Legislature(1993 - 1994)
04/21/1993 09:05 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 150
An Act providing for oil and gas exploration licenses,
and oil and gas leases, in certain areas of the state;
and providing for an effective date.
Co-chair Pearce directed that SB 150 be brought on for
discussion. She referenced a draft CSSB 150 (Fin) (8-
GS1012\D, Chenoweth, 4/19/93) which she explained contains
amendments 1 through 5, adopted by committee at the April
18, 1993, meeting. Senator Sharp MOVED for adoption of the
"D" version of CSSB 150 (Fin) as a working document. No
objection having been raised, the "D" version was ADOPTED.
Senator Sharp directed attention to amendment no. 6 at page
11, lines 11 through 20. He said the proposed language
change would make administration easier for regulators and
avoid the necessity of development of additional regulations
since it defines average production on a monthly basis. Co-
chair Pearce asked why proof of financial responsibility
requirements were reduced to less than $20 million per
incident. Senator Sharp cited need to encourage small
developers and exploration companies to produce from limited
capacity fields without being subject to $20 million
liability on small production. He referenced a situation in
Cook Inlet as an example of how the new provision would
operate.
Co-chair Pearce voiced concern over reducing liability for
an on-shore facility to $1 million per incident. She then
inquired concerning liability for off-shore exploration
facilities. Senator Rieger noted that liability for off-
shore facilities remains at $50 million.
Brief discussion of on and off-shore facilities followed
between Co-chair Pearce, Senator Rieger, and KEN BOYD,
Deputy Director, Division of Oil and Gas, Dept. of Natural
Resources.
MEAD TREADWELL, Deputy Commissioner, Dept. of Natural
Resources, came before committee in response to questions
concerning proof of financial responsibility. He explained
that the department accepts bonds, insurance, net assets,
etc. The department seeks to ensure that an entity has the
financial resources to clean up a spill and pay resource
damages from the spill.
Discussion followed between Co-chair Pearce and Mr.
Treadwell regarding contingency plan requirements for
exploration facilities.
Co-chair Pearce again expressed concern regarding the
lowering of liability requirements, citing costs associated
with a recent cleanup by the Alaska Railroad. Mr. Treadwell
pointed to broad authority by the Dept. of Natural Resources
to set bonding requirements associated with surface leases.
The Dept. of Environmental Conservation does not accept that
bond as proof of financial responsibility.
Senator Kerttula voiced need for adequate liability and
proof of responsibility for operators. He expressed concern
over proposed decreases. Co-chair Frank voiced his
understanding that $20 million was "wildly more" than any
other state for on-shore facilities. Mr. Treadwell informed
members that Alaska's requirements are the highest in the
country. They were developed following the EXXON VALDEZ oil
spill.
Further comments by Mr. Treadwell followed regarding surface
and subsurface rights and respective ownership. He
acknowledged a number of tank situations where long-time
contamination has gone from one property to another.
Co-chair Frank said that he did not disagree that potential
liability may be greater than limits within the proposed
amendment. He stressed need to look at risks and rewards in
a broad context. The state has resources it wishes to
develop. Alaska wishes to encourage oil and gas exploration
and production. It thus seeks to encourage both small and
multinational companies. On-shore cleanup is easier than a
water spill. Proof of financial responsibility could thus
be less. Co-chair Pearce reiterated her belief that $1
million is too low. On-shore facilities may be located
close enough to tidal action to impact waterways.
Senator Sharp recited a listing of other states and their
on-shore liability requirements. Alaska also requires
"plugging and abandonment bonding" amounting to $100,000 per
well. The highest of any other state is $10,000. Senator
Sharp further attested to oil and gas conservation
commission responsibility for prescribing "absolute well-
drilling procedures and safety equipment required to be used
during the drilling." He then recited a listing of such
equipment and other controls that must be in effect.
Senator Kerttula voiced need to establish necessary minimum
safety levels to guard against desecration by independent
exploration.
Senator Sharp advised that he would withdraw amendment no.
6.
End, SFC-93, #67, Side 2
Begin, SFC-93, #69, Side 1
In response to a question from Co-chair Pearce, Senator
Sharp explained that his amendment bases liability on
monthly rather than daily production. Monthly production
is easier to measure. Co-chair Pearce voiced her
understanding that reduction of liability for on-shore
exploration from $5 to $1 million was contained in the
Senate Oil and Gas version of the bill. Senator Sharp
concurred. Co-chair Pearce requested that Senator Sharp
again offer amendment no. 6 since the area of contention
that reduced liability for on-shore exploration was not part
of the amendment. Senator Sharp MOVED for adoption of
amendment no. 6. Senator Rieger directed attention to
subsection (f) and suggested that proof of financial
responsibility for an on-shore production facility be based
on the higher of the average monthly production. Mead
Treadwell explained that the intent of the language in
subsection (f) is to set financial responsibility at either
the average production of the past year for an ongoing
operation or on maximum engineered design capacity for a new
facility with no previous production. There may be
situations where a well may have declined to ten or twenty
barrels a day. If the facility was engineered for 4,000
barrels a day, addition of the words "higher of" to
liability language could fix liability at original design
capacity. That is not the intent of subsection (f). Co-
chair Pearce suggested that subsection (f) be separated into
two sections, one to apply to existing and the other to new
facilities. Senator Rieger suggested that fields do not
normally decline quickly. He held to need to add the new
language, saying that there may be cases where production
actually increases. Co-chair Frank voiced support for the
language as submitted by the department. Senator Rieger
formally MOVED to amend subsection (f) by adding "higher of
the" before the word "average" on the second line. Senator
Sharp OBJECTED, saying that actual production is a better
indication of risk. Co-chair Pearce called for a show of
hands on the amendment. Senator Rieger's amendment FAILED
on a vote of 1 to 4.
Senator Kerttula voiced need for a definition of "on shore."
He voiced particular concern that facilities not impact
bogs, marshes, and wetlands. Mead Treadwell said that he
would phone the department and attempt to obtain a better
definition. Senator Kerttula indicated need to ensure that
it means dry land at some distance from contaminant
potential. Co-chair Frank expressed reluctance to allow an
agency to define the term.
Further discussion followed between members and Mr. Boyd
regarding definitions contained within Title 38.
Comments followed regarding the location of the recent
Alaska Railroad spill and costs associated therewith.
Senator Rieger voiced discomfort with bill provisions
lowering on-shore liability to $1 million.
Co-chair Pearce directed that CSSB 150 (Fin) be held pending
response to the above-noted concerns.
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