Legislature(2003 - 2004)
05/16/2003 01:49 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 28 An Act relating to adjustments to royalty reserved to the state to encourage otherwise uneconomic production of oil and gas; and providing for an effective date. REPRESENTATIVE VIC KOHRING explained that HB 28 would take a royalty adjustment system that is an understandable and usable adjustment method for fields that might otherwise prove to be uneconomic. It would provide a usable system for reduction of royalties belonging to Alaska so that the State could encourage production of oil and gas fields that might be marginal or not economically feasible if it were not for such reductions. The bill is not new, but it sets forth an understandable modification formula; protecting the public's interest in such proceedings and maintaining the public's ability to comment on the preliminary findings and determination made by the Commissioner. The Department of Natural Resources Commissioner would provide the tools necessary to negotiate with the drilling companies for both oil and gas production to determine if they are financially viable. If the fields are not economically viable, the legislation would take action to decide what the royalty reduction would be based on the economics of that field. Representative Kohring pointed out that the State's normal share is established at 12.5%, but could run as high as 20% depending upon the field. A royalty reduction allowed under HB 28 would depend on changes in oil prices, field recovery, production rate and operating costs. The rate could be as low as 3%. Representative Kohring stressed that the Commissioner would need to establish that the field was economically situated before it would be granted. The determination would be based upon a detailed analysis, professional evaluation. The evaluation could be done either internally or by an outside company that has expertise in that type of evaluation. The State would be reimbursed the cost of the evaluation. The amount would be capped at $150 thousand dollars. Representative Kerttula MOVED to ADOPT Amendment #1, #23- LS0177\V.2, Chenoweth, 5/15/03. (Copy on File). Co-Chair Williams OBJECTED. Representative Kerttula noted that in the last Committee hearing, there had been a deletion of the section that allows legislators to receive signed confidential information. The information is critical in order that legislators can look at certain records. It is something that has been done for over 25-years. The proposed amendment would "un-delete" that proposed section, allowing access to confidential information. She understood that the sponsor supported the change. REPRESENTATIVE NORM ROKEBERG agreed, noting that the original presumption on that deletion was that it would be standard procedure under executive privilege. He acknowledged that the language needs to be re-entered into the legislation. There being NO OBJECTION, Amendment #1 was adopted. Representative Kerttula MOVED to ADOPT Amendment #2, #23- LS0177\V.3, Chenoweth, 5/15/03. (Copy on File). Co-Chair Williams OBJECTED. Representative Kerttula pointed out that the sponsor had no objection with the grammatical changes proposed by the language of the amendment. There being NO further OBJECTION, Amendment #2 was adopted. Representative Kerttula MOVED to ADOPT Amendment #3, #23- LS0177\V.1, Chenoweth, 5/15/03. (Copy on File). Co-Chair Williams OBJECTED. Representative Rokeberg requested that a simple change be made to the amendment. Representative Kerttula read the language recommended by Representative Rokeberg to be added to the amendment, Line 12, after "approval" inserting "shall not be unreasonably withheld by", and deleting "of". Representative Rokeberg reiterated that as amended, there would be no objection to inserting that language. There being NO further OBJECTION, Amendment #3 as amended was adopted. Co-Chair Harris referenced the fiscal note analysis, pointing out that the Division of Oil and Gas had not been complimentary. He asked if the Administration was in support of the proposed legislation. MARK MEYERS, (TESTIFIED VIA TELECONFERENCE), DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, ANCHORAGE, noted that the Administration does support the bill. The Division believes that the bill would clarify problems that have been identified with the bill with previous royalty reduction statutes. The fiscal note adequately reflects the changes recommended in the bill with the royalty reductions. The fiscal note was carefully thought out. The Division is comfortable with the proposed version of the legislation. Co-Chair Harris pointed out that the analysis identifies problems with hydrocarbon cost allocation for royalty relief. The proposed legislation would open the door for every oil and gas reservoir in the State to be eligible for a royalty reduction. He acknowledged that it would not be possible to accurately predict what the fiscal impact of the legislation will be and could be a negative impact. Mr. Meyers admitted that in an earlier version of the bill, those problems were present. Since that time, the fiscal note applies to the current version; all concerns have been properly addressed. The earlier version did not address the previous history of the statute. Representative Whitaker asked what would be the advantages and risks to the State through the proposed legislation. Mr. Meyer explained that there would be no additional risks to the State. [Testimony inaudible]. He added that the bill would allow for a lot of flexibility. The Commissioner will be able to adjust as the conditions in the market place change. It is important that there continues to be legislative oversight. Vice-Chair Meyer asked if the legislation was intended for only the Cook Inlet area or would it apply statewide. Mr. Meyer confirmed that it will apply statewide and in any place the State receives royalty on State lands. Vice-Chair Meyer stated for the record that he "might have a conflict of interest" regarding the legislation. Representative Foster MOVED to report CSSSHB 28 (FIN) out of Committee with individual recommendations and with the accompanying new fiscal note. There being NO OBJECTION, it was so ordered. CSSSHB 28 (FIN) was reported out of Committee with a "no recommendation" and with a new fiscal note by the Department of Natural Resources.