Legislature(2007 - 2008)BARNES 124

04/30/2007 01:00 PM RESOURCES

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved CSHJR 17(RES) Out of Committee
Moved Out of Committee
Scheduled But Not Heard
+ Bills Previously Heard/Scheduled TELECONFERENCED
SB 109-OIL & GAS CONSERVATION COMMISSION                                                                                      
2:37:02 PM                                                                                                                    
CO-CHAIR GATTO  announced that the  next order of  business would                                                               
be  CS FOR  SENATE BILL  NO. 109(RES),  "An Act  relating to  the                                                               
regulation  and permitting  of drilling  and other  operations by                                                               
the  Alaska  Oil  and  Gas   Conservation  Commission,  to  civil                                                               
penalties  assessed by  the  commission,  to reconsideration  and                                                               
appeal   of   decisions   and  the   allocation   of   costs   in                                                               
investigations  and  hearings  before   the  commission,  and  to                                                               
information filed with and fees  of the commission; and providing                                                               
for an effective date."                                                                                                         
2:37:29 PM                                                                                                                    
CHERYL  SUTTON, Staff  to  Representative  Ralph Samuels,  Alaska                                                               
State   Legislature,   explained  that   Representative   Samuels                                                               
introduced SB 109 and the companion  bill, HB 183, at the request                                                               
of the Alaska  Oil and Gas Conservation Commission  (AOGCC).  The                                                               
AOGCC  requested  this  legislation  to update  and  improve  the                                                               
governing  statute,  Title XXXI.    She  stated  that HB  183  is                                                               
exactly the  same as CSSB  109(RES) and this same  version passed                                                               
without objection  from the  House Special  Committee on  Oil and                                                               
Gas.  She deferred to John Norman for any further questions.                                                                    
2:38:33 PM                                                                                                                    
JOHN NORMAN,  Chair, Alaska Oil  and Gas  Conservation Commission                                                               
(AOGCC),  stated that  SB 109  is a  comprehensive update  of the                                                               
Alaska  Oil  and  Gas  Conservation Act,  first  adopted  by  the                                                               
Territorial Legislature in 1955.  He  stated that Section 1 of SB                                                               
109  removes   from  the  Act  outdated   territorial  provisions                                                               
relating to  appeals of  decisions by  the Commission  from other                                                               
2:41:03 PM                                                                                                                    
MR.  NORMAN  explained that  Section  3  adds public  health  and                                                               
safety to the  AOGCC area of oversight.  This  is consistent with                                                               
what   the  commission   is  already   doing   and  follows   the                                                               
recommendations from the Declaration of  Purpose of the Model Oil                                                               
and Gas Conservation  Act.  He said Section 3  also clarifies the                                                               
AOGCC authority  to regulate natural  gas storage.   He explained                                                               
that South Central  Alaska has seasonal variations  of demand for                                                               
gas and  has a need  to identify  reservoirs and inject  gas into                                                               
the ground to store for peak demand.   He added that all the bill                                                               
provisions have a zero fiscal note,  and that the bill allows the                                                               
law to conform to the industry developments and standards.                                                                      
2:42:53 PM                                                                                                                    
MR. NORMAN  explained that Section  7 proposes to retain  the two                                                               
year  period of  confidentiality only  for exploratory  wells and                                                               
stratigraphic test wells,  not on the development  of routine oil                                                               
and gas well drilling.                                                                                                          
MR. NORMAN  presented that Section  5 modifies that the  coal bed                                                               
methane water testing  program is required only when  a well goes                                                               
into production, not during  exploratory production testing which                                                               
poses no threat to water quality.                                                                                               
There  was  a  brief  discussion  comparing  the  definitions  of                                                               
"assure" and "ensure".                                                                                                          
2:46:28 PM                                                                                                                    
MR. NORMAN  noted that  Section 4  increases the  civil penalties                                                               
assessed by  the commission to be  no more than $100,000  for the                                                               
initial  violation and  no more  than  $10,000 per  day for  each                                                               
subsequent day of violation.   He informed the committee that the                                                               
civil  penalty for  wasting gas  is increasing  to two  times the                                                               
fair market value.                                                                                                              
CO-CHAIR GATTO asked if flaring is considered wasting gas.                                                                      
MR.  NORMAN  responded that  there  is  always some  flaring  for                                                               
2:48:49 PM                                                                                                                    
CO-CHAIR GATTO  allowed that there  is no penalty for  flaring to                                                               
protect us, but there is a  difference with flaring to get rid of                                                               
MR.  NORMAN   said  that  this   is  already  addressed   in  the                                                               
legislation and that  it is further monitored  by the commission.                                                               
He pointed out  that there are monthly accounting  reports of gas                                                               
disposition.   He continued, explaining  that Section  12 deletes                                                               
the  $100  fee  for a  permit  to  drill  as  the fees  are  more                                                               
efficiently  collected through  the regulatory  cost charge.   He                                                               
noted that  the bill makes  a number of housekeeping  and wording                                                               
changes and that the AOGCC supports the bill.                                                                                   
CO-CHAIR  GATTO asked  if Mr.  Norman  is a  commissioner of  the                                                               
MR. NORMAN replied that he is the chairman of the commission.                                                                   
2:51:46 PM                                                                                                                    
REPRESENTATIVE WILSON asked how it  is ascertained that a company                                                               
is flaring too much.                                                                                                            
MR.  NORMAN explained  that the  commission receives  monthly gas                                                               
disposition reports, and that the  reports must exactly track the                                                               
gas.   He noted that  the commission  also has inspectors  in the                                                               
field, both in Cook Inlet and the North Slope.                                                                                  
CO-CHAIR  GATTO  asked  how  often  there  is  blatant  incorrect                                                               
MR. NORMAN  stated that  a few  times a  year there  is incorrect                                                               
reporting,  but  that overall  there  is  a  very high  level  of                                                               
2:54:03 PM                                                                                                                    
REPRESENTATIVE  WILSON  asked  about  the  cost  of  time  charge                                                               
addressed in Section 11.                                                                                                        
MR.  NORMAN identified  that the  need to  charge arose  during a                                                               
very  lengthy investigation  of  falsification  by an  operator's                                                               
employee.   The investigation required  many hours  of engineers'                                                               
time  so this  will allow  the Commission  to assess  and recover                                                               
these costs from the operator.                                                                                                  
REPRESENTATIVE WILSON asked what the hourly charge will be.                                                                     
MR. NORMAN replied that he did not  have the rate, but it will be                                                               
calculated based  on the staff member  used.  He allowed  that it                                                               
will  be infrequently  used, but  it  is an  enforcement tool  to                                                               
ensure the violator bears the responsibility.                                                                                   
2:56:29 PM                                                                                                                    
REPRESENTATIVE ROSES  asked to  clarify that  gas flaring  is for                                                               
MR.  NORMAN  explained  that  gas  comes up  with  oil  and  that                                                               
although  safety flaring  can  be for  several  reasons, it  most                                                               
commonly helps  to avoid fires  or explosions caused by  a sudden                                                               
abundance of gas.                                                                                                               
REPRESENTATIVE  ROSES  asked  if  a system  to  deliver  the  gas                                                               
directly to a pipeline eliminates the necessity for the flare.                                                                  
MR. NORMAN replied  that some flare might  be necessary depending                                                               
on how  the gas  is handled.   He explained  that flaring  is not                                                               
allowed to simply burn off the gas.                                                                                             
2:59:23 PM                                                                                                                    
REPRESENTATIVE ROSES  posed that  should a pipeline  be available                                                               
for a  company to  put gas  into and they  are still  flaring, is                                                               
this considered a waste of gas by not delivering it.                                                                            
MR.  NORMAN presented  that flaring  for  safety or  for fuel  is                                                               
permissible.  He  reported that the burden is on  the operator to                                                               
demonstrate why they are not putting it into the pipeline.                                                                      
REPRESENTATIVE ROSES asked about re-injection.                                                                                  
MR. NORMAN replied that reinjection is not wasting gas.                                                                         
3:01:15 PM                                                                                                                    
CO-CHAIR GATTO turned the gavel over to CO-CHAIR JOHNSON.                                                                       
REPRESENTATIVE  GUTTENBERG asked  about the  commission sentiment                                                               
for having extended authority to determine gas takeoffs.                                                                        
MR. NORMAN  noted that the  commission is an  independent, quasi-                                                               
judicial  body.   He allowed  that  the commission  does not  set                                                               
offtake rates unless  an operator requests it.   For this legally                                                               
structured  process,  the  commission  receives  an  application,                                                               
publishes  it, and  takes public  testimony.   He  said that  gas                                                               
sales  from Prudhoe  Bay  have  been discussed  for  the past  30                                                               
years.  The  commission has not tried to update  the offtake rate                                                               
of 2.9  billion cubic feet  (bcf) per day.   He allowed  that the                                                               
commission has  done the research and  is ready with a  new rate,                                                               
but they would be short circuiting the legal process.                                                                           
3:05:26 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG  allowed   that  the  House  Resources                                                               
Standing Committee is trying to write  a bill to induce a company                                                               
to enter the bidding.                                                                                                           
REPRESENTATIVE  SEATON  asked  if  Section  2,  subparagraph  (B)                                                               
requires that information be filed more quickly.                                                                                
MR. NORMAN  replied that the  request for information in  90 days                                                               
is a realistic amount of time to receive the information.                                                                       
3:08:20 PM                                                                                                                    
REPRESENTATIVE SEATON asked for  a definition of "completion" and                                                               
asked  for clarification  that Section  2 (B)  will provide  more                                                               
information than is currently required.                                                                                         
MR. NORMAN  defined "completion" as bringing  it into production.                                                               
He informed  that Section 2  identifies in more detail  the types                                                               
of information and  specifies the response period is  30 days for                                                               
reports, and  90 days for logs.   He said that  this section does                                                               
not provide any more information than was received previously.                                                                  
3:10:34 PM                                                                                                                    
CO-CHAIR JOHNSON opened up public testimony.                                                                                    
KARA  MORIARTY,  External Affairs  Manager,  Alaska  Oil and  Gas                                                               
Association, said that the AOGCC  has answered the AOGA questions                                                               
and that AOGA supports the current bill version.                                                                                
CO-CHAIR JOHNSON closed public testimony.                                                                                       
3:12:34 PM                                                                                                                    
REPRESENTATIVE  SEATON  asked  if  the  reference  in  Section  4                                                               
applies to the new horizontal drilling technology.                                                                              
MR.  NORMAN  said  that  Section   4  keeps  pace  with  the  new                                                               
technology  including the  ability to  have multiple  completions                                                               
within one well.                                                                                                                
3:13:30 PM                                                                                                                    
REPRESENTATIVE  SEATON  moved  to  report CSSB  109(RES)  out  of                                                               
committee  with individual  recommendations and  the accompanying                                                               
zero fiscal notes.   There being no objection,  CSSB 109(RES) was                                                               
reported out of the House Resources Standing Committee.                                                                         

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