Legislature(2003 - 2004)
05/16/2003 02:05 PM Senate JUD
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
CSSSHB 86(JUD) am-INJUNCTIONS AGAINST PERMITTED PROJECTS
CHAIR SEEKINS announced HB 86, version X.2, to be up for
consideration.
SENATOR THERRIAULT moved amendment 1.
CHAIR SEEKINS objected for the purposes of discussion.
SENATOR THERRIAULT said he was concerned about decreasing oil
and gas production in Cook Inlet, but the Forest Oil Corporation
activity has shown promise. After having fought lengthy legal
challenges, they have permits in hand and are ramping up their
production. Since they have jumped through all the hoops, the
Legislature is saying once and for all that the project can go
forward.
SENATOR ELLIS asked if this would be intervening in an active
lawsuit.
SENATOR THERRIAULT replied that there has been a stream of
challenges.
MR. GARY CARLSON, Senior Vice President, Forest Oil, said they
operate the Osprey Platform and are developing the Redoubt Shoal
Oilfield in Cook Inlet south of Anchorage. It's the largest oil
field to be developed in Cook Inlet since the early 70s and its
production is vital to Forest Oil and is in the state's
interest. They have invested over $200 million in this project
to date (transporting about 35,000 barrels of oil per day) and
they and the state are just beginning to see some return on the
investment. They hope to increase production by another 10,000
barrels as additional wells are completed. All was accomplished
in a safe manner using state of the art design, engineering and
innovation to minimize environmental impacts of the project.
The Osprey Project is the first platform in Cook Inlet to grind
and inject all the drill cuttings eliminating the need to
transport the materials to shore. They are the first platform to
reinject produced fluids on location and the first platform to
electrify the drilling rig using shore power thereby eliminating
the need for diesel engines and reducing the associated air
emissions. They are the first Cook Inlet operation to use soil
borings for pipeline installation, which eliminates disturbances
to the bluffs and shoreline.
MR. CARLSON said they have done what the state has asked plus
some. However, their development of the Redoubt Shoals has been
the subject of continuing litigation since the leases were
issued by the State of Alaska. He said, "The Alaska Supreme
Court could issue an injunction at any time and, if it were to
do so, the fiscal impacts for both Forest Oil and the State of
Alaska would be dramatic and immediate."
SENATOR ELLIS asked what they are in court for now and would
this amendment resolve the matter.
MR. CARLSON replied the special interest group, Trustees for
Alaska, have sued the state for awarding permits to develop the
Redoubt Shoal field. They asked the superior court for a stay to
stop production, but they were turned down so they petitioned
the Alaska Supreme Court. The basic case is being heard by
superior court right now.
SENATOR FRENCH said he too would be frustrated if he had been
sued for 10 years, but he didn't know of any lawsuit that didn't
have two sides and asked him what their argument was.
MR. CARLSON replied they stated in superior court that they are
basically against any development and listed a lot of issues
that the state didn't administer to their satisfaction.
SENATOR FRENCH asked if it had to do with the initial
permitting.
MR. KYLE PARKER, Pat & Boggs, Counsel for Forest Oil, said they
have been working with Forest Oil since 1997. The leases that
are the subject of the current lawsuit are now in their 10th
year of litigation, originating in 1993 in a case known as
Ninilchik Traditional Counsel v. State. That is where the state
issued its best interest finding and coastal zone consistency
determination and put the leases out for sale. He continued,
In that litigation, the AC&P issues were litigated
thoroughly. The next litigation that came along was
1995 and it was litigation over the general permit
that governs all the discharges associated with oil
and gas activities in Cook Inlet. That case was
litigated again by Port Graham and Nanwalek
Traditional Groups, represented again by Trustees for
Alaska. The principal focus of the attack there was,
again, the coastal zone consistency determination for
the general permit that was issued for covering all
discharges in Cook Inlet.
The next set of litigation was the litigation
challenging the exploration phase of the Redoubt
Shoals Project, which Forest Oil has been pursing
since it came into acquisition of leases in 1996. Many
of you will remember that last year the [Alaska]
Supreme Court entered an injunction stopping the
project in its tracks, because it found that under the
AC&P, the state had failed to consider the impacts of
the discharges associated with the projects. That is
the very same issue that had been litigated in the
general permit litigation, which was completed prior
to the [Alaska] Supreme Court entering the injunction
last year. The Legislature, you will recall, acted
last year and passed a bill that ratified the state's
ability to rely on general permits when they are
authorizing projects. No sooner had the litigation
ended in May of last year, but the Trustees and Cook
Inlet Keepers stepped forward with the next
litigation. The next litigation we're currently
involved in challenging the development phase of the
project and, again, the focus of the attacks is on the
AC&P consistency determination....
CHAIR SEEKINS said this is a classic case of what this bill
intends to keep from happening.
MR. TRAY WILSON, Senior Vice President, General Counsel and
Secretary for Forest Oil Corporation, said he had a letter that
he would summarize for the committee. It includes the amount of
expenses they have incurred in defending the cases.
TAPE 03-50, SIDE B
The most significant impact of this litigation has been
uncertainty of outcome. If they were enjoined from continuing
production at this point, the cost would be significant. They
disclose the litigation in their filings with the Securities and
Exchange Commission and the public is aware of the uncertainty
associated with it and they believe it has had a negative effect
on the valuation of their stock. They are also concerned about
whether or not they should invest in additional projects in
Alaska.
SENATOR ELLIS asked if there are other companies in this same
position and shouldn't everyone be helped or no one.
Specifically, he asked whether other amendments would follow to
help other companies close out litigation.
CHAIR SEEKINS replied that this is the only one he has seen, but
he would be willing to look at everything on a case-by-case
basis.
SENATOR THERRIAULT said his staff, Mr. Balash, has been dealing
with drafters on Senator Ellis' issue and that the language is
not project specific.
SENATOR OGAN said this bill references the Cook Inlet Basin,
which is a geographic area.
MR. JOE BALASH, staff to Senator Therriault, said that Section 1
states the purpose and findings, which is:
To legislatively authorize and approve all oil and gas
projects located within the Cook Inlet Basin that
have, as of the effective date of the act, a final
authorization permit or other form of approval from
DEC, Fish and Game, DNR or the former Division of
Governmental Coordination at OMB.
The new provision under AS 46.40.096 adding Section 3 supercedes
and:
Replaces any other form of approval previously
required by law and a project approved under this new
section shall remain subject to regulation by any
agency having jurisdiction over the project consistent
with the terms and requirements of the authorization
permit or other approval issued by the agency.
So, they are speaking to all oil and gas projects within the
Cook Inlet Basin. This morning he spoke with a UNOCAL
representative who is very supportive of the amendment. Marathon
is also examining the amendment to see if it would help them,
too.
MR. BALASH said lines 12-15 say a project that is approved by
this act shall remain subject to regulation, which means that
just because they are ratifying the decisions made by the
agencies, does not mean that the companies can ignore the terms
and conditions of their permits.
SENATOR FRENCH asked for a list of the Cook Inlet oil and gas
projects that have a final authorization as of the effective
date of this act.
MR. BALASH said he would try to get one from the Division of Oil
and Gas.
CHAIR SEEKINS told Senator French that he was endorsing a
concept in the bill that has no name attached regardless of the
player.
SENATOR FRENCH replied the language says:
'The purpose of these next two sections is to
legislatively authorize and approve all oil and gas
projects located within the Cook Inlet Basin that
have, as of the effective date of this act, a final
authorization permit or other form of approval.'
So I guess what I need to know is how many of those
are there...
MR. BALASH replied he could think of a handful of current
projects that are either in exploration, seismic testing or
development - the Cosmopolitan project on the Kenai and
additional exploration with UNOCAL. He said he would be happy to
get the list for him.
SENATOR FRENCH thanked him and asked what is meant by, "other
form of approval."
MR. BALASH replied the permitting process is very complex. There
are consistency findings, best interest findings, and
elevations, to name a few - and this was an easy term to use to
catch everything.
SENATOR FRENCH said he thought it could cover a telephone call
that said, 'sure, go ahead,' and he did not want to give his
legislative blessing to a telephone call. He thought "other form
of approval" was too vague.
SENATOR ELLIS asked Mr. Balash if the two other companies he
mentioned have lawsuits going in addition to this one.
MR. BALASH replied UNOCAL and Marathon are active players in the
Cook Inlet Basin and would be subject to this bill.
CHAIR SEEKINS reiterated that this bill is not company specific,
but is geographically oriented.
MR. BALASH said line 25 inserts a new section into the
consistency review process, AS 46.40.096, and goes along with HB
191, which is the revision of the coastal management program.
CHAIR SEEKINS noted that the language on lines 3-17 says this is
in Alaska's best public interest, avoids costly litigation,
provides jobs, creates local tax revenue, and fuels local
economies. The processes that have already taken place have
adequately protected the public interest.
SENATOR THERRIAULT added that Section 3 says, "not withstanding
any other provision except with respect to an appeal filed by
the applicant or the affected coastal resource district." So,
the coast districts still have the right to appeal. Otherwise
they are saying if a company has fulfilled all the other lengthy
requirements, they are allowed to proceed.
SENATOR OGAN said he didn't think Section 3 applied to just the
Cook Inlet area. It would apply to the coastal zone no matter
where you are.
MR. BALASH replied that he was correct.
3:16 - 3:18 p.m. - at ease
CHAIR SEEKINS removed his objection to Senator Therriault's
amendment.
SENATOR ELLIS objected to wait for Senator French's information.
CHAIR SEEKINS said he would hold HB 86 until tomorrow morning to
get that information. There being no further business to come
before the committee, he adjourned the meeting at 10:00 a.m.
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