Legislature(2003 - 2004)

02/05/2004 01:03 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 395-SHALLOW NATURAL GAS                                                                                                    
                                                                                                                                
[Contains discussion  of HB 69,  which became law last  year, and                                                               
HB 420]                                                                                                                         
                                                                                                                                
Number 0120                                                                                                                     
                                                                                                                                
CHAIR KOHRING  announced that the  first order of  business would                                                               
be HOUSE  BILL NO. 395, "An  Act relating to shallow  natural gas                                                               
leasing and the regulation of shallow natural gas operations."                                                                  
                                                                                                                                
Number 0171                                                                                                                     
                                                                                                                                
TOM  WRIGHT, Staff  to Representative  John Harris,  Alaska State                                                               
Legislature,  presented  HB  395   on  behalf  of  Representative                                                               
Harris,  prime  sponsor.    He  noted  that  during  the  summer,                                                               
meetings  were  held  to  discuss coal  bed  methane;  when  he'd                                                               
attended the  first meeting in  [the Matanuska-Susitna  area], he                                                               
was  a little  skeptical at  first, expecting  to see  people who                                                               
didn't want  any development in  their area, but  discovered that                                                               
the  concerns  expressed  by  the  300-plus  participants  seemed                                                               
valid.    Those  concerns  primarily related  to  lack  of  local                                                               
government  input  in  discussions involving  coal  bed  methane,                                                               
public  notice requirements,  drinking  water contamination,  and                                                               
private property rights.  Later  that fall, meetings were held in                                                               
the  Homer  area,  where  a  number of  the  same  concerns  were                                                               
expressed;  he  suggested  Representative   Seaton  may  want  to                                                               
discuss those with the committee.                                                                                               
                                                                                                                                
MR.  WRIGHT offered  the belief  that the  Department of  Natural                                                               
Resources (DNR) had instituted a  good public policy process, but                                                               
said there were  limitations under which [DNR]  could actually go                                                               
forth;  although  concerns  had  been expressed  about  that,  he                                                               
suggested  DNR  should be  thanked  for  its efforts  in  getting                                                               
citizens involved in this process.                                                                                              
                                                                                                                                
MR.  WRIGHT  reported  that   during  the  fall,  Representatives                                                               
Stoltze, Gatto,  Seaton, and Harris  met to discuss  these issues                                                               
and try  to find  solutions.   The bill is  an effort  to discuss                                                               
some of those issues and isn't  a finished product.  He explained                                                               
that  it  doesn't  include "buy-back"  [of  leases],  although  a                                                               
number of people want to see  that happen in the Sutton and Homer                                                               
areas.   Noting  that other  legislation has  been introduced  to                                                               
address that issue, he said, "I  think at this point in time we'd                                                               
just as  soon see  what's going to  happen with  that legislation                                                               
and see where  it's going to go before we  start instituting buy-                                                               
backs into the process that we've developed thus far."                                                                          
                                                                                                                                
MR. WRIGHT acknowledged Barbara Bitney  for involving him in this                                                               
process  when she  worked for  Representative Stoltze.   He  also                                                               
introduced Rick  VanderKolk, who  he said has  worked extensively                                                               
on this bill  along with staff to  Representatives Gatto, Seaton,                                                               
and Stoltze.                                                                                                                    
                                                                                                                                
CHAIR KOHRING announced that  Representatives Heinze and Kerttula                                                               
had  joined the  meeting.   He  also recognized  the presence  of                                                               
Representative Chenault.                                                                                                        
                                                                                                                                
Number 0520                                                                                                                     
                                                                                                                                
RICHARD VANDERKOLK,  Staff to Representative John  Harris, Alaska                                                               
State Legislature, began by addressing  Section 1, which contains                                                               
assurance  about  water  quality  and integrity  with  regard  to                                                               
hydraulic fracturing.  He explained  that hydraulic fracturing is                                                               
a  technique used  by the  oil and  gas industry  to improve  the                                                               
efficiency of production wells,  including CBM [coal bed methane]                                                               
production wells.   The hydraulically created fracture  acts as a                                                               
conduit in  the rock or coal  formation, allowing the oil  or gas                                                               
to travel  more freely  from the  rock pores.   To create  such a                                                               
fracture, a [viscous] water-based  fluid is sometimes pumped into                                                               
the coal seam  under high pressures until a  fracture is created.                                                               
These  fluids  consist primarily  of  water,  but in  some  cases                                                               
contain various additives such as diesel fuel.                                                                                  
                                                                                                                                
MR.  VANDERKOLK  said there  are  at  least three  arguments  for                                                               
establishing  Section 1.    Reading in  part  from the  sectional                                                               
analysis for  HB 395,  he explained  that Section  1 adds  to the                                                               
authority  of  the Alaska  Oil  and  Gas Conservation  Commission                                                               
(AOGCC) the  ability to regulate hydraulic  fracturing associated                                                               
with  exploration for  and  recovery of  shallow  natural gas  to                                                               
assure  that reinjected  water  doesn't  contaminate supplies  of                                                               
drinking water  or water for  agricultural purposes.   He pointed                                                               
out that there has been a  great deal of public concern about the                                                               
quality of people's water.                                                                                                      
                                                                                                                                
Number 0650                                                                                                                     
                                                                                                                                
MR.  VANDERKOLK addressed  a second  reason  for Section  1:   it                                                               
conforms to recent case law.   Referring to a handout relating to                                                               
a 9th  Circuit Court of  Appeals decision  from 2003, he  said it                                                               
sets the tone  of allowing states to regulate  CBM operations and                                                               
how  water is  handled.    [The handout  was  a memorandum  dated                                                               
February  2,  2004,  to  Mr.   VanderKolk  from  Jack  Chenoweth,                                                               
Assistant  Revisor of  Statutes, with  an enclosed  decision from                                                               
Northern  Plains Resource  Council  v.  Fidelity Exploration  and                                                             
Development Company.]                                                                                                         
                                                                                                                                
MR. VANDERKOLK  read from the above-referenced  memorandum, which                                                               
states in part:                                                                                                                 
                                                                                                                                
     In that  decision, a  three-member Circuit  Court panel                                                                    
     unanimously  concluded  that  water  from  a  coal  bed                                                                    
     methane  operation is  a pollutant  even if  unaltered.                                                                    
     The court  rejected application of an  earlier decision                                                                    
     that  the  emission   of  biological  wastes  involving                                                                    
     farmed  shellfish  operations  is not  a  discharge  of                                                                    
     pollutants  as  applicable  precedent.    Instead,  the                                                                    
     court declared  the water,  salty when  discharged, was                                                                    
     "an  unwanted  byproduct"  of   the  coal  bed  methane                                                                    
     extraction process,  that it was "produced  water" that                                                                    
     could qualify  for a Clean  Water Act  permit discharge                                                                    
     exemption  only if  disposed of  underground, and  that                                                                    
     the water, when discharged,  might degrade and restrict                                                                    
     the receiving  waters (in the Montana  case, of course,                                                                    
     to freshwater rivers and creeks).                                                                                          
                                                                                                                                
MR.  VANDERKOLK  ended  with  the  words  "only  if  disposed  of                                                               
underground"  and remarked,  "So  there is  our  precedent."   He                                                               
observed that  this took place relatively  recently; he mentioned                                                               
HB 69 and said it's more appropriate now to look at that case.                                                                  
                                                                                                                                
Number 0774                                                                                                                     
                                                                                                                                
MR.  VANDERKOLK addressed  a third  element [of  Section 1]:   it                                                               
enshrines a  good business practice.   Referring to  a memorandum                                                               
of  agreement between  the U.S.  Environmental Protection  Agency                                                               
(EPA)  and  three  companies [BJ  Services  Company,  Halliburton                                                               
Energy Services,  Inc., and Schlumberger  Technology Corporation,                                                               
dated December 12,  2003], he said  it was a  voluntary agreement                                                               
that  they  no  longer  would   use  diesel  fuel  and  hydraulic                                                               
fracturing fluids injected into CBM  production wells "for any of                                                               
the  water  tables."   Suggesting  this  is  extremely  important                                                               
because it  sets a kind  of business-practice precedent and  is a                                                               
model for others  to follow, he added, "They  recognize that it's                                                               
a sensitive issue and that  mountains of litigation are possible.                                                               
And so, rather than hashing it  out that way, they assumed it was                                                               
better to enter a voluntary agreement."                                                                                         
                                                                                                                                
MR. VANDERKOLK said  for the past several months  there have been                                                               
hundreds of  residents attending local meetings,  voicing concern                                                               
about  potential  impacts.   With  regard  to  the case  law,  he                                                               
summarized by  saying the  discharge of  water must  be separated                                                               
from  surrounding water  tables -  the reinjection  - which  [the                                                               
bill] does.   As for  public participation, he remarked,  "It's a                                                               
necessary part to put in that memorandum of agreement."                                                                         
                                                                                                                                
Number 0886                                                                                                                     
                                                                                                                                
MR. VANDERKOLK  paraphrased the first paragraph  of the sectional                                                               
analysis for Section 2.  It states:                                                                                             
                                                                                                                                
     In  conjunction with  shallow  natural gas  exploration                                                                    
     and  recovery,  this  section   adds  a  new  provision                                                                    
     directing   the  Alaska   Oil   and  Gas   Conservation                                                                    
     Commission  to  initiate  a  public  forum  process  to                                                                    
     informally  resolve issues  of  public health,  safety,                                                                    
     welfare, and environmental complaints.                                                                                     
                                                                                                                                
MR.  VANDERKOLK remarked,  "This is  where we  initiate a  public                                                               
forum in  Sections 2  and 4."   He  said one  long-term complaint                                                               
from  many residents  has  been  that it's  not  very lengthy  or                                                               
thorough, and  they'd like  an opportunity  for a  "lecture" from                                                               
the  company,  an  explanation,  "without  trying  to  delay  the                                                               
leasing process."                                                                                                               
                                                                                                                                
Number 0916                                                                                                                     
                                                                                                                                
MR.  VANDERKOLK addressed  Sections  3 and  9,  noting that  this                                                               
applies  to Section  6 as  well.   Saying  this standardizes  and                                                               
defines  what  is  meant  by  "shallow  natural  gas  lease,"  he                                                               
paraphrased  the sectional  analysis for  Sections 3  and 9.   It                                                               
states:                                                                                                                         
                                                                                                                                
     The  amendments   made  in   each  of   these  sections                                                                    
     eliminate,  in the  respective definitions  of "shallow                                                                    
     natural gas", the reference to  recovery of natural gas                                                                    
     from a depth of up to  4,000 feet and replace it with a                                                                    
     reference to  3,000 feet.   The  amendment standardizes                                                                    
     references to depth of recovery.                                                                                           
                                                                                                                                
[The sectional  analysis for Section  6 reads, "Adds  language to                                                               
clarify  that gas  recoverable from  a depth  of more  than 3,000                                                               
feet  may occur  only  under a  conventional  lease issued  under                                                               
AS 38.05.180."]                                                                                                                 
                                                                                                                                
MR. VANDERKOLK paraphrased the sectional  analysis for Section 5.                                                               
It states [original punctuation provided]:                                                                                      
                                                                                                                                
     Amends AS  38.05.177(f) to add  a series  of additional                                                                    
     requirements  that  must  be   inserted  in  a  shallow                                                                    
     natural  gas  lease,  to  include  (in  paragraph  (2))                                                                    
     required  payments of  fees by  a lessee  to an  owner;                                                                    
     (3)  setbacks applicable  to  compressor stations  that                                                                    
     are appropriate  to the lease;   (4)  appropriate noise                                                                    
     mitigation  measures;   and  (5)   surface  restoration                                                                    
     requirements,   if   the   surface  is   disturbed   by                                                                    
     exploration or development operations.                                                                                     
                                                                                                                                
MR.  VANDERKOLK  noted that  Section  7  provides for  reasonable                                                               
access.   He paraphrased  the sectional  analysis for  Section 7.                                                               
That analysis states [original punctuation provided]:                                                                           
                                                                                                                                
     In  instances in  which an  owner and  a lessee  cannot                                                                    
     reach agreement  for the latter's entry  on to property                                                                    
     to explore for and develop  shallow natural gas and the                                                                    
     lessee  seeks  to post  a  bond  to permit  entry,  the                                                                    
     amendment  (page  6,  lines  9 -  17)  adds  a  further                                                                    
     requirement  that the  lessee demonstrate  "that access                                                                    
     and  entry upon  the land  of the  owner is  reasonable                                                                    
     necessary  or   convenient"  to  secure   the  lessee's                                                                    
     rights.                                                                                                                    
                                                                                                                                
MR. VANDERKOLK  said basically this  will show  justification for                                                               
the lessee's proposal.                                                                                                          
                                                                                                                                
Number 1025                                                                                                                     
                                                                                                                                
MR.  VANDERKOLK paraphrased  the first  portion of  the sectional                                                               
analysis for Section 8.  It states:                                                                                             
                                                                                                                                
     Adds two new subsections.                                                                                                  
                                                                                                                                
     The  language  of  subsection   (p)  expands  upon  the                                                                    
     procedures currently applicable  to securing protection                                                                    
     against damages  insofar as those procedures  relate to                                                                    
     shallow   natural  gas   exploration  and   development                                                                    
     activities:                                                                                                                
                                                                                                                                
[The sectional analysis goes on to discuss subparagraphs (1)(A),                                                                
(1)(B), (2)(A), and (2)(B), as well as subsection (q).]                                                                         
                                                                                                                                
MR. VANDERKOLK paraphrased the sectional analysis for Sections                                                                  
10 and 11.  It states [with Mr. VanderKolk's clarification added                                                                
in brackets]:                                                                                                                   
                                                                                                                                
     AS  31.05.125  and  AS  38.05.177(n),  added  in  2003,                                                                    
     authorized  the commissioner  of  natural resources  to                                                                    
     approve a  waiver of local planning  authority approval                                                                    
     and  requirements  relating  to compliance  with  local                                                                    
     ordinances  and   regulations  if  the   Department  of                                                                    
     Natural  Resources clearly  demonstrates an  overriding                                                                    
     state  interest.   These  provisions  are proposed  for                                                                    
     repeal [in this  bill].  In the same  2003 vehicle that                                                                    
     added these  provisions, language  adding section  7 to                                                                    
     the  bill's legislative  findings  was  inserted.   The                                                                    
     amendment  made  in  bill   section  10  reverses  that                                                                    
     addition.                                                                                                                  
                                                                                                                                
MR. VANDERKOLK offered to answer questions, noting that there                                                                   
was a lot more background material as well.                                                                                     
                                                                                                                                
MR. WRIGHT pointed out that Representatives Gatto, Seaton, and                                                                  
Stoltze were present and could answer questions.                                                                                
                                                                                                                                
Number 1156                                                                                                                     
                                                                                                                                
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, cosponsor                                                                 
of HB 395, told members:                                                                                                        
                                                                                                                                
     These  are  corrective  actions that  we're  trying  to                                                                    
     take.   What has happened  is, the shallow  natural gas                                                                    
     regulations went  forward under one set  of ideas, that                                                                    
     is,  rural development,  shallow  in  nature, ...  with                                                                    
     very    streamlined    regulations,    ...    extremely                                                                    
     streamlined.   And at  the time,  the thought  was that                                                                    
     these were going  to be small wells that  were going to                                                                    
     be ...  water-drilling kind  of rigs  that would  be in                                                                    
     place for less than a week on a pad.                                                                                       
                                                                                                                                
     And what has  happened is that this  has morphed beyond                                                                    
     what   anyone  really   intended.  ...   Actually,  the                                                                    
     language, as  it came out,  ... it turned out  that DNR                                                                    
     was not able to consider  public comments ... that were                                                                    
     offered,  by statute.    And DNR  was  not happy  about                                                                    
     that, ...  and no one  else was - ...  those unintended                                                                    
     consequences. ...                                                                                                          
                                                                                                                                
     Also, the reason we are  putting back in the 3,000 feet                                                                    
     is because what is happening  in the Homer area is that                                                                    
     this  is  turning into  a  conventional  gas play,  not                                                                    
     water well-size  rigs, but ... full-blown  rigs to full                                                                    
     depth - if  anything can be shown to  exist about 3,000                                                                    
     feet - and  ... these large rigs could be  in place for                                                                    
     extended  periods of  time  with directional  drilling,                                                                    
     et cetera.                                                                                                                 
                                                                                                                                
     So ... what  we're trying to do is get  back with these                                                                    
     provisions so  that the best  interest of the  state is                                                                    
     again  considered.    And ...  we're  not  saying  that                                                                    
     anyone  intended to  make this  happen, but  it was  an                                                                    
     unintended consequence of looking  at a rural situation                                                                    
     and trying  to develop energy sources,  and then having                                                                    
     that applied in  [an] urban area.  And  ... that's been                                                                    
     the frustration that's come forward.                                                                                       
                                                                                                                                
Number 1300                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE asked where language about the reasonable                                                                 
justification to cross someone's land is found in the bill.                                                                     
                                                                                                                                
MR. VANDERKOLK said its Section 7.                                                                                              
                                                                                                                                
REPRESENTATIVE HEINZE asked how "reasonable" is defined.                                                                        
                                                                                                                                
REPRESENTATIVE SEATON explained:                                                                                                
                                                                                                                                
     What we're doing is trying  to get some balance back in                                                                    
     the  situation here.    This is  relating  to a  surety                                                                    
     bond.  If there is a  lease and a surface holder who is                                                                    
     not  the subsurface  holder, and  ... we've  leased the                                                                    
     subsurface rights,  there's supposed  to be  a surface-                                                                    
     use agreement.                                                                                                             
                                                                                                                                
     The way  it works  right now is  if the  surface holder                                                                    
     and  the  subsurface  right holder  can't  come  to  an                                                                    
     agreement,  the subsurface  right  holder  goes to  the                                                                    
     commissioner of DNR,  and the DNR's only  ability is to                                                                    
     say, "Okay, what absolute damages  are [there] going to                                                                    
     be, by  drilling in this  person's front yard  or their                                                                    
     backyard  or  in  the   schoolyard,  or  wherever  this                                                                    
     drilling happens  to be,"  and posting  a bond  for the                                                                    
     physical    damage   that    would   occur    and   the                                                                    
     rehabilitation of  that piece of property.   What isn't                                                                    
     related here  is, is  it necessary  for the  company to                                                                    
     use that person's  front yard when there's  15 acres of                                                                    
     undeveloped land sitting right next to it.                                                                                 
                                                                                                                                
REPRESENTATIVE SEATON  went on  to say  that the  oil leaseholder                                                               
has  to just  demonstrate to  the commissioner  of DNR  that it's                                                               
reasonably necessary  or convenient to use  that particular piece                                                               
of ground  to put a  drilling rig  or compressor station  on, and                                                               
that there aren't other reasonable  sources.  Reporting that this                                                               
language is  taken right out of  the current statute, he  said it                                                               
gives  the commissioner  some flexibility  to weigh  and consider                                                               
the surface use and the subsurface rights.                                                                                      
                                                                                                                                
REPRESENTATIVE  SEATON  concluded by  saying  state  law and  the                                                               
constitution  obviously allow  for the  subsurface right  to have                                                               
precedence.   This brings  it back to  DNR so  [the commissioner]                                                               
can balance  it and ask  whether that particular piece  of ground                                                               
is needed for  "access to the subsurface rights  that we've given                                                               
you."    Noting  that  those  are  the  criteria  of  "reasonably                                                               
necessary and convenient,"  he said that's all  the mineral right                                                               
holder would  have to show to  the DNR commissioner and  then the                                                               
surety bond would be (indisc.).                                                                                                 
                                                                                                                                
Number 1509                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE remarked  that in the past  there have been                                                               
DNR  commissioners who  were "friendly  to development"  and some                                                               
who weren't.   She suggested  that there is a  precarious balance                                                               
and that it's a lot of power to put in one person's hands.                                                                      
                                                                                                                                
REPRESENTATIVE SEATON responded:                                                                                                
                                                                                                                                
     We didn't  want to  bring this out  and try  to balance                                                                    
     weights.    What  we  did  want to  do  was  give  some                                                                    
     discretion  to  the  commissioner of  DNR  to  consider                                                                    
     whether it's  reasonable and necessary for  them to use                                                                    
     that  particular piece  of property.  ... So  this just                                                                    
     throws in  some consideration, and the  commissioner of                                                                    
     DNR,  whose   responsibility  is  for   developing  our                                                                    
     natural resources, is going to do that.                                                                                    
                                                                                                                                
     But like  I say, ... you  might have a piece  of ground                                                                    
     and you  might have a  canyon and acreage on  the other                                                                    
     side of that  ground that's available.   Well, it would                                                                    
     be  very  inconvenient  for  the  oil  company  or  gas                                                                    
     company to  come in and  have to  cross a canyon  to do                                                                    
     that.   So I would  presume DNR would say,  "No, you've                                                                    
     shown me that it's  reasonably necessary and convenient                                                                    
     for  you to  use this  person's  front yard."   But  it                                                                    
     could  also be  the situation  in which  you have  many                                                                    
     vying pieces of property around  and for some reason, a                                                                    
     driller - not the ones  that we know right now, because                                                                    
     the ones that we know  right now are fairly responsible                                                                    
     - could  come in  and say,  "I want to  put it  in your                                                                    
     front yard  ... just because  I want to put  it there."                                                                    
     And  the  way  the  law   is  written  right  now,  the                                                                    
     commissioner of  DNR, ...  all he  does is  say, "Well,                                                                    
     the  rehabilitation  amount  for having  that  in  your                                                                    
     front yard is  going to be this, and  the surety bond,"                                                                    
     and you  have absolute  right to  put it  there without                                                                    
     any consideration to the property owner.                                                                                   
                                                                                                                                
CHAIR HEINZE remarked that it troubles her.                                                                                     
                                                                                                                                
Number 1630                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  requested an  explanation at  some point                                                               
of how  "reasonably necessary or  convenient" is  interpreted and                                                               
will be applied.  Noting that  it is broad, she expressed concern                                                               
that it doesn't say "and convenient".                                                                                           
                                                                                                                                
Number 1695                                                                                                                     
                                                                                                                                
CHAIR  KOHRING  cautioned  against having  any  legislation  that                                                               
moves  out  of  this  committee hinder  the  industry,  but  also                                                               
highlighted the need to make  sure there are adequate protections                                                               
for  property  owners.    Offering  his belief  that  a  lot  was                                                               
accomplished last year  with HB 69 [which he  sponsored] in terms                                                               
of  streamlining the  permitting  process  to encourage  resource                                                               
development,  he advised  members,  "As opposed  to rolling  back                                                               
what we did, I'd  like to just look at this  whole effort here as                                                               
a way to add protections."                                                                                                      
                                                                                                                                
CHAIR  KOHRING announced  a  tentative plan  to  roll HB 395  and                                                               
HB 420 together in the near future.  [HB 395 was held over.]                                                                    
                                                                                                                                
HB 420-SHALLOW NATURAL GAS RECOVERY ACTIVITIES                                                                                
                                                                                                                                
[Contains discussion  of HB 69,  which became law last  year, and                                                               
HB 395]                                                                                                                         
                                                                                                                                
CHAIR KOHRING announced that the  next order of business would be                                                               
HOUSE  BILL NO.  420, "An  Act  relating to  recovery of  shallow                                                               
natural gas; and providing for an effective date."                                                                              
                                                                                                                                
Number 1821                                                                                                                     
                                                                                                                                
CHAIR KOHRING  presented HB  420 on behalf  of the  House Special                                                               
Committee on Oil  and Gas, sponsor.  He said  this legislation is                                                               
in  response to  concerns that  coal bed  methane drilling  could                                                               
have a  negative affect on  waters such that water  sources could                                                               
be  depleted.   However,  the industry  contends  that given  the                                                               
depths of  most coal bed  methane drilling, the water  quality or                                                               
quantity  wouldn't be  impacted.   Due  to  these concerns,  this                                                               
legislation establishes a water well fund.                                                                                      
                                                                                                                                
CHAIR KOHRING explained  that if any drilling  that occurs within                                                               
1,500  feet  of any  water  well  causes  the  water well  to  be                                                               
compromised,  a claim  could be  filed by  the affected  property                                                               
owner.   As a result, the  replacement well could be  paid for by                                                               
this fund.  The fund is  [established] through a $0.01 charge per                                                               
20 mcf  [thousand cubic feet].   The  fund is capped  at $250,000                                                               
per  drilling operation.   This  legislation  specifies that  the                                                               
driller  would be  afforded a  refund once  drilling, production,                                                               
and  reclamation  has  occurred.    Therefore,  this  legislation                                                               
offers protection for the property  owners but doesn't discourage                                                               
the drillers because of the refund.                                                                                             
                                                                                                                                
Number 1960                                                                                                                     
                                                                                                                                
ERIC MUSSER,  Staff to Representative  Vic Kohring,  Alaska State                                                               
Legislature, noted that an amendment  is necessary to clarify how                                                               
that exaction fee  is calculated using mcf for which  the unit of                                                               
measure  is  thousand [cubic  feet]  rather  than million  [cubic                                                               
feet].                                                                                                                          
                                                                                                                                
Number 2006                                                                                                                     
                                                                                                                                
REPRESENTATIVE   McGUIRE   moved   that   the   committee   adopt                                                               
Amendment 1  [which would  change the  reference to  "million" on                                                               
page 3, line  7, such that it referred to  "mcf" because the unit                                                               
of measure  is thousand cubic  feet].  There being  no objection,                                                               
it was so ordered.                                                                                                              
                                                                                                                                
MR.  MUSSER explained  that the  fee in  HB 420  would amount  to                                                               
about $29,000 a  year and thus it would  take approximately eight                                                               
to  nine  years,  assuming  that   there  are  approximately  800                                                               
producing wells.   He  noted that  the aforementioned  is modeled                                                               
after the  old producer exaction  fee of  a nickel a  barrel that                                                               
existed for several years.                                                                                                      
                                                                                                                                
REPRESENTATIVE  McGUIRE  asked  if  the shallow  gas  company  is                                                               
required to  post a bond;  if so,  why would this  legislation be                                                               
necessary?                                                                                                                      
                                                                                                                                
Number 2136                                                                                                                     
                                                                                                                                
MR. MUSSER agreed  that a bond is required.   However, the public                                                               
testimony  heard   in  the  Matanuska-Susitna   ("Mat-Su")]  area                                                               
highlighted  the biggest  concern  of residents,  that they  were                                                               
forced to hire legal counsel to  go after the bond.  Furthermore,                                                               
there were  concerns with regard  to lengthy delays to  replace a                                                               
well.   Therefore,  this legislation  precludes those  obstacles.                                                               
He pointed  out that there  is a presumed liability  provision in                                                               
HB  420 and  thus if  a  permit is  obtained by  a company,  this                                                               
legislation requires  the company to  give 30 days  notice before                                                               
entering a  premises.   When that notice  is received,  the owner                                                               
would  have  the  responsibility  of  testing  the  well.    Once                                                               
[drilling]  activities commence  and months  later the  well goes                                                               
dry, the  legislation allows a  direct vehicle provided  the well                                                               
owner has tested the well.                                                                                                      
                                                                                                                                
REPRESENTATIVE McGUIRE inquired as to  how one proves that a well                                                               
is impacted due to drilling activities.                                                                                         
                                                                                                                                
MR. MUSSER  responded that it's presumed  drilling activities are                                                               
the  cause of  problems  that  a well  is  having after  drilling                                                               
activities  have   occurred  within  1,500  feet.     Under  such                                                               
circumstances, he said the well would be replaced.                                                                              
                                                                                                                                
REPRESENTATIVE GATTO remarked that  one wouldn't want the driller                                                               
to [have to replace a well] because  the pump went out.  He asked                                                               
if the  driller would  face [responsibility] if  a well  went bad                                                               
after an  earthquake.  He  also asked  if the driller  would face                                                               
[responsibility] if  a well went  bad because the water  seems to                                                               
be half the volume is  once was.  Therefore, Representative Gatto                                                               
asked  if  any  consideration  has   been  given  to  involve  an                                                               
arbitrator  or does  the  well owner  need a  well  log prior  to                                                               
[drilling activities  commence] in order to  determine the depth,                                                               
volume, and strata as it went down.                                                                                             
                                                                                                                                
MR. MUSSER  answered that  certain components  of that  have been                                                               
considered.  This legislation speaks  to replacement.  Certainly,                                                               
he  said this  legislation doesn't  govern a  situation in  which                                                               
one's  pump  goes bad.    Furthermore,  this legislation  doesn't                                                               
address the  event of  a natural  catastrophe.   This legislation                                                               
specifically  addresses  a well  going  dry  after the  start  of                                                               
drilling  activities, but  one  must have  tested  the well  with                                                               
regard to flow, quantity, and quality prior to drilling.                                                                        
                                                                                                                                
REPRESENTATIVE GATTO  surmised, then,  that the  homeowner should                                                               
have a  water quality report  done that identifies  the hardness,                                                               
chemicals,  and  iron of  the  water.    He  inquired as  to  the                                                               
arrangements [with regard  to testing the well  water] before the                                                               
well owner is asked to obtain testing.                                                                                          
                                                                                                                                
MR.  MUSSER directed  attention  to page  2,  lines 17-19,  which                                                               
requires that a landowner receive  written notice that activities                                                               
will take place.   It requires that the owner  test the well with                                                               
regard to purity, form, and  flow.  In response to Representative                                                               
Holm,  he  explained  that  Amendment 1  would  remove  the  word                                                               
"million"  on page  3, line  7,  and insert  "mcf per  day".   He                                                               
confirmed that  the fee would  be a  penny for every  20 thousand                                                               
cubic feet per day.                                                                                                             
                                                                                                                                
REPRESENTATIVE  HOLM related  his  understanding  that the  state                                                               
would say [the property owner]  doesn't own the subsurface rights                                                               
and thus [the property owner] wouldn't  be paid but would have to                                                               
test the well.   Therefore, if there is a  change after drilling,                                                               
there would be substantive proof  that something has changed.  He                                                               
inquired as to  why the drilling company isn't  being required to                                                               
pay for  water quality tests of  any wells owned by  those within                                                               
1,500 feet of the drilling.                                                                                                     
                                                                                                                                
Number 2559                                                                                                                     
                                                                                                                                
MR. MUSSER  answered that [such  a requirement] would be  left to                                                               
the   will  of   the  committee.     However,   he  related   his                                                               
understanding  that  the  majority   of  well  owners  test  them                                                               
periodically anyway.                                                                                                            
                                                                                                                                
CHAIR  KOHRING noted  that  Representative  Holm's suggestion  is                                                               
something to consider.                                                                                                          
                                                                                                                                
REPRESENTATIVE HOLM said that since  the state has taken away the                                                               
subsurface rights from  the people of Alaska, then  it seems that                                                               
a positive approach would be taken.                                                                                             
                                                                                                                                
CHAIR KOHRING  clarified that taking  away the  subsurface rights                                                               
from  the  people  of  Alaska  was  the  result  of  the  state's                                                               
constitution upon  Alaska's statehood.   Therefore, the  state is                                                               
bound  by that,  although it  has created  some problems.   Chair                                                               
Kohring  related his  personal  opinion that  he  would like  for                                                               
subsurface rights to be granted [to the individual].                                                                            
                                                                                                                                
Number 2661                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  surmised that  this legislation  will mean                                                               
every  well owner  [within 1,500  feet of  a drilling  operation]                                                               
would  have to  obtain  special  testing within  30  days of  the                                                               
notification.   Representative Seaton  remarked that  testing for                                                               
purity and  flow and maintaining  testing records isn't  a normal                                                               
well log that a residential well owner would perform.                                                                           
                                                                                                                                
REPRESENTATIVE SEATON  related his  understanding that  with coal                                                               
bed methane,  it would probably  result in four wells  per square                                                               
mile,  and  1,500  feet  would  be merely  a  third  of  a  mile.                                                               
Therefore,  he  said, leasing  in  the  Mat-Su Valley  under  the                                                               
spacing suggested  by the companies,  every single person  in the                                                               
Mat-Su Valley leasing area of  the development would have to test                                                               
his or her well.   The aforementioned places a significant amount                                                               
of cost on  the surface owner so that the  surface owner could be                                                               
able to claim damages.   He agreed with Representative Holm about                                                               
possibly looking at that.                                                                                                       
                                                                                                                                
Number 2763                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE said merely suggesting  that a base line be                                                               
formed creates the  fear that [the drilling  companies] are going                                                               
to come  in and cause problems  for wells.  Therefore,  care must                                                               
be  taken in  crafting  a  message that  balances  the people  of                                                               
Alaska and the [drilling] companies.                                                                                            
                                                                                                                                
REPRESENTATIVE  KERTTULA  turned  to   page  2,  line  23,  which                                                               
specifies that the standard is  that "the activities appear to be                                                               
probable".    She  commented  that   she'd  never  seen  [such  a                                                               
standard]  and  expressed the  need  to  see  how that  would  be                                                               
interpreted.                                                                                                                    
                                                                                                                                
MR. MUSSER  pointed out  that the  [standard] language  was taken                                                               
from existing  statute relating to  surface mining  activities in                                                               
Title 27.   In  response to  Representative Kerttula,  Mr. Musser                                                               
acknowledged that the aforementioned statute is old.                                                                            
                                                                                                                                
CHAIR KOHRING related that the  legislation is sort of an outline                                                               
of  a concept  and the  meeting has  generated some  good points,                                                               
which  he   indicated  would  be  incorporated   to  improve  the                                                               
legislation  without [discouraging]  development.   Chair Kohring                                                               
noted the presence of former lieutenant governor Red Boucher.                                                                   
                                                                                                                                
REPRESENTATIVE HOLM  asked if  lateral drilling  can be  done for                                                               
coal bed methane.                                                                                                               
                                                                                                                                
Number 2979                                                                                                                     
                                                                                                                                
JACK EKSTROM, Director,  Government Affairs, Evergreen Resources,                                                               
Inc.  ("Evergreen"), explained  that the  practice of  horizontal                                                               
drilling  is  gaining in  its  economic  viability.   It  is  not                                                               
something  that  Evergreen  has  done  in  the  Raton  Basin  [in                                                               
Colorado]  where  its  base  of  operations  is.    He  said  the                                                               
technology continues  to improve, and it  may become economically                                                               
viable in  Alaska in the  coming years.   He added that  coal bed                                                               
methane technology  has evolved  so rapidly, it's  very difficult                                                               
to say "it would or wouldn't."                                                                                                  
                                                                                                                                
MR.  EKSTROM explained  that  10 years  ago,  Evergreen had  zero                                                               
reserves  in  coal   bed  methane  and  there   was  very  little                                                               
production in  the United  States, although  now it  accounts for                                                               
8 percent of  all natural gas produced  in the country.   It came                                                               
on  very  rapidly,  and  a  lot of  mistakes  were  made  in  the                                                               
beginning  that  were corrected  over  time.   Mr.  Ekstrom  said                                                               
horizontal  drilling technology  and [the  practice of]  drilling                                                               
multiple wells  from one pad  is being done in  western Colorado,                                                               
where Evergreen is beginning operations.                                                                                        
                                                                                                                              
TAPE 04-1, SIDE B                                                                                                             
                                                                                                                                
MR. EKSTROM  said horizontal drilling  is kind of  a cutting-edge                                                               
thing that's being refined  as time goes on.  He  said he is very                                                               
hopeful, but it  is difficult to say if it  would apply in Alaska                                                               
until  some  kind  of commerciality  is  developed.    Suggesting                                                               
Evergreen   would   be    using   conventional   technology   and                                                               
unconventional  gas,  he  remarked,  "I  think  that's  from  the                                                               
outset, but I have high hopes for that technology."                                                                             
                                                                                                                                
REPRESENTATIVE  HOLM  said  he'd  mentioned  horizontal  drilling                                                               
because it has to do with water quality.                                                                                        
                                                                                                                                
CHAIR  KOHRING   said  he  thought  directional   drilling  would                                                               
alleviate  any  concerns  about drilling  occurring  in  people's                                                               
backyards, which  he doesn't think is  ever going to happen.   He                                                               
said he  didn't think DNR  would ever  issue a permit  that would                                                               
allow [drilling in people's backyards]  or on school grounds, and                                                               
he  remarked,  "That has  been  overblown  a  lot in  this  whole                                                               
argument."                                                                                                                      
                                                                                                                                
MR. EKSTROM stated that Evergreen  has never done that, and never                                                               
would.                                                                                                                          
                                                                                                                                
CHAIR KOHRING said Evergreen has  been very responsible, which he                                                               
appreciates, and  has been a model  company.  He said  he thought                                                               
directional drilling would greatly minimize that prospect.                                                                      
                                                                                                                                
Number 2907                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  asked  Mr.  Ekstrom  if  Evergreen  has  a                                                               
competitor  that  uses directional  drilling  or  if he  knew  of                                                               
anyone who is directional drilling for [coal bed methane].                                                                      
                                                                                                                                
MR. EKSTROM  responded that Evergreen  doesn't have  a competitor                                                               
that  does directional  drilling  in the  Raton  Basin, where  it                                                               
operates.   He said  Evergreen views  all natural  gas producers,                                                               
ultimately, as  competitors.  He remarked,  "Friendly competitors                                                               
in most  cases, people with  whom we  join in common  interest on                                                               
many  issues."    Mr.  Ekstrom  said it's  a  different  kind  of                                                               
geologic  or  surface  scenario  that allows  for  that  kind  of                                                               
technology,  the  particular  geology where  Evergreen  Resources                                                               
operates  is not  conducive to  the  present horizontal  drilling                                                               
technology.  It  is less economic because  Evergreen doesn't have                                                               
surface  use problems  in the  Raton Basin;  it drills  the wells                                                               
fairly quickly and fairly cheaply.                                                                                              
                                                                                                                                
MR. EKSTROM said the  wells are drilled in about a  day.  He said                                                               
there isn't any  compelling reason for Evergreen to  do that, and                                                               
in  ecologically sensitive  areas  he could  see how  [horizontal                                                               
drilling] would be  desirable, but Evergreen has  had no problems                                                               
in the Raton Basin.   Furthermore, Evergreen's economics are very                                                               
strong  in  the  way  it  is  doing it  and  it  doesn't  have  a                                                               
compelling reason to move to  that technology.  He commented that                                                               
it would  pretty much  be a  financial consideration  rather than                                                               
any other kind of consideration.                                                                                                
                                                                                                                                
Number 2829                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  said he appreciates the  idea of improving                                                               
[legislation]   relating  to   water  wells,   although  who   is                                                               
responsible  for doing  the testing  might be  questionable.   In                                                               
addition  to testing,  he said  [homeowners] need  to have  water                                                               
rights.   Furthermore,  he  said [homeowners]  have  to file  for                                                               
water  rights  on water  wells,  because  even  if the  water  is                                                               
tested, if the  [homeowner] hasn't filed for  water rights, there                                                               
is no  compensation.  This  is a definite improvement  because it                                                               
is not requiring [homeowners] to  have filed for water rights for                                                               
personal wells, he remarked.                                                                                                    
                                                                                                                                
CHAIR  KOHRING  thanked  Mr. Ekstrom  for  Evergreen's  continued                                                               
faith in Alaska and for its desire  to want to stay in the state.                                                               
There  have  been  companies  that have  intended  to  invest  in                                                               
Alaska,  including  in the  Mat-Su  Valley,  that were  literally                                                               
driven out because  those companies didn't want to  deal with the                                                               
criticism and the uproar that occurred, he explained.                                                                           
                                                                                                                                
Number 2736                                                                                                                     
                                                                                                                                
CHRIS  WHITTINGTON-EVANS testified.   He  asked if  the committee                                                               
would  consider taking  further public  testimony for  both bills                                                               
when other committee members are present.                                                                                       
                                                                                                                                
CHAIR  KOHRING answered  yes.   He said  these bills  are in  the                                                               
initial stages  and there  will be  some changes.   It  is likely                                                               
that  the two  bills will  be combined,  and at  that point,  the                                                               
committee will allow additional testimony, he noted.                                                                            
                                                                                                                                
MR. WHITTINGTON-EVANS  explained that he lives  on Lazy Mountain,                                                               
adjacent to a  shallow gas lease.  He characterized  himself as a                                                               
small-business owner  in Palmer  who has served  on the  board of                                                               
Lazy Mountain's  community council,  and is currently  serving as                                                               
the  board  president  to  Friends  of  Mat-Su  (FoMS),  a  local                                                               
nonprofit  organization citizens'  group  that promotes  land-use                                                               
planning  and  responsible development.    It  currently has  300                                                               
members.   He  said FoMS  has been  very active  in the  coal bed                                                               
methane equal  lease issue  over the  last six  months, educating                                                               
themselves and  the community about potential  costs and benefits                                                               
of these programs.                                                                                                              
                                                                                                                                
MR. WHITTINGTON-EVANS said  it was brought to  his attention last                                                               
week  that  there are  12,396  parcels  in the  Matanuska-Susitna                                                               
Valley with  coal bed methane leases  on them.  About  96 percent                                                               
of those  are privately  held parcels that  represent a  value of                                                               
approximately  $815 million  in taxable  value.   He said  people                                                               
care  about this  issue a  great deal  and about  the legislation                                                               
before  the  committee,  which  attempts   to  fix  some  of  the                                                               
egregious problems with the current gas-leasing program.                                                                        
                                                                                                                                
MR.  WHITTINGTON-EVANS   said  two  resolutions  passed   in  his                                                               
community  council encourage  both  the  buying-back of  existing                                                               
leases  and  the  creation  of   an  exclusion  zone  around  the                                                               
community to  keep shallow gas  [leases] from occurring  there in                                                               
the future.   He noted that he had recently  attended one of five                                                               
public  work  sessions that  DNR  is  sponsoring to  help  create                                                               
recommendations for new rules governing coal bed methane.                                                                       
                                                                                                                                
Number 2565                                                                                                                     
                                                                                                                                
MR. WHITTINGTON-EVANS  said there  were about  200 people  at the                                                               
work  session  who spent  about  four  hours grappling  with  the                                                               
inherent conflicts  resulting from this program  that is offering                                                               
gas  leases  under  private homes,  neighborhoods,  schools,  and                                                               
watersheds.   He turned attention  to HB 420,  and he said  it is                                                               
felt that  this legislation in  its current form is  doing little                                                               
to protect property owners.   The notification requirement called                                                               
for is  already in  policy within  DNR, and  greater notification                                                               
measures are going to be  necessary from the public's standpoint,                                                               
he  suggested.    Proper  notice  would  include  actual  written                                                               
notification to property  owners prior to leasing  being done, he                                                               
said  not prior  to [the  land] being  entered and  drilled upon.                                                               
Suggesting the  exaction provision  is inadequate  and encourages                                                               
litigation, he  said several  aspects of  the bill  are undefined                                                               
and incomplete.   For  instance, the testing  of wells  must take                                                               
place in  a reasonable  timeframe after notice  is given,  and at                                                               
the public's own cost.                                                                                                          
                                                                                                                                
MR. WHITTINGTON-EVANS  suggested the  costs would probably  be in                                                               
excess  of $5  million for  the  11,000 people  who have  private                                                               
parcels and wells on those parcels  in the Mat-Su Valley that are                                                               
currently being  leased.  Other  adjacent owners  meanwhile would                                                               
go unnoticed under  this legislation and would be  unable to know                                                               
if they needed to test their  wells and therefore wouldn't have a                                                               
claim.   Furthermore, collecting for  damages still falls  on the                                                               
property  owner to  prove, and  is a  huge burden  for individual                                                               
citizens to  employ the expertise and  to argue such a  case.  He                                                               
said  that few  litigants  in other  developed  basins have  been                                                               
successful  with   doing  this,   and  he  recognized   that  the                                                               
commissioner  would make  that  determination,  but the  language                                                               
"may"  should be  mandatory and  not left  up to  interpretation.                                                               
Mr. Whittington-Evans  said this bill is  currently inadequate in                                                               
covering damages, is unnecessarily  litigious, and does little to                                                               
provide any  new notice to  affected property owners.   He stated                                                               
that FoMS does not support this bill in its current form.                                                                       
                                                                                                                                
Number 2467                                                                                                                     
                                                                                                                                
MR.  WHITTINGTON-EVANS, turning  attention  to HB  395, said  the                                                               
bill represents a  good first step, and is something  that can be                                                               
"put on  the table"  and discussed.   He  said there  are several                                                               
provisions within the bill that  deserve mention.  With regard to                                                               
Sections 5,  7, and  8, he  said HB  395 needs  to grant  DNR the                                                               
capacity  to regulate  coal bed  methane  development and  ensure                                                               
that  surface use  agreements and  maturity bonds  are negotiated                                                               
before  a lease  is  granted to  protect  the owners  negotiating                                                               
position.    He  explained  that   HB  395  should  also  contain                                                               
provisions to  give surface owners adequate  opportunity to seeks                                                               
and  receive  court  damages without  risking  litigation  costs.                                                               
Bringing attention  to Section  1, he  said HB  395 takes  a step                                                               
toward  protecting  [drinking water]  by  allowing  the state  to                                                               
regulate the  reinjection of wastewater.   However, he  said this                                                               
bill should require, not merely  allow, the state to regulate the                                                               
injection  of  water  below the  known  subsurface  drinking  and                                                               
agricultural supplies.                                                                                                          
                                                                                                                                
MR. WHITTINGTON-EVANS  said the bill  should also go  further and                                                               
ban  the use  of  toxic hydraulic  fracturing  fluids in  Alaska.                                                               
Turning attention  to Sections 2 and  4, he said HB  395 does add                                                               
limited public  process requirements  on leasing  and development                                                               
by  extending the  newspaper  requirements  and local  government                                                               
notice.   However, he said  in the work sessions  being conducted                                                               
in  the valley,  the  public is  overwhelmingly  asking that  the                                                               
state notify individual landowners by  mail, so that there aren't                                                               
communication  conflicts and  gaps, because  if a  property owner                                                               
does  not get  a newspaper  or  look in  the right  place in  the                                                               
newspaper, that  person would miss  notification that his  or her                                                               
land could be  leased.  A more formal process  with safeguards to                                                               
address public concerns and provide  for public hearing should be                                                               
a part of that, he said.                                                                                                        
                                                                                                                                
MR. WHITTINGTON-EVANS,  turning attention to Sections  10 and 11,                                                               
he said HB 395 repeals  some of the more controversial provisions                                                               
of HB  69, which FoMS  and the local government  would appreciate                                                               
and support.   However,  he said  the bill  could be  improved by                                                               
giving  local  municipalities  the   full  authority  to  provide                                                               
neighborhood  setbacks,  health   and  safety  safeguards,  noise                                                               
abatement, and  help with  some of the  safety and  health issues                                                               
that have been brought  up.  It really should be  in the hands of                                                               
the municipalities to do that,  he stated.  Mr. Whittington-Evans                                                               
suggested that other  states are looking at  this issue (indisc.)                                                               
litigated  with industry,  and have  found that  local government                                                               
ought to  have that jurisdiction  to be  able to take  control of                                                               
those issues.   Referencing Sections 3 and 6, he  said this would                                                               
grant rental  fees to surface  owners for companies  siting wells                                                               
or compresses  on their  land.  Without  a best  interest finding                                                               
preceding it,  he said this  approach pits neighbors  against one                                                               
another granting  rent to those  landowners willing  to sacrifice                                                               
the use of their land without protecting adjacent landowners.                                                                   
                                                                                                                                
MR.  WHITTINGTON-EVANS  said  for  example, if  a  landowner  who                                                               
didn't have a home or a  substantial investment in the land he or                                                               
she owns  were to find the  rent an interesting idea  and want to                                                               
receive rent  for that, this  would open up the  possibility that                                                               
landowner would be able to take  rent and help pay for that land.                                                               
However,  adjacent landowners  wouldn't necessarily  be receiving                                                               
anything for their damages or for  the noise of a compressor, for                                                               
instance,  that  would bothersome  because  his  or her  home  is                                                               
nearby.   Noting that he  is skeptical about the  compensation in                                                               
the  bill, he  said he  thinks  that needs  to be  thought out  a                                                               
little bit  further.  There  are obviously some  loopholes closed                                                               
within  narrowing the  definition  of coal  bed  methane and  the                                                               
depth at which it is done,  he said.  Especially for those tracks                                                               
in  Homer where  conventional  gas  is being  looked  at and  for                                                               
elsewhere in Alaska  where this would probably be done.   He said                                                               
this provision is excellent and well thought out.                                                                               
                                                                                                                                
MR. WHITTINGTON-EVANS said Mat-Su  citizens are concerned about a                                                               
few issues that are not addressed  in HB 395, for example, a buy-                                                               
back of existing  leases to ensure equal application  of this new                                                               
legislation coming  forward for  all areas of  the state.   Also,                                                               
the application of traditional oil  and gas development standards                                                               
to  coal  bed  methane  development  including  a  best  interest                                                               
finding.  Another concern, he said  is for a requirement that the                                                               
Mat-Su borough has  asked for in resolution  for baseline studies                                                               
to be conducted  and paid for by the state  with respect to water                                                               
quality, which would address some of  the issues brought up in HB                                                               
420, and  for methane  seepage as  well, with  the eye  on public                                                               
health and safety.                                                                                                              
                                                                                                                                
Number 2159                                                                                                                     
                                                                                                                                
ROBIN McLEAN  testified.  She  said she  is a resident  of Sutton                                                               
and  a member  of the  Sutton community  council, which  has been                                                               
working closely  with the Buffalo Mine  community council located                                                               
in Representative Harris's district.   She thanked Representative                                                               
Harris for  his concern and  for helping his constituents  in the                                                               
area.   Calling  attention to  HB  395, she  said [the  community                                                               
council] is  very happy  to see  this bill and  the work  that is                                                               
being done.   Noting that there  are a lot of  good provisions in                                                               
the bill,  she said  the hope  is that some  things can  be added                                                               
that will  satisfy some of  the citizens concerns, and  she urged                                                               
the committee to  act on the bill sooner than  later.  Indicating                                                               
that  residents are  very happy  to see  that the  reinjection of                                                               
water  may  be required,  she  recommended  that be  a  mandatory                                                               
requirement since  it was  learned from  the USDS  [United States                                                               
Department of  State] that  the water recharge  for wells  in the                                                               
Mat-Su area is 25 years.                                                                                                        
                                                                                                                                
MS. McLEAN said in ensuring the  safety of water over time, after                                                               
the drilling  operations are over  and after the bonds  are gone,                                                               
it is  felt that reinjection is  the safest way to  deal with the                                                               
water and  put people's  minds at ease.   Additionally,  she said                                                               
the  [community  council] agrees  that  since  it is  known  that                                                               
Evergreen  and other  companies can  do fracturing  with nontoxic                                                               
materials,  its  hope is  that  the  state  would ask  that  only                                                               
nontoxic fracturing fluids be used in neighborhoods.                                                                            
                                                                                                                                
MS. McLEAN  said the community council  is in support of  and has                                                               
passed  resolutions asking  for hydrological,  geological methane                                                               
(indisc.) studies prior  to any drilling in  neighborhoods and in                                                               
areas where residents live, have  investments, and have property.                                                               
The hope  is that the committee  will consider a buy-back  of the                                                               
leases or a  buy-back mechanism once these studies  are done, she                                                               
said.   Ms.  McLean mentioned  that [the  community council]  had                                                               
been told through  borough assembly work sessions  with AOGCC and                                                               
with  geologists,  that there  are  some  areas that  are  simply                                                               
geologically unsound for coal bed methane development.                                                                          
                                                                                                                                
Number 1980                                                                                                                     
                                                                                                                                
MS. MCLEAN said  given those facts and studies, the  hope is that                                                               
some areas can  be determined to be not suitable  and then bought                                                               
back through the  reasonable assessment of science  on a case-by-                                                               
case  basis.    Furthermore,  she said  [the  community  council]                                                               
supports the notion of increasing  public notice for leases prior                                                               
to leasing.   The  overwhelming consensus  of property  owners is                                                               
that individual  property owners  must be  notified in  person of                                                               
the leasing, she explained.   In thanking the committee, she said                                                               
the public  forum is appreciated and  is thought to be  a step in                                                               
the right direction.   Furthermore, she said the  feeling is that                                                               
the reversal of  the local control override from HB  69 is a very                                                               
positive  step that  the community  will support  strongly.   The                                                               
various property  rights provisions having  to do with  noise are                                                               
thought to  be very  good, but  need to be  more specific  in the                                                               
legislation, she  said.  Ms.  McLean said  the hope is  that good                                                               
things will come out of this process.                                                                                           
                                                                                                                                
CHAIR KOHRING provided the public with his contact information.                                                                 
                                                                                                                                
Number 1851                                                                                                                     
                                                                                                                                
SETH  LITTLE,  Legislative  Coordinator, Alaska  Center  for  the                                                               
Environment (ACE),  testified.  Mr.  Little said ACE  is Alaska's                                                               
largest homegrown  conservation organization with over  8,000 due                                                               
paying members statewide  and it is glad to hear  that this is an                                                               
open and  honest debate  on how  fast to act  to fix  the problem                                                               
with  a  system that  is  presently  broken.    The oil  and  gas                                                               
committee is  the correct  place to make  these changes  and have                                                               
this open debate,  he said.  Mr. Little suggested  that HB 395 is                                                               
an appropriate vehicle for members  of this committee to begin to                                                               
resolve  the  coal bed  methane  mess  that resulted  after  last                                                               
year's  ill-conceived  coal  bed  methane legislation  -  HB  69.                                                               
Alaskan's across the state need  this committee to act to provide                                                               
relief, he stated.                                                                                                              
                                                                                                                                
MR.  LITTLE urged  the committee  to review  the bill  provisions                                                               
carefully and  amend it as  suggested by the public.   Suggesting                                                               
HB 420  isn't a  productive piece of  legislation in  its present                                                               
form, he  said it  doesn't provide  for previous  notification to                                                               
landowners and puts the burden  of proof on landowners to protect                                                               
themselves, should  they be  negatively impacted  by development.                                                               
While ACE  recognizes the  need to  develop the  states resources                                                               
for the benefit of all Alaskans,  he said it also understands the                                                               
need to  do it responsibly, which  means that it must  not impair                                                               
the  environment, and  should  pay  its own  way  and have  local                                                               
support.  Mr.  Little said the state's economy  and its residents                                                               
depend on  the health of  the its  unique environment.   Coal bed                                                               
methane in  Alaska is  a statewide  issue, he  said; it's  not an                                                               
urban or a rural issue.                                                                                                         
                                                                                                                                
MR. LITTLE  said leases  have been issued  in the  Mat-Su Valley,                                                               
the  Homer area,  and  other  areas of  the  state including  the                                                               
Holitna Basin,  Healy, and Kateel  Meridian, which  including the                                                               
Red  Dog Mine  have been  identified as  future coal  bed methane                                                               
"hot  spots."    In  actuality,  he said,  most  of  the  state's                                                               
subsurface  rights  for  coal  bed methane  are  open  for  lease                                                               
applications on a first come, first  served basis.  What is being                                                               
seen is a  fragment approach to dealing with a  broken system, he                                                               
said.  He  suggested that the state should have  a statewide buy-                                                               
back, start  from the beginning, and  do it right, which  he said                                                               
would  require  AOGCC  to  regulate  the  industry  properly  and                                                               
require  DNR to  develop  regulations for  development, not  just                                                               
guidelines.   Coal bed  methane development is  much more  than a                                                               
drilling pad and a pump  station, he said, development turns into                                                               
production,  and the  completed infrastructure  will take  a toll                                                               
with compounding effects on Alaska's unique resources.                                                                          
                                                                                                                                
MR. LITTLE  said wildlife habitat  will be fragmented  from roads                                                               
and pipelines  crisscrossing the landscape to  access well sites,                                                               
pump  stations,   compressor  facilities,  and   power  stations.                                                               
Furthermore,  fish  streams could  be  damaged  by crossings  and                                                               
siltation from road  construction.  Dust will  impair air quality                                                               
from increased traffic  and off-road vehicle access  on new roads                                                               
and pipeline easements will then  keep increased pressures on the                                                               
state's fish and wildlife habitat, he said.                                                                                     
                                                                                                                                
Number 1662                                                                                                                     
                                                                                                                                
MR.  LITTLE  said  with  the elimination  of  the  best  interest                                                               
finding  requirements,  it is  expected  that  there will  be  no                                                               
analysis  of the  adverse environmental  and social  impacts from                                                               
coal bed  methane development.   He  encouraged the  committee to                                                               
have  the best  interest finding  as a  requirement, and  he said                                                               
while  most of  the  attention so  far is  focused  on impact  to                                                               
private  property,  as  most  of  the  leases  have  been  issued                                                               
underneath  private  property, public  lands  are  also at  risk.                                                               
Those who  recreate on  state public lands  could be  affected by                                                               
the infrastructure that  the production of coal  bed methane will                                                               
bring,  he said,  and  there  are already  leases  in the  Mat-Su                                                               
Valley  area,  below  Hatcher  pass,  which  is  a  very  popular                                                               
recreational site  for most valley  and Anchorage residents.   He                                                               
thanked  the committee  for the  opportunity to  comment on  this                                                               
legislation, and  he urged the committee  to take a good  look at                                                               
these two bills in its attempt to  combine them.  He noted he was                                                               
glad  to  hear  that  the   committee  would  be  keeping  public                                                               
testimony open for further comment.                                                                                             
                                                                                                                                
Number 1586                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  said he didn't quite  understand why the                                                               
committee should require a best  interest finding for shallow gas                                                               
when  [the legislature  only requires]  an updated  existing best                                                               
interest finding  for conventional or  deeper gas in  Cook Inlet,                                                               
based on the  area wide leasing concept.  He  asked Mr. Little to                                                               
justify why  the committee  should have  a best  interest finding                                                               
for shallow gas as opposed to conventional gas.                                                                                 
                                                                                                                                
MR. LITTLE offered to look  into the question further and provide                                                               
Representative Rokeberg with a response.                                                                                        
                                                                                                                                
REPRESENTATIVE  ROKEBERG  said  he   wasn't  sure  people  really                                                               
understand the  scope of  what a  best interest  finding is.   It                                                               
sounds good, but the work product  and what has to be invested to                                                               
create  a best  interest  finding that  meets  the standards  are                                                               
really quite  substantial, he  said.  Explaining  that is  one of                                                               
the  reasons  that  was  not  part of  the  initial  shallow  gas                                                               
concept,  he said  it  was  felt that  it  would  be an  enormous                                                               
barrier economically on  a regulatory basis, but it's  not to say                                                               
there shouldn't be some sideboards.   He said when using the term                                                               
"best interest finding," people should understand what it means.                                                                
                                                                                                                                
Number 1494                                                                                                                     
                                                                                                                                
CHAIR KOHRING asked Mr. Little  to recognize the good things that                                                               
HB 420  represents and that the  bill is not forcing  anything on                                                               
property owners.   It is establishing a fund that  dollars can be                                                               
drawn from to replace a well,  which is the main "thrust" of this                                                               
legislation, he said.  The committee  is here to work through any                                                               
minor flaws that  might exist in the legislation.   Chair Kohring                                                               
said the  concept is to  create a  fund that would  replace water                                                               
wells  that would  potentially, albeit  unlikely, go  bad in  the                                                               
future.                                                                                                                         
                                                                                                                                
MR.  LITTLE,  turning  attention  to  HB  420,  said  it  is  his                                                               
understanding that the  burden is on the landowner to  get his or                                                               
her  water  tested  prior  to drilling  commencing  -  after  the                                                               
landowner has  been given a 30-day  notice.  He said  he realizes                                                               
that the  bill is a beginning  attempt to look at  how to address                                                               
this,  and  he  understands  that,  but  it  is  a  reality  that                                                               
landowners  will   then  be  incurring   that  cost.     He  said                                                               
Representative  Holm  suggested  that maybe  companies  that  are                                                               
going  to be  drilling  near  homes should  be  paying for  those                                                               
studies.                                                                                                                        
                                                                                                                                
Number 1347                                                                                                                     
                                                                                                                                
DOUG STARK,  Ph.D., testified.   He  said he thinks  HB 395  is a                                                               
good bill and he is favor of it.   With regard to HB 420, he said                                                               
he is  interested in  the well  quantity and  quality, and  it is                                                               
unreasonable to  have the homeowner come  up with those data.   A                                                               
reasonable way  is to use  any data  that the homeowner  has from                                                               
the  time the  well was  drilled  to establish  the quantity  and                                                               
quality of the water, he suggested                                                                                              
                                                                                                                                
Number 1275                                                                                                                     
                                                                                                                                
JOHN NORMAN, Commissioner, Alaska Oil and Gas Conservation                                                                      
Commission, testified.  Noting that he would submit written                                                                     
testimony on HB 395 and HB 420, he remarked:                                                                                    
                                                                                                                                
     I had just  a few quick thoughts on [HB  420].  There's                                                                    
     a  reference to  the  fund to  be  established, and  it                                                                    
     references  43.57, which  is the  old oil  conservation                                                                    
     fund.  ... There  may be  some  historic artifacts  out                                                                    
     there  in  legislative  history that  by  reusing  this                                                                    
     would create some confusion, and  so it might be better                                                                    
     to fix  [AS 43.57.020], but  that's really a  matter of                                                                    
     how legislative drafting wants to codify it.                                                                               
                                                                                                                                
     The  ...  statute  talks about  "the  commissioner  may                                                                    
     pay",  and that  implies  discretion,  and perhaps  ...                                                                    
     that  might answer  the question  about who  determines                                                                    
     this.  If  that were changed to "shall",  then it would                                                                    
     make it  a little more  mandatory.  Before  the section                                                                    
     where it says  shall pay the "owner for  the costs", it                                                                    
     may be  advisable to put  in ... "reasonable  costs" to                                                                    
     put some objective standards as  opposed to whatever an                                                                    
     actual cost might be that might (indisc.) landowners.                                                                      
                                                                                                                                
     Continuing  on the  next  page, there  is  a line  that                                                                    
     begins:    "well,  and  the  activities  appear  to  be                                                                    
     probable hydrologic".  And I  think activities might be                                                                    
     clearer if  it picked  up the ...  introductory wording                                                                    
     of  "contamination or  alteration",  so  that it  would                                                                    
     read "and  the contamination  or alteration  appears to                                                                    
     be  probable hydrologic  consequences  of the  lessee's                                                                    
     activities". ...                                                                                                           
                                                                                                                                
     We  had  some  other   questions  concerning  the  fund                                                                    
     itself.   It  appears that  it's to  be built  up to  a                                                                    
     total of one quarter of  a million dollars, but then it                                                                    
     does provide  for refunds,  apparently, on  a lease-by-                                                                    
     lease basis.  ... What we were  going to do is  ... run                                                                    
     out some numbers  and then we'll alter those  to you in                                                                    
     our commentary,  and certainly the other  speakers have                                                                    
     pointed out the 20 thousand mcf. ...                                                                                       
                                                                                                                                
     Finally,  ...  a  question  about   the  concept  of  a                                                                    
     refunding policy  versus just creation  of a fund:   It                                                                    
     clearly  would declare  more  adjudication  to track  a                                                                    
     fund  and  then  refund  the money  paid  into  it,  as                                                                    
     opposed to just having  a surcharge, but the commission                                                                    
     will think  this through more  than I have had  time to                                                                    
     do now,  and then we'll  try to offer you  a considered                                                                    
     opinion concerning how that might work.                                                                                    
                                                                                                                                
Number 0960                                                                                                                     
                                                                                                                                
MIKE   McCARTHY,   Kachemak   Bay   Property   Owner's   Alliance                                                               
("Alliance"),  testified,  saying  he is  representing  over  800                                                               
members of  the Alliance and  is a constituent  of Representative                                                               
Seaton.    Noting that  he  is  a retired,  registered  hard-rock                                                               
exploration  geologist,  he said  he  has  practiced in  Montana,                                                               
Nevada, Arizona,  Idaho, and  Oregon.  He  mentioned that  he has                                                               
been a resident of Homer since 1997.  He remarked:                                                                              
                                                                                                                                
     When I attended  the DNR hearings, I was, as  well as a                                                                    
     number of the audience  members, extremely upset at the                                                                    
     fact that I became a  second-class citizen by virtue of                                                                    
     the   fact   that  I   was   denied   due  process   of                                                                    
     notification.  ...   I  would   like  to   direct  your                                                                    
     attention to the  aspect of the bill that  sets a lower                                                                    
     standard  for  the State  of  Alaska  than the  federal                                                                    
     government has.                                                                                                            
                                                                                                                                
     Namely,  the  federal  government  Minerals  Management                                                                    
     Service (MMS)  has to notify,  in writing,  all persons                                                                    
     affected  by  potential  areawide leases.    The  state                                                                    
     should have the very  same standard, that being written                                                                    
     notification by mail to all  property owners of record.                                                                    
     I  think  that should  be  [the]  number one  priority.                                                                    
     Secondly, ... I've  got a little bit  of broken thought                                                                    
     here  because of  the fact  that  I wasn't  necessarily                                                                    
     planning on  addressing [HB 420], but  I'll incorporate                                                                    
     that and  I'll also follow  this up with  more detailed                                                                    
     written comments.                                                                                                          
                                                                                                                                
Number 0827                                                                                                                     
                                                                                                                                
MR. McCarthy continued by saying:                                                                                               
                                                                                                                                
     ... As  a ...  retired geologist  I dealt  with mineral                                                                    
     leases.  I  was really shocked to learn  that the State                                                                    
     of Alaska ... leased 22,000  acres for the trifling sum                                                                    
     of $28,000.   That's $1 per acre.   Outside states have                                                                    
     chastised their  legislators for leasing land  at $2 an                                                                    
     acre, so  I don't know  how this price was  arrived at,                                                                    
     but it  doesn't seem  reasonable to me  in view  of the                                                                    
     funding problems the state is  having.  The resource is                                                                    
     worth more than $1 per acre.                                                                                               
                                                                                                                                
     The  other  thing is  that  $1  per acre  doesn't  come                                                                    
     anywhere near the cost of  potential harm to individual                                                                    
     property owners in case of  restitution.  Going back to                                                                    
     the Homer DNR meeting,  there was absolutely no mention                                                                    
     of  methane  hazards such  as  methane  seeps that  are                                                                    
     extremely  prevalent in  the winter.   We  have natural                                                                    
     methane seeps  right now, but  if you take  and examine                                                                    
     your bill here, both [HB 395  and HB 420], you will see                                                                    
     there's   no  mention   of   pressures  involved   with                                                                    
     hydraulic fracturing.                                                                                                      
                                                                                                                                
     It took me almost two  months to find the figures; they                                                                    
     vary  between 1  thousand  and 10  thousand pounds  per                                                                    
     square  inch, and  there is  ... hardly  any ground  in                                                                    
     this area  of the state  that will tolerate  those kind                                                                    
     of pressures without  methane seeping through fractures                                                                    
     that  are   naturally  incurring  or  induced   by  the                                                                    
     hydraulic fracturing pressure.                                                                                             
                                                                                                                                
Number 0684                                                                                                                     
                                                                                                                                
MR. McCarthy continued by saying:                                                                                               
                                                                                                                                
     ... That  is a very  serious (indisc.) concern  for the                                                                    
     folks here.   To give you an example, just  out of name                                                                    
     of the  person that was  burned yesterday.   Talking to                                                                    
     one of  the managers  of Spenard Builder's  Supply, his                                                                    
     mother is a  personal friend of this person  that was a                                                                    
     victim.                                                                                                                    
                                                                                                                                
     In about the  late 50s, this individual  was working on                                                                    
     maintenance in the  hospital well, and he  went in, and                                                                    
     they don't know if he flipped  a switch or what it was,                                                                    
     but at any  rate, he and the door blew  out of the well                                                                    
     house.    He received  severe  burns  on his  face  and                                                                    
     hands.  His ring had to be cut off.                                                                                        
                                                                                                                                
     That is a very real  hazard, and people's basements and                                                                    
     crawlspaces are  subject to the  same sort  of methane,                                                                    
     especially when it's  subjected to hydraulic fracturing                                                                    
     pressures.     Another  point,  regulation   should  be                                                                    
     statewide, and  right now, the  way DNR  is approaching                                                                    
     the [Mat-Su Valley] is inappropriate.                                                                                      
                                                                                                                                
     We  have   statewide  laws   in  effect   for  driver's                                                                    
     licenses,  for water  quality, [and]  for air  quality.                                                                    
     There  should be  standard  safety considerations  that                                                                    
     DNR develops  across the state.   The  bond requirement                                                                    
     is  insufficient   to  protect  private   property  and                                                                    
     community drinking  water; $500,000 will not  cover the                                                                    
     loss  of   property  or  potential  hazard   costs  for                                                                    
     landslides, mudslides, fires, et cetera.                                                                                   
                                                                                                                                
     Alabama  has a  statute  regarding nontoxic  fracturing                                                                    
     fluids,  Alaska would  be well  advised  to adopt  that                                                                    
     standard.   The pending bills  do not help  the private                                                                    
     property  owner.   They don't  provide adequate  notice                                                                    
     before  property is  leased.   They  don't require  the                                                                    
     standards  for  regulating   noise,  setbacks,  surface                                                                    
     restoration,  or  other  qualities that  would  protect                                                                    
     water resources quality of life  and the environment of                                                                    
     property owners.                                                                                                           
                                                                                                                                
Number 0489                                                                                                                     
                                                                                                                                
MR. McCarthy continued by saying:                                                                                               
                                                                                                                                
     The money that  is collected for this bond  needs to be                                                                    
     increased substantially, because  a five-year period is                                                                    
     a reasonable period that ...  [HB 420] is dealing with,                                                                    
     but  the money  needs to  be readily  available over  a                                                                    
     long  period  of   time.    ...  As   long  as  there's                                                                    
     production  going on,  a  hydraulic fracturing  process                                                                    
     can  create well  problems miles  away,  far more  than                                                                    
     1,500 feet away from any given well.                                                                                       
                                                                                                                                
     Finally, ...  as a final  test for this  legislation, I                                                                    
     would  ... strongly  suggest  that  the (indisc.)  with                                                                    
     this test  be what is  best for Alaska.   Public health                                                                    
     and  safety concerns  and quality  of  life should  all                                                                    
     supercede corporate profits.                                                                                               
                                                                                                                                
Number 0285                                                                                                                     
                                                                                                                                
JEANNE  WALKER testified.    She said  she  owns property  that's                                                               
leased, and she was  very pleased to see HB 395  and HB 420 under                                                               
consideration.  She  said she didn't believe that  these bills go                                                               
far  enough  in terms  of  adequate  notification.   One  of  the                                                               
reasons  she has  come  to  this conclusion  is  because of  what                                                               
happened to her  related to these leases, she said.   Noting that                                                               
she and  her husband bought a  home in the Homer  area last July,                                                               
she said  the property had  been leased  in June for  shallow gas                                                               
development and neither  her nor her husband, the  seller, or the                                                               
realtor  knew  the  property  had  been leased.    She  said  she                                                               
believes this  happened because no  notification appeared  in the                                                               
local Homer paper, and because DNR  is not required to record the                                                               
leases.                                                                                                                         
                                                                                                                                
MS. WALKER  suggested that the  bill should go further  by having                                                               
individual surface owners notified in  writing before the land is                                                               
leased, and she  said this could be done in  a timely fashion, so                                                               
that the  landowner could also  participate in a  comment period.                                                               
In real estate transactions, she  said at least the surface owner                                                               
would  know that  the subsurface  had  been leased  and then  the                                                               
rules of full  disclosure could apply.  She said  she thought the                                                               
bill should  also require  that DNR  develop the  regulations and                                                               
standards to review  and possibly reject leases  if the community                                                               
situation,  the geologic  or  environmental  concerns, or  public                                                               
comments would warrant  it.  She noted she  was disappointed that                                                               
HB 395 didn't include a buy-back of the Homer area leases.                                                                      
                                                                                                                                
Number 0050                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO asked  Ms. Walker if she got  a title report                                                               
when she bought her property.                                                                                                   
                                                                                                                                
MS.  WALKER replied  absolutely.   She said  she and  her husband                                                               
understood that they  didn't own the subsurface  property and the                                                               
state did, but they didn't know  the property had been leased for                                                               
shallow gas development.   Furthermore, she said,  they would not                                                               
have bought the property knowing it  had been leased.  Ms. Walker                                                               
said  she  and  her  husband  aren't  the  only  people  in  this                                                               
situation; she  knew of at  least two other property  owners that                                                               
this happened to.                                                                                                               
                                                                                                                                
TAPE 04-2, SIDE A                                                                                                             
Number 0001                                                                                                                     
                                                                                                                                
MS. WALKER  continued, saying, "Real estate  transactions are not                                                               
occurring  because  people aren't  willing  to  buy property,  at                                                               
least at  this time,  until they  have a  better idea  what these                                                               
leases will mean."                                                                                                              
                                                                                                                                
REPRESENTATIVE GATTO said  he was just curious  about whether the                                                               
realtor was aware of it  and [whether] there were some disclosure                                                               
requirements.  He  went on to say he was  fairly sure the surface                                                               
rights and the  subsurface rights were separate,  but just wanted                                                               
to know if  the title company actually knew that  and should have                                                               
reported it.                                                                                                                    
                                                                                                                                
MS. WALKER replied that the  title company didn't know that these                                                               
leases existed  because DNR  isn't required to  record them.   So                                                               
when normal title  searches are done, title  companies won't find                                                               
these leases.   Additionally, since  the community was  not aware                                                               
that  these leases  existed,  there wasn't  another  way for  the                                                               
title company to know it either.                                                                                                
                                                                                                                                
REPRESENTATIVE SEATON remarked:                                                                                                 
                                                                                                                                
     The  DNR recording  these leases,  I think,  is a  very                                                                    
     good suggestion; however, I just  ... want to point out                                                                    
     ...  that  DNR  receives  so little  money  from  these                                                                    
     shallow natural  gas leases that  they ...  didn't even                                                                    
     print maps.   The only maps that have  been printed are                                                                    
     ones that my  office got the parcel  numbers [for], and                                                                    
     the  borough   GIS  [Geographic   Information  Systems]                                                                    
     department printed  the maps  so people could  find out                                                                    
     ...  whose  land was  leased,  because  there's ...  so                                                                    
     little  value,  there's  no competitive  bid  in  these                                                                    
     leases. ...                                                                                                                
                                                                                                                                
     So I  think it's a  very good suggestion; I  think that                                                                    
     we'll need  to talk with  DNR to figure out  how [these                                                                    
     leases] should be recorded, but  at least, then, people                                                                    
     would  have   the  opportunity  of   investigating  and                                                                    
     knowing ....                                                                                                               
                                                                                                                                
CHAIR KOHRING ascertained that the  representative from Union Oil                                                               
Company of  California (Unocal) was  available for  questions and                                                               
might speak on the bill at a future hearing.                                                                                    
                                                                                                                                
Number 0284                                                                                                                     
                                                                                                                                
MARK  MYERS,  Director, Division  of  Oil  & Gas,  Department  of                                                               
Natural  Resources, referred  to HB  395, Section  1, [paragraph]                                                               
(3),  regarding  hydraulic  fracturing.   Noting  that  there  is                                                               
regulation by  [AOGCC], he  said, "I just  recommend that  you do                                                               
talk to them  about what they currently regulate and  how they do                                                               
it."   He also remarked,  however, that that  section potentially                                                               
needs further clarification as  to intent, specifically regarding                                                               
the  reinjection requirements  related  to hydraulic  fracturing.                                                               
He added,  "[I'd] maybe suggest  that those be  separate sections                                                               
in your bill,  if you go that  way.  But, again,  I encourage you                                                               
to look at the regulatory  authority the [AOGCC] currently [has],                                                               
and work starting from there."                                                                                                  
                                                                                                                                
MR. MYERS turned attention to Section  3 [of HB 395], and said he                                                               
has concerns  about limiting the depth  to 3,000 feet.   From the                                                               
standpoint  of a  geological,  conservation,  or physical  weight                                                               
issue, or  from the standpoint  of maximum  economic development,                                                               
limiting the  depth to  3,000 feet  doesn't make  a whole  lot of                                                               
sense,  he opined.   He  said  in general  that both  HB 395  and                                                               
HB 420  deal with  a lot  of different  issues such  as coal  bed                                                               
methane development  and shallow gas  leasing, but these  two are                                                               
not the same.                                                                                                                   
                                                                                                                                
MR. MYERS  explained that CBM  is a specific method  of producing                                                               
unconventional gas,  and occurs on state  leases and conventional                                                               
leases, and  could occur in "exploration  license areas," shallow                                                               
gas leases, and on private  or federal lessees' property.  Again,                                                               
he remarked,  "this bill" links  a lot  of issues to  the shallow                                                               
gas leasing program,  but then attempts to deal  with issues that                                                               
are specific to CBM regardless of  the type of lease.  Therefore,                                                               
clarification regarding when one is  referring to the shallow gas                                                               
leasing program  is important,  he opined,  because depth  is not                                                               
really  an  issue  when  referring  to  CBM,  nor  does  a  depth                                                               
limitation  make   sense  from  a  geological   or  reservoir  or                                                               
production standpoint.                                                                                                          
                                                                                                                                
Number 0501                                                                                                                     
                                                                                                                                
MR.  MYERS  turned  attention  to  Section 4  [of  HB  395],  and                                                               
indicated  that  [DNR] is  not  opposed  to providing  additional                                                               
notice.   He relayed that one  of his concerns, however,  is that                                                               
in some  areas of  the state,  there are  not "two  newspapers of                                                               
general  circulation in  the  vicinity" as  is  specified in  the                                                               
bill;  thus, in  some  rural  parts of  the  state,  it might  be                                                               
difficult  to comply  with the  bill's notification  requirement.                                                               
He added:  "You  saw that when we put it in  the Clarion ..., for                                                             
example, it wasn't enough ...; folks  wanted it to noticed in the                                                               
Homer  news.  ...  In  retrospect,  we'd  put  it  in  the  Homer                                                               
newspaper; we were  just trying to be efficient."   Therefore, he                                                               
opined, the  newspapers-of-general-circulation issue needs  to be                                                               
"fixed."   And with  regard to  notifying community  councils, he                                                               
said that  such notification  is not a  problem, but  pointed out                                                               
that  there  is no  standard  for  what constitutes  a  community                                                               
council nor  is there  a list  of community  councils; therefore,                                                               
that issue  needs to be clarified.   With regard to  remedies for                                                               
noncompliance of  the notification requirement, he  asked whether                                                               
noncompliance   would  invalidate   a   lease   or  require   re-                                                               
notification; although  DNR supports  the [concept]  of providing                                                               
public notice,  the bill is not  yet clear about what  happens to                                                               
the lease  if a community  council is not notified,  for example,                                                               
because it is not defined.                                                                                                      
                                                                                                                                
MR.  MYERS  turned  attention  to  Section  5  [of  HB  395]  and                                                               
reiterated  that  CBM activity  can  occur  on "non  shallow  gas                                                               
leases."   Therefore,  he said  by regulating  under proposed  AS                                                               
38.05.177(f), "you're just  looking at a certain  type of lease."                                                               
He went on to say:                                                                                                              
                                                                                                                                
     When   I  look   at  [paragraph]   (3)  involving   ...                                                                    
     appropriate   setbacks:     the  "peaceful   enjoyment"                                                                    
     standard is a difficult one.  ... We believe that needs                                                                    
     to  be clarified  ... [because]  one person's  standard                                                                    
     for   peaceful  enjoyment   is   very  different   than                                                                    
     another's.   The  whole concept  of agreeing  and doing                                                                    
     reasonable  measures  to  mitigate compressors  at  all                                                                    
     well sites, I think, is  a valid point, [though] it may                                                                    
     be  more  appropriate  to  look  at  actual  standards.                                                                    
                                                                                                                                
      Most of  these standards  that you  [see] in  here are                                                                    
     standards   already    in   the    lease   requirements                                                                    
     [stipulated  in  mitigation]  measures, but  you  might                                                                    
     look at ... things  like specific noise level standards                                                                    
     - certain decibels, et cetera  - [and] certain specific                                                                    
     setbacks.  A  lot of that is being  accomplished in our                                                                    
     process  in "the  valley," just  from that  experience.                                                                    
     We  think  maybe  more  specific,  and  then  a  better                                                                    
     definition of  peaceful enjoyment or a  standard that's                                                                    
     maybe more legally accepted.                                                                                               
                                                                                                                                
MR.  MYERS  noted  that  the language  in  subsection  (f)(5)  of                                                               
Section 5  is similar to what  is already in the  [DNR's] leases,                                                               
but  only applies  to  [AS  38.05.177] shallow  gas  leases.   He                                                               
added,  "It's in  our conventional  leases  as well  [as] in  our                                                               
shallow gas  leases."   He noted  that this is  an issue  also in                                                               
[areas] of  the valley where 60  percent of the acreage  is "non-                                                               
state."  He reiterated, "You're  applying a standard which ... is                                                               
basically a  duplication of  what already  exists in  the leasing                                                               
standard."  That's  fine, he opined, but it isn't  getting at the                                                               
majority of the acreage in the valley.                                                                                          
                                                                                                                                
Number 0784                                                                                                                     
                                                                                                                                
MR. MYERS  turned attention to  Section 7  [of HB 395],  and said                                                               
[DNR]   doesn't  have   problems  with   "the  bonding   standard                                                               
generally,"  but  the  language  in  proposed  subsection  (k)(3)                                                               
details standards that [DNR] currently  deals with in the plan of                                                               
operations, which occurs prior to the  bond.  He added, "In other                                                               
words, we're  going to bond toward  the activity. ... We  have to                                                               
know  what  activity  is  there  to set  the  bonding,  so  those                                                               
standards are  set prior  to the  bond hearing,  in the  'plan of                                                               
operations'  permitting process."   He  noted that  the standards                                                               
set  forth in  that process  are  higher than  those proposed  in                                                               
[HB 395]; hence his suggestion is  to have the standards proposed                                                               
in  subsection  (k)(3) moved  to  the  "actual committee  process                                                               
rather than  the bonding  process," so  that the  landowner would                                                               
have more certainty "prior to the bond."                                                                                        
                                                                                                                                
MR.  MYERS  said  the  definition   of  shallow  gas  leasing  in                                                               
Section 9 is  3,000 feet, which  he didn't  think makes a  lot of                                                               
sense from a  geological standpoint.  He said  the [result] would                                                               
be physical or economic waste.                                                                                                  
                                                                                                                                
MR. MYERS turned  attention to HB 420, Section  1, paragraph (3),                                                               
which reads:                                                                                                                    
                                                                                                                                
          (3)  shall require the lessee to provide written                                                                  
     advance notice to the owner of initial entry onto the                                                                    
     property of the owner at least 30 days before initial                                                                    
     entry.                                                                                                                   
                                                                                                                                
MR. MYERS  said [the department] is  fine with it, but  there are                                                               
questions such as what constitutes notice.   Does it have to be a                                                               
certified letter?   He suggested it  should be tightened up.   If                                                               
there are multiple  owners, is it the owner according  to the tax                                                               
record?  Is  it the recorded owner?  Is  it unrecorded ownership?                                                               
He said that  term definitely has to  be cleared up as  to who is                                                               
getting  notified.   Mr. Myers  also asked  what "initial  entry"                                                               
means.    Does   it  mean  the  first  time   [someone  from  the                                                               
exploration company]  walks on  [the land] or  the first  time an                                                               
operation is  performed on the  land?   Does it occur  every time                                                               
the property is entered, or only at one time?                                                                                   
                                                                                                                                
Number 0959                                                                                                                     
                                                                                                                                
MR. MYERS  turned attention to  Section 2, subparagraph  (B), and                                                               
recommended that  a few hydrogeologists  look at it  to determine                                                               
what  appropriate  distances  are.    He  said  he  thought  that                                                               
standard needs to be "tightened  up" or legally strengthened.  He                                                               
said  a period  of  five years  would be  part  of the  technical                                                               
analysis,  whether  that  would  be accurate  or  not.    Turning                                                               
attention  to  testing  standards,  he said  he  thought  testing                                                               
should  be for  a specific  standard.   He said  it's not  really                                                               
listed as a  standard.  "That's pretty crucial as  to what you're                                                               
testing for and what water (indisc.)  it affects, in terms of the                                                               
water supply," he remarked.                                                                                                     
                                                                                                                                
Number 1035                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON turned  attention  to HB  420, Section  3,                                                               
paragraph (14), and said AS  38.05.177(a),(c), and (j) as well as                                                               
[AS 46.03.100](f)(3) and several  other statutes refer to shallow                                                               
natural gas leasing  at the 3,000-foot depth.  He  said under the                                                               
bill,   that's   the   standard   on  what   is   being   leased.                                                               
Representative Seaton said AS  31.05.170(14) and AS 46.04.900(25)                                                               
refer to the  drilling depth not being more than  4,000 feet.  He                                                               
said  that's in  current  statute,  but there  seems  to be  some                                                               
conflict.   Representative Seaton  said the [committee]  had been                                                               
talking  about  a  conflict   between  a  noncompetitive  shallow                                                               
natural gas  lease and  a competitive  bid for  conventional gas.                                                               
He remarked:                                                                                                                    
                                                                                                                                
     If you went forward and  there was a reservoir that you                                                                    
     could identify at ... 6,000  feet, and you wanted to go                                                                    
     forward with a application  for an areawide lease sale,                                                                    
     and ... going after that gas  ... - if someone else had                                                                    
     a shallow  natural gas lease  in the  3,000-foot range.                                                                    
     Is that going to give you  conflict or do you think the                                                                    
     person  that has  the  noncompetitive 3,000-foot  lease                                                                    
     should  just  automatically be  able  to  go after  the                                                                    
     conventional deep  gas as well without  [a] competitive                                                                    
     bid.                                                                                                                       
                                                                                                                                
Number 1196                                                                                                                     
                                                                                                                                
MR. MYERS responded that fundamentally,  because of the potential                                                               
conflict   in  (indisc.)   rights   between   the  owners,   [the                                                               
department] will  not competitively lease underneath  or will not                                                               
[issue] an  exploration license underneath  a shallow  gas lease.                                                               
He said there is a huge  amount of potential for conflict between                                                               
the  mineral rights,  and  there's no  easy  way to  do  it.   He                                                               
remarked:                                                                                                                       
                                                                                                                                
     The gas below  it is pretty much  stranded or (indisc.)                                                                    
     unusable.  If they were to  produce it - and that's the                                                                    
     problem with it too - as  you go out away from the well                                                                    
     bore, and  the surface of  the land changes  in height,                                                                    
     the  ... geology  of the  reservoir underneath  doesn't                                                                    
     change laterally  the same way  the surface does.   The                                                                    
     surface  in the  underlying rock  (indisc.) are  not in                                                                    
     parallel necessarily.                                                                                                      
                                                                                                                                
     ... What happens is that you  go in and out of the same                                                                    
     reservoir and you could physically  be draining part of                                                                    
     the reservoir below 3,000  feet, just because laterally                                                                    
     you  move over,  and  compared to  surface depth,  true                                                                    
     vertical depth,  you're now  deeper.   ... It's  a huge                                                                    
     problem  that  we  have.   ...  Since  we  haven't  any                                                                    
     production of  this program, it  hasn't been  a problem                                                                    
     but it leaves a huge  management problem, and we really                                                                    
     don't have a good answer.                                                                                                  
                                                                                                                                
     ... I  think for the  sense of regulating  the activity                                                                    
     3,000  or  4,000  or  even 5,000  feet  makes  no  real                                                                    
     difference technically.   You  should (indisc.  - paper                                                                    
     shuffling)  protection of  the  groundwater system  for                                                                    
     coal bed  methane activities  regardless of  that depth                                                                    
     requirement  and the  same way  with conventional  gas.                                                                    
     So this really is  a production technique we're looking                                                                    
     at, not the  depth that gets at what  you're trying ...                                                                    
     to fix here.                                                                                                               
                                                                                                                                
     The same way  a surface owner - I don't  think we could                                                                    
     see much  difference in the  effects of a  well drilled                                                                    
     at 5,000 feet adjoining his  land versus one drilled at                                                                    
     3,000 feet.   You still  have the wellhead.   You still                                                                    
     have the same ... type of equipment there.                                                                                 
                                                                                                                                
     There  are differences  in equipment  between coal  bed                                                                    
     methane  wells  ...  regardless   of  their  depth  and                                                                    
     conventional wells, and that  can be taken into account                                                                    
     in the  regulatory scheme  but fundamentally  the depth                                                                    
     ...  -  I understand  we  have  a conflict  in  mineral                                                                    
     rights  - but  the  depth in  terms  of regulating  the                                                                    
     activity really isn't the issue.                                                                                           
                                                                                                                                
Number 1335                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON remarked:                                                                                                 
                                                                                                                                
     With  the conflict  in the  reservoir and  ... actually                                                                    
     going deeper  - being able  to drain deeper.   Would it                                                                    
     be  your sense  that we  really  ought to  get back  to                                                                    
     saying that when you're leasing  gas in an area, you're                                                                    
     really going for  ... a regular gas  lease, ... instead                                                                    
     of this artificial shallow natural  gas lease, and that                                                                    
     we should really be operating  under a ... conventional                                                                    
     gas  lease  program.  ...   If  somebody  is  exploring                                                                    
     shallow natural  gas or coal bed  methane, that's going                                                                    
     to be covered within that lease?                                                                                           
                                                                                                                                
MR. MYERS  said that would  be his personal recommendation.   The                                                               
intent  of  the  legislature  was  different  with  the  original                                                               
program but  the intent of  the original shallow gas  program was                                                               
for  just   around  rural   areas,  not   large-scale  commercial                                                               
production.  He said it is  his opinion that the assumptions made                                                               
and the development or exploration  activities that are occurring                                                               
in the [Mat-Su]  valley and down south are more  parallel to what                                                               
should be  done on a  conventional lease.   Mr. Myers  said those                                                               
correlative rights  problems would be  much less and  the program                                                               
would be smoother and would be  easier to regulate.  He remarked,                                                               
"Then you  would look at  regulating coal bed  methane activities                                                               
versus shallow gas leases."                                                                                                     
                                                                                                                                
Number 1460                                                                                                                     
                                                                                                                                
MYRL  THOMPSON testified.   Noting  that he  is a  property owner                                                               
from the Wasilla  area, he continued by saying he  thought HB 395                                                               
is a good starting place, but  it definitely needed to be "beefed                                                               
up and  not watered down" in  any sense.  Mr.  Thompson suggested                                                               
that the  bill should require  hydraulic fracturing fluids  to be                                                               
of the nontoxic variety, and he  said there are a large number of                                                               
different  kinds of  hydraulic fracturing  fluids including  eco-                                                               
friendly  fracturing   fluids.     He  suggested   that  nontoxic                                                               
fracturing  fluids should  be used  because  in a  few wells  and                                                               
casings that were tested after  fracturing, the residue left over                                                               
within the  test specimens was found  to be 28-64 percent  of the                                                               
chemicals in the  fracturing fluids.  He said he  realized only a                                                               
few [wells] were tested, but that was the result.  He remarked:                                                                 
                                                                                                                                
     So  if you  have  these proprietary  chemicals in  your                                                                    
     fracturing fluid,  ... we  won't even  know what  it is                                                                    
     for two years.  We're not  going to know how to address                                                                    
     it, as  far as HAZMAT  [hazardous materials]  and stuff                                                                    
     like that  ... in the valley,  for one thing.   ... The                                                                    
     fact that they're staying down  in these wells is not a                                                                    
     good thing.                                                                                                                
                                                                                                                                
     The casings  on the wells  are supposed to  protect the                                                                    
     aquifers.    There's  a cement  casing  in  there,  but                                                                    
     there's  no  regulations  or stipulations  saying  that                                                                    
     these  things need  to be  ...  protected for  possible                                                                    
     leaks in the  cementing itself, which, ...  from what I                                                                    
     understand  from  various  drillers, is  that  a  large                                                                    
     percentage  of the  concrete  casings  do not  actually                                                                    
     seal off and protect the ... aquifers. ...                                                                                 
                                                                                                                                
     They ...  need to be  sealed through this  process that                                                                    
     sometimes has to  run over three or four  or five times                                                                    
     to  get  it  adequately  sealed.  ...  There's  nothing                                                                    
     saying that  these things need  to be  considered even,                                                                    
     so  we definitely  need something  that protects  those                                                                    
     areas  of  the aquifer,  and  just  saying if  we  dump                                                                    
     concrete in and seal it; it  isn't enough; it has to be                                                                    
     sealed.                                                                                                                    
                                                                                                                                
Number 1622                                                                                                                     
                                                                                                                                
MR. THOMPSON continued:                                                                                                         
                                                                                                                                
     Another case  that just came  out of the  court systems                                                                    
     this year was ... in  the Kentucky gas fields, which is                                                                    
     part  of  the  ...  Appalachian basin.    There  was  a                                                                    
     particular problem.  It had a  gas well next to it, and                                                                    
     the gas  seeped over from  that well into his  well and                                                                    
     collected in his well house.   And the guy switched his                                                                    
     switch on, and it blew him  up and burned him up pretty                                                                    
     bad. ...                                                                                                                   
                                                                                                                                
     That was  adjudicated ...  and he won  an award  of ...                                                                    
     about  $3.5  million  against  the  company,  but  that                                                                    
     didn't  stop  the industry  from  arguing  that it  was                                                                    
     literally impossible  for the  gas that was  beside his                                                                    
     house to  seep sideways,  which the courts  agreed that                                                                    
     that was indeed what happened. ...                                                                                         
                                                                                                                                
     This instance in China where  this whole gas field went                                                                    
     up because of human error:   ... some of it was some of                                                                    
     the 174 people  that were killed or injured  due to the                                                                    
     explosion  and  fire,  and  some  of  the  people  were                                                                    
     injured due  to poisoning from the  fractured wellheads                                                                    
     and stuff  and released  gas into the  community, which                                                                    
     had to be evacuated. ...                                                                                                   
                                                                                                                                
     That's  an example  of what  happens when  you have  no                                                                    
     regulations  whatsoever. ...  I think  we need  to have                                                                    
     baseline  studies in  hydrology  and  geology, and  not                                                                    
     only  that,  into  the wildlife  and  critical  habitat                                                                    
     areas  that  have been  leased  such  as the  Deception                                                                    
     Creek  management area  and the  Bench  Lake area,  and                                                                    
     there's a number of other ones.                                                                                            
                                                                                                                                
     If  we're not  going  to  look at  ...  what the  other                                                                    
     resources are in  that area, how could  we compare them                                                                    
     to oil  and gas.   ... We need  a third party  ... when                                                                    
     disputes  do arise  over these  various things,  and we                                                                    
     also  need a  way  to formally  complain separately  to                                                                    
     DNR,  DEC [Department  of Environmental  Conservation],                                                                    
     and the AOGCC. ...                                                                                                         
                                                                                                                                
     We  need   to  find   a  way   where  AOGCC   isn't  so                                                                    
     politicized. ...  They should  have an  independent job                                                                    
     to do and  not ... be the views of  one political party                                                                    
     over another.                                                                                                              
                                                                                                                                
Number 1759                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STOLTZE   offered  his  understanding   that  the                                                               
committee  was trying  to address  the issue  of prohibiting  the                                                               
toxins.   He  suggested it  is  covered by  the way  the bill  is                                                               
drafted, but if not, is something he is very attendant to.                                                                      
                                                                                                                                
Number 1824                                                                                                                     
                                                                                                                                
CHAIR KOHRING,  upon determining no  one else wished  to testify,                                                               
closed  public comment.   He  announced  that 420  would be  held                                                               
over.                                                                                                                           

Document Name Date/Time Subjects