HOUSE SPECIAL COMMITTEE ON OIL AND GAS January 25, 1996 11:30 a.m. MEMBERS PRESENT Representative Norman Rokeberg, Chair Representative Scott Ogan, Vice Chair Representative Gary Davis Representative Tom Brice Representative David Finkelstein MEMBERS ABSENT Representative Bettye Davis Representative Bill Williams OTHER MEMBERS PRESENT Representative Joe Green Representative Gene Therriault COMMITTEE CALENDAR * EO 92 Consolidation of the Division of Oil and Gas with Division of Geological and Geophysical Surveys - DISAPPROVED AND MOVED OUT OF COMMITTEE (* First public hearing) WITNESS REGISTER NICO BUS, Acting Director Division of Support Services Department of Natural Resources 400 Willoughby Avenue Juneau, Alaska 99801-1724 Telephone: (907) 465-2406 POSITION STATEMENT: Supported EO 92 KENNETH A. BOYD, Director Division of Oil and Gas Department of Natural Resources 3601 C Street, Suite 1380 Anchorage, Alaska 99503-5948 Telephone: (907) 762-2547 POSITION STATEMENT: Supported EO 92 MILT WITSE, Acting Director Division of Geological and Geophysical Surveys Department of Natural Resources 794 University Avenue, Suite 200 Fairbanks, Alaska 99707-3645 Telephone: (907) 451-5000 POSITION STATEMENT: Supported EO 92 REPRESENTATIVE JOHN DAVIES Alaska State Legislature State Capitol, Room 422 Juneau, AK 99801 Telephone: (907) 465-4457 POSITION STATEMENT: Opposed EO 92 ACTION NARRATIVE TAPE 96-3, SIDE A Number 000 The House Oil & Gas Special Committee was called to order by Chairman Norman Rokeberg at 11:30 a.m. Members present at the call to order were Representatives Rokeberg, Ogan, and G. Davis. A quorum was not present. This meeting was teleconferenced to Anchorage and Fairbanks. CHAIRMAN NORMAN ROKEBERG announced the agenda as EO 92. EO 92 CONSOLIDATION OF THE DIVISION OF OIL AND GAS WITH DIVISION OF GEOLOGICAL AND GEOPHYSICAL SURVEYS Number 132 NICO BUS, Acting Director, Division of Support Services, Department of Natural Resources (DNR) was first to testify. He explained the proposed consolidation of the Division of Oil and Gas (DO&G) with the Division of Geological and Geophysical Surveys (DGGS). He said during the fiscal year 1996 budget deliberations, the funding for the DGGS director was deleted through legislative action at a savings of $74,000. During those deliberations, the legislature encouraged DNR to consolidate smaller divisions, such as the previous consolidation of the Division of Water and the Division of Mining. Number 232 MR. BUS said Commissioner Shively asked the Geological Mapping Advisory Board to establish a committee and assess the role and the function of the survey, as well as the director and state geologist. This finalized report, completed in the fall, included the following recommendations; have the director or state geologist located in Anchorage with a five year term, to have an existing strong geological survey which explored natural resources and geological hazards, and pursue and develop partnerships with those organizations that have similar goals. Other recommendations from this report include strong and adequate funding. Due to the budget deliberation process, it did not appear that this would be the case. Number 332 MR. BUS said the commissioner was looking at two objectives including how to live within the fiscal constraints of the budget reality and yet meet the recommendations of the committee. To do this, DNR proposed the consolidation of DO&G with DGGS. Under EO 92, DO&G and DGGS would keep their own and distinct funding and operations under the funding discretion of the legislature. EO 92 was done to keep a field presence without changing staffing between the Fairbanks and Anchorage location. The acting director of the geological survey will be the operational manager for the survey but under EO 92, he/she will report to the director of DO&G. MR. BUS said that under EO 92, the savings will amount to $50,000 because of combining administrative staff. Currently the DO&G has a budget of $4.2 million and employs 50 staff while the DGGS has a budget of $2.5 million and employs 25 staff. EO 92 would maintain the integrity of the operations and yet obtain operational efficiencies by increasing communication and cooperation between the two organizations. Number 550 CHAIRMAN ROKEBERG recognized Representative Finkelstein as being present and announced a quorum was present. Representative Joe Green and Representative Gene Therriault joined the committee at the table. Number 600 REPRESENTATIVE GENE THERRIAULT asked and it was confirmed that the $50,000 savings was in the fiscal year 1997 budget. He then noted that in the fiscal year 1996 budget there was already a savings of $74,000 for the executive director's salary. He asked if EO 92 was overturned, there would be a loss of $50,000 plus the need to replace the money that was cut last year. MR. BUS said currently there is not funding for the executive director. Number 643 REPRESENTATIVE DAVID FINKELSTEIN asked for details on the positions that would be eliminated. Number 657 MR. BUS said they would include administrative people, geological or field personnel would not be cut under EO 92. Number 690 REPRESENTATIVE THERRIAULT asked if consolidation with the Division of Mining was addressed. Number 710 MR. BUS said that a consolidation of the DGGS and the Division of Mining was looked at in fiscal year 1986 and it was felt that it was important to keep them separate and intact. The Division of Mining and the Division of Water Management have since been combined. Number 768 CHAIRMAN ROKEBERG announced that Representative Brice had joined the committee meeting. Number 780 REPRESENTATIVE GARY DAVIS asked if there was a current position titled Deputy Director of DGGS. MR. BUS said yes, that presently the position functioning as Deputy Director is a Geologist, Level 6 position. Number 820 KENNETH A. BOYD, Director, Division of Oil and Gas, Department of Natural Resources was next to testify. He said the state of Alaska is enjoying a resurgence in mineral exploration which is fueled by DGGS. The Division of Mining and Water Management does a good job with existing mines, but DGGS assists with the development of new mines and it is an important function. He then mentioned other functions that DGGS has shared with DO&G such as coal and methane exploration, geological fieldwork on the North Slope, and project, "teamwork" done west of NPRA. He hoped that DGGS can work with DO&G, while DGGS maintains it's vital roles in volcanology, earthquake prediction, and mineral exploration. Number 912 MILT WITSE, Acting Director, Division of Geological and Geophysical Surveys, Department of Natural Resources testified next. He said DGGS had no objections to this consolidation and have experienced good relations with DO&G. He discussed declines in staffing and in the budget within DGGS, such as the move of DGGS geologists, who preformed lease evaluation to DO&G in the 1980s. He praised Ken Boyd, who would be the director of what would essentially be an expanded geologic survey. He emphasized the importance of preserving a critical mass of scientists to carry out this work in lieu of the downsizing of the state budget. He expressed concern over the loss of technical support in Fairbanks. He concluded that DGGS and DO&G support this consolidation. Number 1049 REPRESENTATIVE THERRIAULT asked whether the technical support he referred to meant combining employees of DGGS and DO&G employees who do oil basin analysis. Number 1065 MR. WITSE said DGGS staff, despite having areas of specialty, work across a range of geologic investigation. He said the proposed consolidation will increase coordination in both directions. DO&G will work with DGGS on strategic field programs and DGGS will work with DO&G on lease evaluation. The coal and methane production program, which has already begun, will enjoy increased support in addition to a overall increase of geographic and geophysic expertise and which will aid the interpretation of geophysical surveys. Number 1162 REPRESENTATIVE THERRIAULT asked if there was concern over DGGS's function in the hard rock mineral community will be eclipsed by oil and gas. Number 1175 MR. WITSE said it is not a concern, because of Ken Boyd's instincts and support in the mineral side of DGGS. Mr. Boyd will oversee DGGS if EO 92 is passed. He said EO 92 includes the Alaska statute 48.01 which details the mandate and the mission of the geological survey. This statute would prevent oil and gas issues from overshadowing the other roles of DGGS. Number 1242 REPRESENTATIVE JOE GREEN stated the requests by DO&G for increased funding especially in oil and gas pre-sale analysis. He said oil companies tend to do much more individual research whereas mining companies rely more heavily on DGGS. He expressed concern over the sublimation of DGGS under DO&G especially if they were to delegate oil and gas exploration duties rather than in mining exploration. He stressed the importance of diversification of resources within the state. He asked if the reason for not combining DGGS with Division of Mining and Water Management was because DGGS would be focused more on mining and why it was felt that this would not occur with DO&G. He further asked if separate budgets and duties mandated by EO 92 could be done for the consolidation of DGGS with DO&G, why couldn't it be incorporated for a merger between DGGS and Division of Mining and Water Management. Number 1386 MR. WITSE said EO 92 specifies that the director of this consolidation must have experience and education in geology which Mr. Boyd has, but that the director of Division of Mining and Water Management does not have. The Division of Mining and Water Management director has an undergraduate degree in geology but is not a practicing geologist. He added that when the consolidation of DGGS with Division of Mining and Water Management was attempted, several positions from Fairbanks were moved to Anchorage. It was felt at the time that a consolidation between the Division of Mining and DGGS would lead to the dissipation of DGGS. He mentioned why a consolidation with DO&G was looked at now, that the reasons included current joint projects between DO&G and DGGS and the current loss of funding. Mr. Witse said the Geologic Mapping Board, which acts as a board of directors for the DGGS, would prevent any drift in the integrity and purpose of DGGS. Number 1495 MR. WITSE said it is important to maintain or increase the strategic mineral activities of the state, but added that the greater potential revenue impact will probably be from coordinating and consolidating the strategic oil activities of DGGS with the oil expertise and lease evaluation group in DO&G. DGGS staff who currently work on those issues would continue to do so, whether or not EO 92 is passed, but work on those issues would be more efficient under a consolidation. He mentioned that two major oil companies, as well as one minor oil company, have contributed to support the field work, so oil companies will be looking to DGGS for information. He concluded that the consolidation listed in EO 92 is the right one at this time. Number 1642 REPRESENTATIVE GREEN asked whether the state geologist position is not so technical as it is administrative. He said the combination of expertise within DGGS as well as the Geological Mapping Board would continue to oversee the direction of DGGS. He said he wondered whether the EO 92 consolidation was in the right direction. Number 1697 MR. WITSE disagreed with the statement that the state geologist position is just an administrative position. He said, historically, the director of DGGS has had a major role in the developing the strategic direction of the survey. The position incorporates that of a mentor, a technical advisor, and long term strategist in terms of geological hazards, in oil and in minerals. He said he felt the state would not be well served from the current balanced approach if the position were to become an administrative one. Number 1830 MR. WITSE said the role of DGGS has been a strategic information gathering and consolidation in all aspects of geology not just oil and minerals, but hazard information as well. The DO&G had a role of management of that one resource. Number 1858 REPRESENTATIVE GREEN mentioned that from his direct experience he found the position of the state geologists to be more of an administrative position. He added that the Executive Branch has submitted a person for the Oil and Gas Conservation Commission who is not qualified in the areas of academics or experience, but because the position is viewed as a administrative one where he can rely on staff expertise, he was deemed qualified. Representative Green leaves the committee meeting. Number 1929 MR. WITSE said avoidance of this type of hiring was one of the reasons why the establishment of the function of DGGS was codified in the statute. Number 1947 REPRESENTATIVE JOHN DAVIES stated for the record that he had been an employee of DGGS. He stated respect for Commissioner Shively, Milt Witse, and Ken Boyd. He stated his concern that EO 92 is driven by budget considerations rather than what is best for the state of Alaska. He said it is an attempt to make the best of a bad situation and that the legislature should address the bad situation rather than put band-aids on it. He questioned whether the role of the state geologists would be diluted if the duty of lease management was added to that role. Number 2061 REPRESENTATIVE DAVIES reiterated, in an approving way, Mr. Witse's definition of the role of the state geologist. He added the research aspect of DGGS and how effective it has been especially in aero-magnetic surveying. He said he did not feel that the mission of DO&G fits into that research role. The importance of maintaining DGGS independence and it's role was stressed and he questioned how the state perceived the importance of DGGS's role in future development. He added that geologic work done in the early 1900s is just now bearing fruit because this type of work can have lead times of decades. He said the support for state salaries has gone beyond the critical point and has lead to the development of EO 92. He mentioned the reduction of administrative staff, in a program that has already been squeezed, will force geologists to do administrative work rather than mapping. Administrative losses will have an effect on productivity. Number 2212 REPRESENTATIVE DAVIS concluded that it is important to have a state geologist, who will provide the strategic leadership, developing linkages and joint efforts with the private sector, other states and with the federal agencies. There has been a long history of cooperation which is a result of background work. He questioned whether the state geologist position can maintain these functions as well as manage the lease program. Number 2261 REPRESENTATIVE FINKELSTEIN said he found this issue difficult because he shared Representative Davies concerns and yet he found it hard to be negative about a cost cutting measure especially in a proposal in which all the concerned parties agreed. Number 2295 CHAIRMAN ROKEBERG validated his concerns, but added this committee needed to meet their constitutional mandate and move this resolution along and to do so, it needed to be a resolution in the negative. REPRESENTATIVE SCOTT OGAN made a motion to disapprove EO 92 and move it out of committee. CHAIRMAN ROKEBERG explained procedure at Representative Finkelstein's request. He said that a standing committee or a joint committee need to approve it. He added that because it was the Speaker of the House's referral, he wants to move it along as it serves no purpose by staying in the committee. Number 2400 REPRESENTATIVE THERRIAULT, when asked, gave his opinion that he disagreed with the fiscal note because it lacked money to fund the position. He said he disagreed with the position Representative Davies presented which was that the problem was an issue of state funding. He said in the discussion of how to pay for state government in the long haul, the long-range financial planning commission proposed cuts of $100 million. The Governor is proposing cuts of $35 million and attempting to preserve the services that we want out of state government. 96-3, SIDE B Number 000 REPRESENTATIVE THERRIAULT said EO 92 is an attempt to do this in a good faith effort. Number 014 CHAIRMAN ROKEBERG asked about the feasibility of nominating the position currently held by Mr. Witse as state geologist. Number 032 REPRESENTATIVE THERRIAULT said it would be possible, but with the reduction of the budget it would be a question of pressing down on staff rather than a structural change. Number 045 Hearing no objections, a motion was passed in the House Special Committee on Oil and Gas disapproving EO 92 and passing it out of committee. CHAIRMAN ROKEBERG stated that due to objections, HB 381 will not be waved out of committee. ADJOURNMENT There being no further business to come before the House Oil & Gas Special Committee, Chairman Rokeberg adjourned the meeting at 12:21 p.m.