Legislature(2003 - 2004)
02/06/2003 03:17 PM House O&G
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* first hearing in first committee of referral
+ teleconferenced
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+ teleconferenced
= bill was previously heard/scheduled
HB 69-REGULATION OF SHALLOW NATURAL GAS CHAIR KOHRING announced the first order of business, HOUSE BILL NO. 69, "An Act relating to regulation of shallow natural gas leasing and closely related energy projects; and providing for an effective date." Number 0111 CHAIR KOHRING, sponsor of HB 69, informed members that HB 69 is intended to help the shallow natural gas industry in streamlining regulations and making it easier for companies to obtain permits more expeditiously. Typically, it takes about one to two years to be issued a permit to drill for natural gas, he reported; the bill is intended to streamline it to 30 to 60 days, thus reducing paperwork and costs. CHAIR KOHRING said the bill separates two kinds of permitting that currently are under one umbrella. Now, operators drilling shallow gas wells are subject to the same rules and regulations as for big operators that drill for the "deep oil wells" on the North Slope, for example. Offering his belief that there is no clear comparison between the two, he said the bill separates them by giving the Alaska Oil and Gas Conservation Commission (AOGCC) and other agencies the ability to grant variances and bypass some drilling regulations that aren't applicable to [those drilling for shallow gas]. CHAIR KOHRING offered his belief that the legislation will help to greatly expand the shallow natural gas industry. Mentioning that there are several interested companies in the state, he said Evergreen Resources, Inc., is "very aggressively operating"; he thanked representatives from that company for being on teleconference or present to testify. Citing the coal bed methane potential in many villages throughout Alaska, he said he'd been told that as many as 35 villages could benefit from this; because of the ability to drill wells more expeditiously and tap into those potential gas resources, the net effect would be a much cheaper fuel source than diesel, taking pressure off the power cost equalization program. CHAIR KOHRING described this as good economic-development bill that encourages more growth in this particular industry and streamlines the process. He pointed out that this particular type of gas drilling is low-impact environmentally, using so- called air drilling that reduces toxic wastes because the wells are drilled at very shallow depths and don't require the use of toxic materials such as drilling mud. Number 0494 REPRESENTATIVE FATE referred to [paragraph (1), beginning on page 1, line 14], which read in part: "(1) the professional staff member or the commission may approve the variance if". He asked whether this mandates that it has to be a staff member, or whether the language implies that "the commissioner can ... authorize anybody from his staff to do it." He said it is a technical question of procedure. CHAIR KOHRING offered his belief that the [AOGCC] commissioner would make that final decision, although staff could provide advice and do research. He added that it wouldn't be a decision by one [AOGCC] member, but a decision by a quorum of the three- member [commission], which therefore would require at least two members. Noting that someone in the audience [although not from AOGCC] was nodding, he surmised that he'd answered correctly. REPRESENTATIVE FATE requested clarification. He expressed concern that in the future, if there were some conflict or misunderstanding, there could be a question raised if the commissioner [had relegated it to a staff member]. He said it's a small thing but could loom large later on. CHAIR KOHRING requested that a representative from Evergreen Resources, Inc., provide an answer, but suggested the likely need to make the change because it clearly says "the professional staff member or the commission". Number 0713 REPRESENTATIVE FATE moved to adopt the foregoing as Amendment 1. REPRESENTATIVE ROKEBERG asked what commissioner [Representative Fate] was discussing. CHAIR KOHRING clarified that it is the [Alaska] Oil and Gas Conservation Commission. He pointed out that line 14 references "the commission" rather than a commissioner. He recommended that Amendment 1 do the following: Page 1, line 14: Delete "the professional staff member" Thus it would say [if "or" were removed as well] "the commission may approve the variance". REPRESENTATIVE FATE concurred with having that be Amendment 1. Number 0775 REPRESENTATIVE ROKEBERG objected for discussion purposes. He asked whether the intention is to have the whole commission vote on something, or whether it is a "sign-off or approval." CHAIR KOHRING offered his understanding that the commission would have to sign off on it, but reiterated his understanding that a quorum of two members, at minimum, of the three-member commission would have to sign off on a variance. REPRESENTATIVE ROKEBERG withdrew his objection. Number 0835 CHAIR KOHRING, hearing no further objection, announced that Amendment 1 was adopted. Number 0848 REPRESENTATIVE KERTTULA referred to page 2, line 4, subparagraph (B) [which also says "the professional staff member or the commission"]. She requested testimony on whether a similar amendment was needed there. Number 0960 JACK EKSTROM, Director, Government Affairs, Evergreen Resources, Inc., came forward at the invitation of Chair Kohring. He told the committee that AOGCC's practice typically is to "informally approve this without taking a formal vote," but will hold a formal vote if there is conflict. He offered his belief that [the language on page 2, line 4] should be changed to say "the commission". He added, "How exactly they do it is generally worked out among themselves, but I don't think, in this case, you'd want to designate a staff member ... as a substitute for the commission." REPRESENTATIVE KERTTULA pointed out [language with regard to the professional staff of the commission designated by the commission] on page 1, lines 9-10. Mentioning consistency, she asked whether the idea envisioned was to allow the professional [staff] member to do the work, which the commission would approve or not approve. She said she wasn't sure whether the language was correct, and asked to have that clarified on the record along with a recommendation. CHAIR KOHRING suggested hearing from Evergreen Resources, Inc., before taking further action on amending the bill. Number 1156 MARK S. SEXTON, President and Chief Executive Officer (CEO), Evergreen Resources, Inc., testified in support of HB 69. He informed members that his company owns Evergreen Resources Alaska as a wholly owned subsidiary. He told members: Evergreen is a Denver, Colorado-based independent energy company. We are principally focused on developing and expanding nonconventional natural gas properties throughout North America. We are recognized as an industry leader in drilling, completion, and production of ... unconventional natural gas wells such as coal bed methane. In the Raton basin, Evergreen operates 950 coal bed methane wells, which typically produce around 300,000 to 350,000 cubic feet of gas per well per day at their peak. The company has actually more than 1.25 trillion cubic feet of proven natural gas reserves in the Raton basin of southern Colorado, essentially all coal bed methane, and we've developed all of this just in the last eight years. ... Evergreen is a public company traded on the New York Stock Exchange under the symbol "EVG." A typical Evergreen well will produce for about 25 to 30 years, making these some of the most long-lived wells in industry. Number 1223 MR. SEXTON noted that the company's Alaskan operations are focusing on the shallow gas resources, particularly coal bed methane extraction. He said Alaska's coal bed methane resource is almost mind boggling - an estimated approximately 1,000 trillion cubic feet of natural gas, enough to supply all of the United States' natural gas demands for eight years at the present rate of consumption, "if you could get that gas out, of course." He added, "There are additional substantial, unconventional tight gas sand resources that would also benefit from the subject legislation that we are discussing as well." MR. SEXTON reported that in 2001 the company acquired a 100- percent working interest in the Pioneer Unit, about a 70,000- acre leasehold near Wasilla, and two months ago completed its first phase of operations: two pilot drilling pods of four wells each, for eight wells total, each in a span of less than two days. Suggesting this may be a record for the number of wells drilled in Alaska in a certain amount of time, he also noted that the company's water-disposal well was recently permitted by the AOGCC. "And we anticipate completing and testing our wells in the spring of this year," he added. Number 1273 MR. SEXTON reported, however, that permitting and leasing have been a challenge, including unique state and local requirements. In Colorado, for example, permitting requires about 15 pages of documents and usually no more than about 30 days. In Alaska that period is extended significantly, not because of regulators, he said, but because of regulations. He remarked that AOGCC has been most helpful and cooperative, and has gone the extra mile, including visiting the company's operations in Colorado and gaining a great depth of understanding of [the company's] methodology and coal bed methane practices in general; he thanked them for the assistance and the positive relationships. He offered a similar observation regarding the [Department] of Natural Resources, which he said has been cooperative and helpful and has provided constructive and instructive assistance. Number 1404 MR. SEXTON explained that the core issue - and the reason for the company's vigorous support of HB 69 - is that the permitting regime in Alaska is designed for deep, high-pressure, typically offshore operations, not the shallow, low-pressure resource that his company seeks to develop. He said regulations designed for highly directional, high-pressure wells drilled from offshore platforms and drill sites on the North Slope make no sense for these "modified water wells." He likened it to regulating a pickup truck with rules designed to regulate an 18-wheeler. He further said: I believe this technology and resource hold tremendous promise for Alaska, both in terms of its potential and, ... I believe, our ability to extract it. Once established, it can provide an inexpensive and safe method of powering rural Native villages, as well as serving the larger Anchorage and Mat-Su Valley communities. This would obviate the need ... for transporting expensive fuels by hazardous means to Alaska's remote citizens, and would also do quite a bit to help the declines in the Cook Inlet that we've all been seeing over the last few years, which is natural, since these fields have been online for 30, 40 years or more. Number 1494 MR. SEXTON concluded by offering his view that HB 69 would ensure that the AOGCC and its professional staff have the authority and discretion necessary "to regulate projects like ours" in an appropriate manner that is suited specifically to the nature and characteristics of shallow natural gas development projects, and yet still maintains "the protections for human and wildlife safety and the environmental concerns that are important to all of us." Number 1534 CHAIR KOHRING noted that one well drilled by the company is down the street from where he lives. He expressed excitement about the potential this kind of drilling represents, and said he would like to see other companies do likewise. REPRESENTATIVE ROKEBERG asked whether anyone from AOGCC was available to testify. CHAIR KOHRING said no, although Mark Myers [director of the Division of Oil & Gas] was available to answer questions. He said two [AOGCC] commissioners had hoped to be available but were making a presentation before [the House Finance Committee]. Number 1621 REPRESENTATIVE ROKEBERG returned to the issue of amending the bill. He referred to the legal opinion [dated January 29, 2003] from Jack Chenoweth, Assistant Revisor of Statutes [in committee packets], which he said indicated that the original bill, before that day's amendment, allows a grant of authority by the commission to professional staff. He questioned whether the committee was doing the right thing [by amending the bill]. REPRESENTATIVE FATE indicated that if [allowing the staff to act, which Amendment 1 deleted] is what [AOGCC] would like, the amendment should be reconsidered. He concurred with the need to hear from AOGCC. REPRESENTATIVE ROKEBERG suggested that nothing prohibits the commission from granting authority to the staff, even with the deletion [in Amendment 1]. He deferred to Representative Kerttula, noting her legal background. Number 1734 REPRESENTATIVE KERTTULA explained that normally variances are done by delegation to staff, because it is a de minimis thing. Noting that if the references to staff are removed from the bill, the committee could say it doesn't want to foreclose the commission's ability to do this, she proposed the need to clear up exactly what is intended. REPRESENTATIVE ROKEBERG suggested it would be helpful to find out exactly how [AOGCC operates] and what the commission prefers so that the language doesn't go counter to the commission's current methods of operation or legal requirements. CHAIR KOHRING noted that lawyers had worked with various folks including Mr. Chenoweth in crafting this legislation, and that there may be a valid reason to have [staff included]. Number 1826 REPRESENTATIVE ROKEBERG indicated to Mr. Sexton that his biggest concern is whether HB 69 will be helpful enough to the company, rather than taking a more detailed look at the regulatory regime; he inquired about that. Emphasizing that Alaska's regulatory design is based on larger, more traditional, deep- hole operations, Representative Rokeberg noted that he was a sponsor of the original legislation and is very sensitive to the company's ability to operate. MR. SEXTON thanked Representative Rokeberg for that far-sighted question. He responded: We're really not trying to change, wholesale, the regulatory environment in Alaska. I think the regulators do a good job, but I think they have been hamstrung because of regulations that were designed for a very different type of drilling, ... and for good reason. And I believe that by giving the regulatory agencies the discretion they need, ... and not simply have to follow cookbook and textbook rules that were written in a very different environment, with a very different mindset, we believe that we can work with the regulators if they have the discretion, because we think they do understand the differences. Number 1951 MR. SEXTON continued: I guess our answer is, we'd like to try it this way. We'd like to try working with the regulators, show what a good job we can do, and if for some reason it's not enough, I will be reminded that you made this comment, and I will wish that ... I had listened more carefully to your words. But ... at this time the spirit of this is that we can all get along and work together as long as we give the regulators the discretion ... to apply what makes sense to this particular type of project. One example I could give you is, ... when we went back into a water-disposal well, we had to use equipment and had to obtain equipment that I haven't seen ... in 20 years, since I ... served on platforms offshore operated by Amoco, and I saw equipment that I have never seen ... in the Raton basin in Colorado, but we had to use it: blowout-prevention stacks and those huge, 10,000-pound-rated manifold of pipes and valves that was, quite honestly, unnecessary, but those were what the regulations specifically required, and the regulators were not able to apply their discretion. So, ... I guess our answer is, we'd like to try and work with ... the regulators, as long as they have that discretion, and if it is not enough, I'll say, "Mea culpa," and we'll be back asking for something additional. Number 2039 REPRESENTATIVE ROKEBERG thanked Mr. Sexton for the candid answer; he indicated the legislature would watch the situation. REPRESENTATIVE KERTTULA thanked Mr. Sexton and his staff for getting to know members personally and providing information up front. Noting that she'd talked to [Evergreen Resources'] Alaskan staff that afternoon, she offered her understanding that what triggers this request for a variance is an undue delay. She asked what Mr. Sexton considers an undue delay, and how long these kinds of projects normally last in Colorado. MR. SEXTON replied that Colorado certainly isn't without its own extensive regulatory rules and practices, but that a well can be permitted within a 90-day process, even given all potential objections; that certainly cannot happen in the current environment in Alaska. For example, when John Tanigawa prepared permits to drill eight wells [in Alaska], it took enough paperwork to drill eighty wells in Colorado, and the wells were drilled six months later than planned. Mr. Sexton said the company's attitude was to show willingness to work within the rules, but remarked: We're here to tell you candidly that we can't get our job done with the existing structure. We simply cannot gear up and drill what we would like to be able to drill; we would probably be able to drill 10 or 20 wells a year, but if you would like to see us slowly build that level to 40 wells, 60 wells, 80 wells, 100 wells - as we have done in the Raton basin in Colorado, [where] ... we're up to 160 wells planned this year - we could never attempt to do that in Alaska under the existing regulatory environment. Number 2228 REPRESENTATIVE KERTTULA remarked that other variances with which she is familiar are from "the other resource agencies," and usually are for small and insignificant projects. She noted that [under the bill], to her reading, there wouldn't be any size restriction because a single field could be very large in acreage. She asked: Will there be any public notice given, or conceivably could there be a very large project that has no public notice? MR. SEXTON responded: Well, that's an interesting question in that, I believe, we have already given public notice. If there is anyone in the state that John Tanigawa hasn't met, it would be surprise to me. But ... I think everyone is aware of what we're trying to do. ... I think one of the things we're particularly proud of is that you can drive through the middle of our field ... in southern Colorado - an area with quite a bit of topography and hills - and not see the field. You don't even realize you're in the middle of it. That would be even easier to accomplish ... in Alaska, ... given the terrain and the topography, and it being fairly flat, and our ability to use trees ... and natural cover, which ... we intend to do. As far as the public notice, we are required to notify landowners when we drill, and we expect to continue to notify landowners. Number 2308 REPRESENTATIVE KERTTULA surmised that a requirement of notification to landowners wouldn't be wiped out by this [legislation]. She said her fundamental concern is to ensure that there is some notice. MR. SEXTON deferred to Mr. Tanigawa for more specific comments. REPRESENTATIVE KERTTULA explained her concern, that the mineral subsurface is still owned by the state and technically the state - not the person whose property it could be on - is making the deal. She asked whether that is correct. Number 2353 JOHN TANIGAWA, Alaska Projects Manager, Evergreen Resources Alaska, concurred. He pointed out that the Department of Natural Resources (DNR) has several public-notice provisions for anything that impacts the landowner. [This legislation] refers to something specific such as an exception for something engineering-based. The desire is to be able to accomplish such exceptions relatively easily. Mr. Tanigawa also pointed out that the domain of these exceptions is in the purview of the AOGCC, which is basically how oil and gas wells are operated. REPRESENTATIVE ROKEBERG said he shares Representative Kerttula's concerns with regard to proper notification of the public. He related his belief that this legislation doesn't change any notice provisions. He asked if there is notification when establishing a unit in which to operate. MR. TANIGAWA answered in the affirmative. REPRESENTATIVE ROKEBERG pointed out that generally the primary notice provisions would take place during the unitization hearing, which would alert all landowners to the activity. That would be followed by notification that the pad would be established and [drilling would be done]. MR. TANIGAWA affirmed that. Number 2445 CHAIR KOHRING noted the arrival of Dan Seamount and Cammy Taylor from the Alaska Oil and Gas Conservation Commission (AOGCC). Chair Kohring pointed out that passage of this bill provides AOGCC with a tool that allows them to better work with the industry and speed the process of issuing permits. He directed attention to page 1, line 14, and asked Mr. Seamount and Ms. Taylor if it's appropriate to strike the language referring to giving authority to "professional staff" to make decisions on granting variances. He asked whether decisions regarding granting variances should be left to the [AOGCC] commission members only. REPRESENTATIVE ROKEBERG pointed out that [similar] language also occurs on page 2, line 4, and page 2, lines 8-9. The committee took an at-ease from 3:58 p.m. to 4:01 p.m. Number 2568 CAMILLE OECHSLI TAYLOR, Chair, Alaska Oil and Gas Conservation Commission, explained that currently AOGCC has a regulatory scheme in which an operator on short notice [may] receive oral approval from the commission. In practice, that has been one of two petroleum engineers who share on-call duties for operations that are ongoing, after hours, and during the weekend. Furthermore, the regulation requires the operator to submit the formal paperwork for commission approval by the following day. MS. TAYLOR said the commission has a tremendously professional and competent technical staff. Currently, when there is an ongoing situation, the [professionals] have kept the commissioners abreast of what is going on. She explained, "It allows for the opportunity for someone who is out there conducting an operation that, but for time, would cost a lot of money for someone waiting for office hours to open and for all three commissioners to be together." Therefore, she said she reads the bill as allowing the designation to be by the commissioners and that the commissioners would have the decision-making authority. CHAIR KOHRING asked if the language "designated" on page 1, line 10, should carry through the entire legislation. REPRESENTATIVE FATE said he would like that. Number 2707 REPRESENTATIVE ROKEBERG moved that the committee rescind its action in adopting Amendment 1. There being no objection, it was so ordered. CHAIR KOHRING asked if the committee wanted to insert the language "designated" [page 1, line 14, page 2, line 4, and page 2, lines 8 and 9] so that any professional staff member would be allowed to make a decision on variances if so designated by the commission. REPRESENTATIVE ROKEBERG responded that he thought it would be redundant and unnecessary. He then noted that the committee's intention is that they all be designated. CHAIR KOHRING inquired as to the will of the committee. He then announced his understanding that the committee wished to leave the bill as it is. Number 2802 REPRESENTATIVE FATE stated that he was fine with it as long as the record reflects [the intent], and so that it "doesn't come back and haunt us" that some professional staff makes a wrong decision and then the public says the job wasn't done properly. Representative Fate added, "Just so the record is clear that you [AOGCC] have the authority to commission any professional staff to make those decisions, I'm happy with it." REPRESENTATIVE ROKEBERG inquired as to AOGCC's procedure when those [professionals] are designated. MS. TAYLOR answered that it has been relatively informal. Therefore, having something that specifies the process is important. REPRESENTATIVE ROKEBERG pointed out that this section requires that AOGCC designate, presumably, a member of staff. Therefore, a more formal action is implied. CHAIR KOHRING said that was related to his question regarding whether that would carry forward throughout the bill. Number 2889 REPRESENTATIVE KERTTULA inquired as to the public notice that will be required when variances are granted, and what will be in place for these fields. MS. TAYLOR responded that generally AOGCC's practice is to provide for the exception for technical issues right in the language of the regulation. The original legislation - the conservation Act - requires AOGCC to issue permits promptly if they comply with all of the regulations. Therefore, the goal of AOGCC has been to clearly articulate the requirements so that operators understand what is required and it is fairly smooth for the approval process. The regulation itself actually articulates the standard for obtaining a variance, and the language of the regulation basically parallels that in this legislation, which says that "there is an equally effective means of accomplishing the same or demonstration that the risk it would have required that particular standard for doesn't exist." MS. TAYLOR noted that the regulations contain a few areas in which that provision wasn't included, because at the time of drafting there may not have been a need for it due to the technology available. She pointed out that a generic regulation addresses drilling and well-control exceptions for new technology. [Not on tape, but taken from the Gavel to Gavel recording on the Internet, was that the exception didn't go so far as to capture Mr. Tanigawa's example of gas-detection equipment, for instance. Ms. Taylor said some of that can be fixed with this same standard. She added, "I'm not sure if this was intended to apply as an exception where other parties' - other owners' - interests might be impacted. That was not the way we read it." She asked that the committee explain it if that weren't the case, and mentioned that an exception relating to an external boundary might need it, however.] TAPE 03-3, SIDE B Number 2980 REPRESENTATIVE KERTTULA surmised, then, that there has already been a public notice and the landowner already knows that this activity is ongoing; therefore, this is an exemption for a variance for something technical that really isn't going to impact the overall operation. She said all she wanted to know was that those who are being effected have some notice early on. MS. TAYLOR related her understanding that the types of variances being discussed [in HB 69] are technical conservation issues and waivers from general statewide standards - not for those regulations impacting other owners, which would require notice. Number 2897 REPRESENTATIVE ROKEBERG asked if this legislation goes far enough in overcoming the problems that have developed vis-à-vis the administrative regulations for shallow gas operations versus more typical commercial drilling operations. He asked if the bill provides enough tools for AOGCC to make those distinctions. MS. TAYLOR mentioned that [AOGCC] just learned of this legislation at the end of last week and hasn't had time to address some other issues. However, AOGCC holds the position with respect to all oil and gas drilling in the state that the commission's regulations should be directly tied to the risk that it's trying to manage, she related. There shouldn't be a requirement that doesn't directly relate to what AOGCC is trying to accomplish. Therefore, the approach in [HB 69] mirrors what AOGCC generally attempts to do. However, she acknowledged that AOGCC's regulations have historically been aimed at conventional oil and gas drilling. "To the extent that we're aware of the problems that have been raised or pointed out to us, we think that this accomplishes that," she added. Number 2822 REPRESENTATIVE FATE suggested putting the staff issue to rest. He turned attention to AS 31.05.023(a), "The commission shall employ such staff as it considers necessary to carry out its responsibilities" and decisions as may be delegated. He said that takes care of it. CHAIR KOHRING closed the public hearing. Number 2767 REPRESENTATIVE FATE moved to report HB 69 out of committee with individual recommendations and the accompanying zero fiscal note(s). There being no objection, HB 69 was reported from the House Special Committee on Oil and Gas.
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