Legislature(1995 - 1996)
04/11/1996 01:45 PM House FIN
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
HOUSE BILL NO. 394
"An Act authorizing a program of natural gas and coal
bed methane development licensing and leasing; relating
to regulation of certain natural gas exploration
facilities and coal bed methane exploration facilities
for purposes of preparation of discharge prevention and
contingency plans and compliance with financial
responsibility requirements; amending the duties of the
Alaska Oil and Gas Conservation Commission as they
relate to natural gas exploration activities and coal
bed methane exploration activities; and amending the
exemption from obtaining a waste disposal permit for
disposal of waste produced from coal bed methane
drilling."
ALFREDA WARD, (TESTIFIED VIA TELECONFERENCE), CITY MANAGER
OF FORT YUKON, FAIRBANKS, spoke in support of HB 394,
indicating the importance of the legislation to rural
Alaska's ability to deal with the high cost of fuels and
utilities.
HANS NEIDIG, STAFF, REPRESENTATIVE SCOTT OGAN, explained
Amendment #1, 9-LS1463\R.12, Chenoweth, 4/9/96. He stated
as the legislation currently reads, it would reduce the bond
level $25 thousand dollars on state lands. The amendment
would also include Native Corporation Lands being placed at
that rate.
Representative Mulder MOVED to adopt Amendment #1. There
being NO OBJECTION, it was adopted.
Representative Brown spoke to Amendment #2, 9-LS146\R.13,
Chenoweth, 4/11/96 which would change language on Page 6,
Line 15, from "may" to "shall".
REPRESENTATIVE SCOTT OGAN noted that he did not oppose
Amendment #2. Representative Brown MOVED to adopt Amendment
Representative Brown MOVED to adopt Amendment #3, 9-
LS1463\R.16, Chenoweth, 4/11/96, which would add standard
language addressing the royalty which the State would
receive. Representative Ogan noted that he did not object
to the amendment. There being NO OBJECTION from the
Committee, it was adopted.
Representative Brown MOVED to adopt Amendment #4, 9-
LS1463\R.17, Chenoweth, 4/11/96, which would provide a
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clarification of Title 38. Representative Ogan noted that
he did not object to the amendment. There being NO
OBJECTION from the Committee, it was adopted.
Representative Brown MOVED to adopt Amendment #5, 9-
LS1463\R.5, Chenoweth, 4/8/96, which would require the
applicant to pay a reasonable application fee not to exceed
$500 dollars. Representative Ogan noted that he did not
object to the amendment. There being NO OBJECTION from the
Committee, it was adopted.
Representative Brown spoke to Amendment #6, 9-LS1463\R.19,
Chenoweth, 4/11/96, which questions the distribution of the
public owned resources. She thought that it would only be
fair that when resources were to be disposed of, all parts
of the State be included. Representative Brown remarked
that this was a policy issue and that Southcentral Alaska
should be included.
Representative Ogan stated that he opposed Amendment #6,
commenting that the program had been designed to be for
rural Alaskans only, the area in which the energy problems
exist. He thought the proposed legislation would also help
to mitigate the environmental problem, currently estimated
to be $500 million dollars for clean-up of the fuel storage
facilities.
Representative Brown noted that there exists a "lot of room"
for expansion of the gas pipeline transmission system. She
referenced Page 6, Line 11, which she thought would create a
restriction. Representative Ogan replied that the intent
was to cover whatever the "in-place" gas pipeline
transmission systems are, and would not apply to future
systems. The intent of the legislation is to subsidize a
resource left in the ground to help with the Power Cost
Equalization problem. He thought it would not be fair to
those producing gas without the exclusion in the pipeline
system. Representative Brown WITHDREW Amendment #6. She
thought that gas producers should be consulted as to how
this action would affect them.
Representative Brown spoke to Amendment #7, 9-LS146\R.18,
Chenoweth, 4/11/96, which would insert language addressing
gas found in association with oil. She stressed that this
section was the governing portion which determines contents
of the leases.
Representative Ogan noted that he opposed the amendment. He
pointed out that specific language already exists in the
bill which states gas can not be produced if it is below
three thousand feet. He acknowledged that he did not intend
to limit gas production in the rural communities. Gas could
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be associated with methane resulting from coal when and if
the source was not identifiable. He suggested that type of
gas should not be excluded and pointed out that Amendment #4
already addressed the statutes in Title 38.
Representative Mulder questioned the possibility of a
natural gas development occurring in a commercially
developed oil deposit.
JIM HANSEN, (TESTIFIED VIA TELECONFERENCE), LEASE SALE
MANAGER, DIVISION OF OIL & GAS, DEPARTMENT OF NATURAL
RESOURCES (DNR), ANCHORAGE, advised that, above three
thousand feet, the chances of an oil deposit would be
remote. Gas not associated with coal could exist in the
region. He noted that the chance of finding gas with oil in
that shallow of a surface was remote. He also acknowledged
that little is known about that area of Alaska and agreed
that anything could happen.
Co-Chair Hanley asked if oil had been discovered, what would
be the status of the gas associated with that oil.
Representative Ogan replied, if the gas is not below three
thousand feet, it can continue to produce that gas.
Language exists in the bill which stipulates that if oil is
encountered, operations would immediately be ceased.
Representative Brown noted that the issue of "discovery of
gas with heavy oil" had not been addressed in the proposed
legislation.
KENNETH ROGOWSKI, (TESTIFIED VIA TELECONFERENCE),
ENVIRONMENTAL SPECIALIST, SPILL PREVENTION AND RESPONSE
(SPAR), DEPARTMENT OF ENVIRONMENTAL CONSERVATION, ANCHORAGE,
noted that Page 9 addressed the law and regulations
associated with gas and oil. He reiterated that if oil was
found in the gas, operations would halt immediately.
Representative Brown questioned if it had been the intent to
sell the gas rights within a reservoir which also had oil in
it. Representative Ogan commented that the Oil and Gas
Conservation Commission will protect and conserve oil
resources in association with the gas above three thousand
feet. That agency controls production practices.
Representative Brown MOVED to adopt Amendment #7.
Representative Martin OBJECTED.
A roll call was taken on the MOTION to adopt Amendment #7.
IN FAVOR: Brown, Hanley.
OPPOSED: Parnell, Kelly, Kohring, Martin, Mulder,
Foster.
Representatives Navarre, Therriault and Grussendorf were not
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present for the vote.
The MOTION FAILED (2-6).
Representative Brown MOVED to adopt Amendment #8, 9-
LS1463\R.18, Chenoweth, 4/11/96, which would delete the
language on Page 5, Lines 20-22: "If rent is not paid when
due, the director shall mail the lessee written notice of
nonpayment at the end of each month, while the rent remains
unpaid, for a period of two months".
Representative Ogan voiced objection to the amendment. Mr.
Hansen agreed with Representative Brown noting that language
would create a burden on DNR keeping track of lease payment
schedule. He noted that lease payments are currently due
annually. If a lease is to be terminated due to none-
payment of rent, notification is provided. Following
further discussion, between Committee members and Mr.
Hansen, Representative Brown recommended that the amendment
be HELD until Mr. Hansen could provide specific information.
(Tape Change, HFC 96-114, Side 1).
Representative Brown spoke to Amendment #9, 9-LS1463\R.6,
Chenoweth, 4/8/96, which would address language on Page 4,
Line 22, and would insert "that it is in the best interests
of the state". She noted that in some villages, there is
adamant opposition to the oil and gas operations being
conducted near their area. Some of those concerns could be
mitigated in a best interest finding by attaching to the
lease stipulations, language addressing the pipeline
placement. She emphasized that a standard needs to be
included.
Representative Ogan voiced opposition to the amendment. He
noted that the Findings Section of the proposed legislation
suggests that it be in the best interest of the State that
the resource be developed. He added that surface rights
were addressed in Amendment #1 and that existing language on
surface rights is in Title 38. That language would apply.
Insertion of the proposed language could "open the door" to
a requirement for a best interest finding now excluded in
statute. He thought that the director of the Oil and Gas
Division would act in the "best interest of the State".
Mr. Hansen agreed with the language proposed in Amendment
interest finding. Representative Ogan stated that best
interest findings are an extensive inventory of the area,
and calculated that it would be an expensive process.
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Representative Parnell asked if there was alternative
language which could be used. Co-Chair Hanley questioned if
the proposed language would be more "helpful" to the
Department. Mr. Hansen recommended receiving that opinion
from the Attorney General's office. Representative Brown
noted that virtually all leases representing the States
resources go through a "best interest" finding process. She
thought that discovery and eventual production would have a
large impact, warranting issues which need to be addressed.
She recommended that addition of the language would create a
standard. Representative Brown suggested that it was not
clear that public comment could reveal what was occurring
and recommended that the standard be included.
Representative Parnell advised using the language "after
review of all available information, the director determines
it is in the State's interest". Representative Brown
agreed. Representative Parnell suggested that would include
public comments, as well as other information.
Representative Ogan voiced concern that the added language
would allow the Commissioner of DNR to be responsible for
more findings and hearings which would ultimately be
expensive for the State and the user.
Representative Parnell thought that current language in the
bill would prove to have a negative reaction and that the
director would then not have a basis from which to deliver a
lease. The intent of the proposed language would remove
this concern from the best interest findings category. He
added that he would hope to reach a "middle ground" between
the various points of view.
Representative Parnell MOVED the amended language to
Amendment #9 which would delete "on the basis of public
comments received" and insert "after review of all available
information, the director determines it is in the State's
interest....." Representative Kelly voiced concern that
special interest groups would sway the director's decision
rather than that decision being based on substantive and
factual information.
Representative Brown recommended deleting "all". Following
discussion, most Committee members agreed to delete "all".
Representative Parnell MOVED to amend the amended language,
deleting "all". There being NO OBJECTION, it was deleted.
Representative Parnell MOVED to adopt the amended Amendment
environmentalist would use that change to benefit their
interests.
A roll call was taken on the MOTION.
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IN FAVOR: Parnell, Therriault, Brown, Grussendorf,
Kohring, Martin, Mulder, Hanley.
OPPOSED: Kelly.
Representatives Navarre and Foster were not present for the
vote.
The MOTION PASSED (8-1).
Representative Brown MOVED to adopt Amendment #8, 9-
LS1463\R.15, Chenoweth, 4/11/96. Representative Mulder
OBJECTED.
A roll call was taken on the MOTION.
IN FAVOR: Brown, Grussendorf, Parnell.
OPPOSED: Therriault, Kelly, Kohring, Martin,
Mulder, Hanley.
Representatives Navarre and Foster were not present for the
vote.
The MOTION FAILED (3-6).
Representative Mulder MOVED to report CS HB 394 (FIN) out of
Committee with individual recommendations and with the
accompanying fiscal notes. There being NO OBJECTIONS, it
was so ordered.
CS HB 394 (FIN) was reported out of Committee with a "do
pass" recommendation and with a fiscal note by the
Department of Natural Resources dated 2/28/96 and a zero
fiscal note by the Department of Environmental Conservation
dated 2/28/96.
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