Legislature(1993 - 1994)
03/04/1994 01:15 PM House JUD
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
SB 239 - OIL OPERATIONS:FINANCIAL RESPONSIBILITY Number 030 ANNETTE KREITZER, Legislative Aide to the Senate Special Committee on Oil and Gas, Prime Sponsor of CSSB 239, gave a brief history of SB 239 and read from a sectional analysis, which follows: Section 1. Subsection (b)(1) The OFFSHORE exploration or production financial responsibility requirement of $50 million is UNAFFECTED by this amendment. Subsection (b)(2) The amended language clarifies that financial responsibility should be greater for an onshore facility producing more than 10,000 barrels per day of oil, than for an onshore facility producing 2,5000 barrels or less per day. Subsection (b)(3) Limits the financial responsibility for an onshore exploration facility to $1,000,000. Section 2. Chapter 102, SLA 1992 gives the Department of Environmental Conservation the authority to waive its requirement that financial responsibility instruments provide for a direct action and appointment of an agent for service of process. The direct action provision is NOT AVAILABLE in marine pollution insurance, and has not been available since about 1989. Section 6 of Ch. 102, SLA 1992 repealed this temporary law effective June 1, 1994. Rather than grant another two- year exemption, the Committee Substitute repeals the repealer and allows the DEC to grant waivers until direct action again becomes available. Section 3. Makes certain there is no gap between the effective date and the date of the repeal of the former temporary waiver. Section 4. Immediate effective date. In summary, MS. KREITZER said, SB 239 repeals the temporary provision to waive mandatory insurance requirements. Instead, the waiver would be established in statute. In addition, Section 1 would reduce the mandatory liability limits to a more reasonably available level. Number 158 SEN. BERT SHARP, member of the Senate Special Committee on Oil and Gas, said the current insurance requirements were prohibitively high for onshore exploration. He said SB 239 would reduce the mandatory liability limits to a more reasonable level. He read the sponsor statement for CSSB 239(O&G), which follows: The Oil and Gas CS for SB 239 recognizes that existing statutes mandates levels of proof of financial responsibility liability that are so unrealistic that coverage is not available and have has been. This is true as much for AS 46.04.040(b) onshore oil and gas exploration activity as it is for moving refined products along the waterways of Alaska. Section 1 only reduces the mandatory liability limits to more reasonably available levels. The reduced levels are still approximately 10 times higher than other oil producing states. The 20 million dollar requirement for onshore production facilities remains intact for facilities producing over 10,000 barrels of oil per day. Requirements are stair stepped down from over 10,000 B/P/D/, to 5,000 - 10,000, 2,500 - 5,000 and 2,500 and under. It seems to make sense that producers handling less daily volumes would create less of a spill potential. This bill provides for reductions for onshore oil and gas exploration activities that in nine out of 10 cases, never involve an exposure to on site crude oil. If the activity is successful, the safety devices and their operations required are highly developed and effective. There has never been an onshore crude spill in Alaska caused by an exploration rig. This bill is an attempt to open the door of opportunity a little bit. This would create a more realistic environment for small independent exploration firms to operate in Alaska. Let me point out that AS 46.04.040(b) is not the only proof of financial liability required of onshore exploration. It's only one of many. The Division of Oil and Gas requires the posting of a bond in paragraph 23 of their lease contract as well as satisfy requirements in 11 AAC 83.160. The Division of Oil and Gas can also require supplemental bonding if it believes the nature of the surface and its uses or the degree of risk justifies an increased bond. The Alaska Oil and Gas Conservation Commission also requires a lessee to post a separate bond of at least $100,000 dollars prior to any drilling activity. With many of the major oil companies now redirecting their exploration efforts overseas, it would only seem prudent to remove impossible liability requirements presently required which virtually shuts out independent exploration and producers in our state. I believe this legislation is a reasonable move to correct this situation. This bill, along with a balanced "exploration licensing" bill, may well stimulate renewed exploration activity in our state, thereby creating not only new jobs for Alaskans, but new revenue sources to the state treasury. I ask for your support of this bill. Number 340 There was general discussion of the resolution passed in both houses of congress regarding offshore exploration, drilling, and transportation of oil. Number 380 RAY GILLESPIE, Representing the Trade Association - Refined Fuel Distributors, testified in support of SB 239. He noted the difficulty for companies to provide the mandatory insurance. Number 436 MIKE CONWAY, Director, Division of Spill Prevention and Response, Department of Environmental Conservation, made himself available to answer any questions the committee had regarding SB 239. Number 468 REP. NORDLUND asked what would happen in the event there is a spill and the cost of cleanup is higher than the company's insurance coverage. Number 470 MR. CONWAY responded by saying the department would ensure the company had up to one million dollars of resources to cover costs. In the event that the damage caused by the company exceeded their means to pay, the state would fund a cleanup from the 470 Fund. REP. KOTT moved CSSB 239 with individual recommendations and zero fiscal note. REP. DAVIDSON objected. A roll call vote was taken. Voting yes: Reps. James, Kott, Green, Nordlund and Porter. Voting no: Rep. Davidson. CSSB 239 passed from committee.
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