SENATE RESOURCES COMMITTEE January 10, 1996 3:35 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Drue Pearce, Vice Chairman Senator Steve Frank Senator Rick Halford Senator Robin Taylor Senator Georgianna Lincoln Senator Lyman Hoffman MEMBERS ABSENT None COMMITTEE CALENDAR Overview of State Oil and Gas Leasing by Ken Boyd, Director, Division of Oil and Gas WITNESS REGISTER Ken Boyd, Director Division of Oil and Gas Department of Natural Resources 400 Willoughby Ave. Juneau, AK 99801-1796 ACTION NARRATIVE TAPE 96-1, SIDE A Number 001 CHAIRMAN LEMAN called the Senate Resources Committee meeting to order at 3:35 p.m. and announced an overview of State oil and gas leasing by Ken Boyd, Director, Division of Oil and Gas. KEN BOYD, Director, Division of Oil and Gas, explained the bar graphs before the committee on the number of acres leased. He said there are new discoveries and ideas happening in Alaska. Technology, for instance, is beginning to catch up with geology. 3-D seismic is the emerging activity today. He thought that industry is changing its way of looking at Alaska. The last lease/sale, #80, showed Chevron coming back into the State. MR. BOYD explained another graph that showed the acres that have been leased and how many acres are producing. Over time, he explained, the three mile square leasing blocks are put into units that give the companies the opportunity to save resources. Units tend to form over areas of expected production and over time they tend to shrink to what's called a participating area which is the area that actually produces. At this point he explained more graphs to the committee. By statute, he said, any company can hold 500,000 acres on-shore and 500,000 acres off-shore. Any acre that's in a unit does not count in the 500,000. All companies are below their chargeable acres, he noted. Number 255 He said that ARCO and BP do hold a lot of acres. There is a total of 2,810,000 acres under lease. Number 283 SENATOR PEARCE asked for his definition of chargeable acreage. MR. BOYD answered that it is acreage that is not in the unit. SENATOR PEARCE asked him to explain the rules for getting to hold a half million acres of land. MR. BOYD said that leases are offered for a term; in Cook Inlet that's generally seven years. The company has the right to do nothing or explore. At the end of the term if the lease has not been committed to a unit, or if the lease does not have a a well that is certified capable of production, the lease goes back to the State. Number 387 SENATOR FRANK commented that most of the areas on the graph do not appear to be in a unit and, therefore, are subject to exploration. MR. BOYD said that the North Slope has mostly 10 year leases, because of the short drilling season. But the leases have been shortened to seven years, because, now, more is known about the area. He explained that 3-D seismic technology is used in many cases before drilling a well. It is a much more definitive tool for identifying underground formations, because you can look at data as a cube, with a top and sides, that can be rotated in space, rather than as a simple flat two dimensional surface. Number 442 SENATOR LEMAN asked if his Division had the ability to look at the 3-D seismic data. MR. BOYD said that they do have the technology to do that. SENATOR LINCOLN asked if 3-D seismic is being used to re-analyze areas and does the State do the actual surveying or do the companies do it and then give the State the data. MR. BOYD answered yes to the first question. SENATOR LINCOLN asked why 2-D technology would still be used. MR. BOYD said it was several magnitudes less expensive and used when learning a new area or if the structure is not complicated. He explained that the most advanced technology is 4-D seismic which is 3-D seismic shot twice, so you can see fluid levels that have moved. Using 4-D you can see fluid context, although it can't be identified. SENATOR LEMAN asked what the accuracy was. MR. BOYD said that they are very accurate. SENATOR PEARCE asked if we do a joint permitting process with the feds where the wells cross the boundary of the National Petroleum Reserve Alaska (NPRA). MR. BOYD answered yes, that we only issue land use permits for our lands and it is a very simple process. MR. BOYD explained that ARCO has applied for exploration credit in Nuiqsut, and the State has decided to grant them 15 percent credit. Twenty-five percent is the maximum. One of the terms that goes with the credit is that the well, if it is drilled, will be held confidential for two years, but cannot be extended. Number 580 SENATOR LEMAN asked how the public got to view the data. MR. BOYD replied that the data was viewed in their office. TAPE 96-1, SIDE B Number 589 No one is allowed to bring in movie cameras. The viewing process is really a means of attracting new players. SENATOR LINCOLN asked if there was an advantage to the 2-D surveys that do not have to be confidential. MR. BOYD said that would not come into the equation. Number 562 He showed the committee the coming lease sales. The exploration licensing opportunities begin in April, he said. Early on, the first idea was area-wide best interest findings rather than area-wide leasing. Leasing requires title work and the Department can do about 1 or 1.3 million acres per year. The title work is done only on the leases that are sold, not all the acres that are offered. They don't warrant title, in other words. SENATOR LEMAN commented that it is sad that there are so few wells being drilled in Alaska when 4,000 per year are being drilled in Alberta, Canada. He noted that it takes a long time to get a permit here. In response, MR. BOYD said under the Coastal Policy Program there is the A,B,C list - A being the easiest things to permit and do. If things have been done enough times, the criteria is known, and therefore, permitting is easier. Number 379 SENATOR HALFORD asked if the area-wide lease properties are subject to all the same conditions, such as the acreage limitation and the unitization provision. MR. BOYD said yes, they would be. SENATOR TAYLOR asked if he would be suggesting any systemic changes within the regulatory process. MR. BOYD said he thought there had to be changes made to the Alaska Coastal Management Program, but he didn't think there needed to be many. SENATOR TAYLOR noted that today, if no one appeals at any stage of the process, it takes a minimum of 39 months for a State timber sale. He hoped they could suggest legislation that might speed up the permitting process. Number 327 SENATOR PEARCE asked what the Department was doing for reclamation standards on production that was already in place. MR. BOYD answered that the Department has broad authority, but they are looking at some complicated tax questions in this area. He added that they are moving forward. SENATOR PEARCE asked if reclamation expenses are deductible? MR. BOYD said that is part of the question. When they are chargeable is another, and there are many others. SENATOR LEMAN thanked everyone for their participation and adjourned the meeting at 4:52 p.m.