem with zero. You know, it may be zero for a couple of years, or until production gets up to a certain level if what they hope to add to the facilities, you know, does create increases in productivity, then I'm sure a modifier would kick in. So, with all this flexibility in the negotiations, I, I just don't see the need. Number 635 CHAIRMAN ROKEBERG: Any further discussion? Would the Secretary read the roll? MR. NASH: Chairman Rokeberg. CHAIRMAN ROKEBERG: No. MR. NASH: Vice-Chairman Ogan. REPRESENTATIVE OGAN: No. MR. NASH: Representative Gary Davis. REPRESENTATIVE G. DAVIS: No. MR. NASH: Representative Williams. REPRESENTATIVE WILLIAMS: No. MR. NASH: Representative Brice. REPRESENTATIVE BRICE: No. MR. NASH: Representative Bettye Davis. REPRESENTATIVE B. DAVIS: No. MR. NASH: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: Yes. CHAIRMAN ROKEBERG: Representative Finkelstein. Number 641 REPRESENTATIVE FINKELSTEIN: What's the time (indisc. - papers rattling) minority caucus that was at 11:30. I've got three more amendments myself and... CHAIRMAN ROKEBERG: The charges are to move the bill today if we can. Is there other burning amendments or recommendations? REPRESENTATIVE B. DAVIS: Tell them to pass them out so we can, get through them. CHAIRMAN ROKEBERG: Let's rock 'n' roll if you got it. We got to move this bill here. REPRESENTATIVE (?): The minority can get up and leave. CHAIRMAN ROKEBERG: That's right. You can go. No problem. Or you can stay, I mean, you're certainly welcome. REPRESENTATIVE WILLIAMS: Are you going to bring this up on the floor (indisc.)? REPRESENTATIVE FINKELSTEIN: That's what they talked about. I won't let you pass this bill. That's the problem. REPRESENTATIVE WILLIAMS: Then, we'll change it on the (indisc.). CHAIRMAN ROKEBERG: Okay, let's see. You got... REPRESENTATIVE FINKELSTEIN: I can just (indisc.). CHAIRMAN ROKEBERG: Why don't you go ahead and we can mark them for numbering. REPRESENTATIVE FINKELSTEIN: The next one is the one that says page 3, line 19, 20. CHAIRMAN ROKEBERG: That would be Amendment Number 4? REPRESENTATIVE FINKELSTEIN: Right. And basically, the intention of this is just to say that the contractor is an employee of the state, not an employee of the oil company. In either circumstance the oil company is going to pay for the contractor. It's just a question of who oversees their work, and I don't want to redebate it because I have brought it up a number of times, but it's, the logic is just this is how we do business in the State of Alaska. I, I still haven't heard of a circumstance where we take and turn over our authority to hire experts to help us and make them employees of the regulated entity. These folks ought be, they're working for the state and providing determinations necessary for a state decision that's the best interests of the state, and they shouldn't have as their supervisor and hiring authority and firing authority, the company that's regulated. These things operate at very subtle levels and if you paycheck comes from someone in your, even though the various criteria to work under come from the state you get quite affected by who pays your bills. Number 667 CHAIRMAN ROKEBERG: Well, it's the Chair's observation that we've already tilled this ground in the forum of Representative Brice's amendment, so I, unless there's any other comments on this, I'll, be prepared for a vote. Any other comments? Would the secretary read the roll? REPRESENTATIVE OGAN: Mr. Chairman. CHAIRMAN ROKEBERG: Oh, you have comments? Excuse me, Representative Ogan. Number 671 REPRESENTATIVE OGAN: I'm sorry. I missed it. Did Representative Finkelstein move the motion? REPRESENTATIVE FINKELSTEIN: I move the motion. CHAIRMAN ROKEBERG: Oh, excuse me. Number 675 REPRESENTATIVE OGAN: I object. CHAIRMAN ROKEBERG: You object. Would the Secretary read the roll? MR. NASH: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: Yes. MR. NASH: Representative Bettye Davis. REPRESENTATIVE B. DAVIS: Yes. MR. NASH: Representative Brice. REPRESENTATIVE BRICE: No. MR. NASH: Representative Williams. REPRESENTATIVE WILLIAMS: No. MR. NASH: Representative Gary Davis. REPRESENTATIVE G. DAVIS: No. MR. NASH: Repre., Vice Chairman Ogan. REPRESENTATIVE OGAN: No. MR. NASH: Chairman Rokeberg. CHAIRMAN ROKEBERG: No. Representative Finkelstein, recognizing you for Amendment Number 5. Number 679 REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. It's page 2, line 30, and this, I just discussed previously with the commissioner, the idea is that the form of criteria, even though the commissioner apparently has the authority to bring these concepts up, this would require that if the royalty reduction doesn't work, if there is not any significant development, within five years then the royalty reduction is terminated. It's just a performance incentive if nothing else. Certainly we wouldn't want to be granting these royalty reductions to circumstances where it's just a speculative advantage increasing the value of the lease if nothing else. We want it to produce activity, not to increase the value of the lease. Number 685 CHAIRMAN ROKEBERG: You want to move this for the record? Number 686 REPRESENTATIVE FINKELSTEIN: Mr. Chair, I move this (indisc.). CHAIRMAN ROKEBERG: I, Representative Finkelstein, if you will allow me... TAPE 95-17, Side A Number 000 REPRESENTATIVE FINKELSTEIN: The commissioner would be allowed to put this performance requirement into his royalty reduction contract, but this would say that it would have to be forfeit. Number 006 CHAIRMAN ROKEBERG: Any further discussion on this amendment? Representative Gary Davis. Number 010 REPRESENTATIVE G. DAVIS: So, I understand this to be what? A 5- year reopener? Is that, in essence, what it is? REPRESENTATIVE FINKELSTEIN: No, no. REPRESENTATIVE G. DAVIS: I can't follow the... Number 011 REPRESENTATIVE FINKELSTEIN: That would be, that would be something completely different, which is the ability of one or the other parties to unilaterally, or bilaterally renegotiate provisions. This just says deal's off, no more deal, back to the original, if this doesn't work. If we lower your royalty and there's no significant development that occurs because of it, then the royalty goes back to the higher level after five years. I, I believe the commissioner would put this kind of provision in anyway, but he's not required to unless this was added. REPRESENTATIVE G. DAVIS: Mr. Chairman. CHAIRMAN ROKEBERG: Representative Davis. Number 025 REPRESENTATIVE G. DAVIS: We've, we've heard a lot of testimony relating to flexibility and I think this, again, reduces flexibility. We've added, we've added, we've already added some, some reduction of flexibility in, in some of the bill from the original, and I think we're getting pretty... I would just object because we discussed it and, and the, I'd just like to maintain as much flexibility as possible. Number 037 CHAIRMAN ROKEBERG: Any further discussion? The Chair would note that I, I really like what you have in there, Representative Finkelstein, but coming down the side of other relative factors and what Representative Gary Davis has said, so, I'm going to vote no reluctantly on your amendment. Call for the question. Number 044 REPRESENTATIVE OGAN: Can we have a brief at ease? Number 045 CHAIRMAN ROKEBERG: Brief at ease. We're back... REPRESENTATIVE (?): You did that deliberately, didn't you? CHAIRMAN ROKEBERG: ...we're back on. Any further discussion on Amendment Number 5? Not the, there was objections and we need to take their vote. Is that correct? Will the Secretary read the roll, please? MR. NASH: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: Yes. MR. NASH: Representative Bettye Davis. REPRESENTATIVE B. DAVIS: No. MR. NASH: Representative Brice. REPRESENTATIVE BRICE: No. MR. NASH: Representative Williams. REPRESENTATIVE WILLIAMS: No. MR. NASH: Representative Gary Davis. REPRESENTATIVE G. DAVIS: No. MR. NASH: Representative, Vice-Chair Ogan. REPRESENTATIVE OGAN: No. MR. NASH: Chairman Rokeberg. CHAIRMAN ROKEBERG: No. REPRESENTATIVE FINKELSTEIN: Mr. Chair? CHAIRMAN ROKEBERG: Representative Finkelstein. Number 064 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, my last amendment is just conceptual, but it's pretty simple, which is just to take out the part that says "the commissioner's determination vehicle to the court." CHAIRMAN ROKEBERG: I didn't hear. REPRESENTATIVE OGAN: I'm sorry. I distracted him. Number 071 REPRESENTATIVE FINKELSTEIN: Mr. Chairman, on page 3, lines 16 and 17, strike the (indisc. - papers rattling) determination is not a vehicle to the court. Number 074 REPRESENTATIVE ROKEBERG: Discussion. Number 075 REPRESENTATIVE FINKELSTEIN: Mr. Chair, just, I, I, we've discussed the, I brought this up plenty, so I don't feel any great need to discuss it any more. The argument is simple, and in favor of it is that by and large it is already appealable regardless of this. We have a memo that many portions of it, in fact, the vast majority of the elements of decision are appealable and that's what we use our court system for is for resolving conflicts where there is issues involved, and I think, I think actually, there will be plenty of circumstances where the aggrieved party isn't, you know, somebody who is unhappy with the lease directly. It will be the party trying to get the lease. Number 093 CHAIRMAN ROKEBERG: The Chair notes that we have beat this dead horse to death, and the, and the, my opinion is that we should retain the language in order to deflect any law suits by outside parties and/or the applicant in order that he doesn't twist in the wind too long. Therefore, I, are you going to move your amendment, or are you conceptualizing? Number 102 REPRESENTATIVE FINKELSTEIN: Thank you, Mr. Chairman. I'm not going to move. CHAIRMAN ROKEBERG: Okay. Representative Brice. Number 105 REPRESENTATIVE BRICE: One last conceptual amendment would be to page 3, lines to delete, lines 29 through page 4, line 6. You got that? REPRESENTATIVE B. DAVIS: Go back over it. CHAIRMAN ROKEBERG: We already, we already did that amendment. REPRESENTATIVE BRICE: No, we didn't. CHAIRMAN OGAN: Yeah, we did. Number 114 REPRESENTATIVE BRICE: Point of order. This is a wholly, entirely different amendment that I'm going to talk about. Representative Ogan cannot read people's minds. I'm not finished making... CHAIRMAN ROKEBERG: Okay, continue on, Sir. REPRESENTATIVE BRICE: Okay, thank you. To delete, basically, what it what it will be doing is to delete the Royalty Board, but to maintain that the commissioner will... Number 123 REPRESENTATIVE OGAN: Point of order. CHAIRMAN ROKEBERG: Wait, let him finish his (indisc.). REPRESENTATIVE OGAN: No, point of order. The point is that we have already, we already had a motion to split this question in three... CHAIRMAN ROKEBERG: No,l this is different. He's trying to make a different amendment. Let him finish with it so we can find out what he's trying to get at. REPRESENTATIVE OGAN: (Indisc.). CHAIRMAN ROKEBERG: Go ahead, Representative Brice. Number 128 REPRESENTATIVE BRICE: So, Section 8 would read "may not make a determination that gives final approval an application for a royalty reduction under this subsection unless the commissioner first transmits copies of the determination made by the commissioner to the presiding officer of each house. The chairs of the standing committees, resources and the chairs of the legislative Special Committee on Oil and Gas." Number 138 CHAIRMAN ROKEBERG: Conceptually, I agree with Representative Ogan then. But that's your point, so. I don't care to entertain this motion unless you, what's the will of the committee? Number 142 REPRESENTATIVE OGAN: Mr. Chairman, he made the motion (indisc.). CHAIRMAN ROKEBERG: Did you make a motion, or just conceptual? REPRESENTATIVE BRICE: I made a motion. CHAIRMAN ROKEBERG: Okay, I'm sorry. Is there objections? REPRESENTATIVE OGAN: Object. Number 150 CHAIRMAN ROKEBERG: Is there discussion? Is there a vote? Let's vote. Mr. Secretary. MR. NASH: Chairman Rokeberg. CHAIRMAN ROKEBERG: No. MR. NASH: Vice-Chairman Ogan. REPRESENTATIVE OGAN: No. MR. NASH: Representative Gary Davis. REPRESENTATIVE G. DAVIS: Yes. MR. NASH: Representative Williams. REPRESENTATIVE WILLIAMS: Yes. MR. NASH: Representative Brice. REPRESENTATIVE BRICE: Yes. MR. NASH: Representative Bettye Davis. REPRESENTATIVE B. DAVIS: Come back to me. MR. NASH: Representative Finkelstein. REPRESENTATIVE FINKELSTEIN: No. MR. NASH: Representative Bettye Davis. REPRESENTATIVE B. DAVIS: What you're doing is what -- I'm voting no. REPRESENTATIVE BRICE(?): You've got to try. CHAIRMAN ROKEBERG: Well, that was a tight one. REPRESENTATIVE (?): Mr. Chairman, it was supposed to come out that way. CHAIRMAN ROKEBERG: Oh, yeah, right. Excuse me, excuse me, just one, I'll let you guys go. Is there any further discussion? REPRESENTATIVE (?): Yes, there is. Number 159 CHAIRMAN ROKEBERG: We need to move this bill here from the -- okay, wait a minute. Let me interject here before we have a motion to move. The, it will be the, it's the intention of the Chair to draft a letter of intent that has the input and approval of all members of the committee, or a majority of it, and forward it on to the Resources Committee, which I hope will steer this bill on Friday if we can move it right now. And that would be my intentions so we can tune that up, and not worry about it right now. Would that, is that okay with everybody? REPRESENTATIVE (?): I don't have any objection as written. CHAIRMAN ROKEBERG: Well, the Chair does. Is there any, yeah, we have, we have some work on it and we really need to get out of here, so. REPRESENTATIVE B. DAVIS: If you just move the bill and do that. CHAIRMAN ROKEBERG: Yeah, that's what we're going to do. REPRESENTATIVE B. DAVIS: Okay. CHAIRMAN ROKEBERG: We're going to, we're going to circulate the letter and then we'll forward it to Resources. I'll hand carry it over there and give it to Joe myself. REPRESENTATIVE OGAN: Mr. Chairman. CHAIRMAN ROKEBERG: With the change that I get from the commissioner. REPRESENTATIVE OGAN: Mr. Chairman. CHAIRMAN ROKEBERG: Representative Ogan. Number 178 REPRESENTATIVE OGAN: I move CS for House Bill Number 207 with the appropriate amendments, and fiscal notes attached. It would be passed on, passed out of this committee, or moved out of this committee. Number 182 CHAIRMAN ROKEBERG: Any, any, any objections? Hearing no objections so moved. We stand adjourned. Ten to Twelve. Adjourned at 11:50 a.m.