SENATE SPECIAL COMMITTEE ON OIL & GAS April 13, 1993 5:05 p.m. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Rick Halford Senator Bert Sharp Senator Judith Salo Senator Al Adams MEMBERS ABSENT All Present COMMITTEE CALENDAR SENATE BILL NO. 150 "An Act providing for oil and gas exploration licenses, and oil and gas leases, in certain areas of the state; and providing for an effective date." PREVIOUS ACTION SB 150 - See Oil & Gas minutes dated 3/16/93, 3/23/93, 4/1/93, and 4/8/93. WITNESS REGISTER Annette Kreitzer, Legislative Aide %Senator Leman State Capitol POSITION STATEMENT: Commented on SB 150. George Findling, Manager Government and Public Relations ARCO Anchorage, Alaska 99510 POSITION STATEMENT: Commented on SB 150. Mike Conway, Director Division of Spill Prevention and Response Department of Environmental Conservation 410 Willoughby Ave., Suite 105 Juneau, Alaska 99801-1795 POSITION STATEMENT: Commented on SB 150. Jim Eason, Director Division of Oil and Gas Department of Natural Resources P.O. Box 107034 Anchorage, Alaska 99510-7005 POSITION STATEMENT: Commented on SB 150. Bradley Penn, Land Manager Marathon Oil Company P.O. Box 190168 Anchorage, Alaska 99519 POSITION STATEMENT: Commented on SB 150. Kevin Tabler, Land Manager Union Oil Company P.O. Box 196247 Anchorage, Alaska 99519 POSITION STATEMENT: Commented on SB 150. Harold Heinze, Resource Development Advisor Office of the Governor P.O. Box 110001 Juneau, Alaska 99811-0001 POSITION STATEMENT: Commented on SB 150. Dave Lappi Lapp Research, Inc. 4900 Sportsman Dr. Anchorage, Alaska 99502 POSITION STATEMENT: Commented on SB 150. ACTION NARRATIVE TAPE 93-15, SIDE A Number 001 SENATOR LEMAN called the Special Committee on Oil and Gas meeting to order at 5:05 p.m. and announced SB 150 OIL & GAS EXPLORATION LICENSES/LEASES to be up for consideration. SENATOR SHARP moved to adopt the CS to SB 150. There were no objections and it was so ordered. ANNETTE KREITZER, Legislative Aide for Senator Leman, explained the changes in the CS. She said there was a geographic restriction and relinquishment language was added. MS. KREITZER said bonding language with an annual work commitment was proposed. Additionally, the CS addresses the competitive bid process and calls for a sealed bid process rather than oral outcry auction. Number 87 GEORGE FINDLING, Manager of Government Public Relations for ARCO, said they still oppose the CS as adopted. He said it is unfortunate that the bonding has been weakened even more, because it protects the state's interest. He supported the annual bonding concept. Number 180 MIKE CONWAY, Director, Spill Prevention and Response, was concerned with the financial requirements for the production facilities and proposed amounts that are substantially different from what the legislature set. He said they needed more time to develop a connection between financial responsibility requirements for the likelihood of spills from the different operations and the cost of clean-up. His guess is that the existing amounts are too low. SENATOR SHARP said Louisiana, Florida, Montana, Washington, Texas, and Wyoming don't even have a financial responsibility bonding requirement. California has only $1 million within 30 miles of the coastline. MR. CONWAY said they are looking at the cleanup costs. SENATOR SHARP said his concern was that on-shore exploration can be done by smaller independent operators. Number 253 JIM EASON, Director, Division of Oil and Gas, said he had extreme reservations about the amendment regarding bonding. He said the intent of the bill is to get companies working in areas of the state that have received little or no attention under the current leasing program. Number 307 BRADLEY PENN, Land Manager for Marathon Oil Company, supported CSSB 150. He said they do exploration licensing as a supplement to the existing competitive leasing program. Number 320 KEVIN TABLER, Land Manager for Union Oil Company, supported CSSB 150. Number 329 PETE NELSON, Land Manager for Texaco, Inc., supported CSSB 150. Number 340 HAROLD HEINZE, Resource Development Advisor to the Governor, supported Mr. Eason's testimony. He said it is very important to provide a basis for larger areas or new areas of the state to be made available for oil and gas exploration. It is also important that this exploration be timely. We need to find a way to involve more oil and gas companies in Alaska, he said. MR. HEINZE approved of all the changes made to the bill except for the reduction of the bonding requirement. To offset the lessening of the bonding requirement, he proposed that the license be immediately revoked if annual work commitments were not met. SENATOR ADAMS asked how the annual reviews would be accomplished. MR. HEINZE said the Division of Oil and Gas would have to look at the associated costs. Number 406 MR. EASON said they could eliminate the need for funding additional programs by reviewing the independent audits. SENATOR HALFORD moved to adopt the amendment that changes "annual review or" to "annual review and..." on page 3, line 11, page 4, lines 5 and 7. SENATOR ADAMS objected, because of testimony from various companies supporting the CS, he thought they should be allowed time to comment on this amendment. KEVIN TABLER said it sounded like a reasonable approach. SENATOR ADAMS removed his objection and the amendment was adopted. DAVE LAPPI said the amendment would be a workable solution. He thought it would help solve the problems independents might have operating in the state of Alaska. He said the application fee of $1 per acre was higher than in other countries and urged them to consider lowering it by a factor of 10. He thought the high up-front costs would discourage exploration. SENATOR SALO asked if the size of the parcels would vary. MR. LAPPI said he thought a lot of applications would be for around 500,000 acres, because of the relinquishment procedures. He said relinquishment of 25% of the remaining acreage at the end of a period would be more reasonable. MR. EASON commented that the term is up to ten years and he thought it would be a mistake to tailor something that works in between. SENATOR SALO asked Mr. Eason if he thought $1 per acre fee was reasonable. MR. EASON said he thought it was very reasonable. He said it costs a great deal of money to evaluate 500,000 acre licenses. Anyone who is serious will view the application fee as a truly diminimous amount of money. Number 557 MR. HEINZE suggested language to say the fee is "not more than $1 for each acre of land that is subject to the exploration license." SENATOR SALO asked which department would have the flexibility to set that fee. MR. HEINZE said the Department of Natural Resources would have that authority under Title 38. CHARLES MCKEE said he advocated the industries interest in making discoveries, but not at the expense of his copyright status. TAPE 93-15, SIDE B Number 580 SENATOR HALFORD offered an amendment saying "up to $1 per acre and that the discretion be with the Commissioner." This would give them leeway to adjust the fee if there wasn't as much interest as expected. MR. EASON said they would have a problem with that amendment. SENATOR LEMAN removed his objection and the amendment was adopted. Number 565 SENATOR SHARP moved to reduce the $5 million for on-shore exploration financial responsibility to $1 million based on information that Washington, Texas, Louisiana, Florida, Wyoming, and Montana have no financial responsibility and California has only $1 million within 30 miles of the coast line. MR. CONWAY said he would let the Department of Natural Resources comment on this issue. MR. EASON said it was difficult to make generalizations and consultation with the Department of Environmental Conservation and the Administration was needed to see if it satisfied their goals. SENATOR LEMAN asked if there were any objections to Senator Sharp's amendment. SENATOR HALFORD supported the amendment, but wanted to know the Administration's position in the next committee. SENATOR SALO objected and wanted to see the Administration's position before passing it from committee. SENATOR LEMAN asked for a vote. Senator Sharp, Senator Leman, and Senator Halford voted yes; Senator Salo voted no and the amendment was adopted. SENATOR HALFORD moved to pass the CS to SB 150 with amendments and two fiscal notes from committee. There were no objections and it was so ordered. SENATOR LEMAN adjourned the meeting at 6:00 p.m.