Legislature(2003 - 2004)
04/30/2004 03:30 PM Senate RES
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* first hearing in first committee of referral
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SB 312-CONVENTIONAL & NONCONVENTIONAL GAS LEASES
CHAIR SCOTT OGAN announced SB 312 to be up for consideration. He
referred to a publication called "Western Governor's Association
Coalbed Methane Best Practices," which doesn't go into a lot of
specifics, but covers all the issues that need to be dealt with
in states that have been dealing with coalbed methane
development. He also noted that other bills on the same subject
would be discussed at this meeting.
PATRICK GALVIN, Division of Oil and Gas, Department of Natural
Resources (DNR), gave a general overview of the different pieces
of legislation on this subject saying that they are primarily
geared toward operational issues that DNR will have to review as
projects are proposed on state leases and there is some overlap.
He related that right now no best interest findings are required
for shallow gas leases. HB 531 and SB 312 require those. Public
notice requirements are a big issue and all three vehicles
address this issue by bringing the shallow gas leasing process
more in line with the public notice provisions that are used for
DNR's standard oil and gas leasing programs. HB 531 and SB 312
say with the elimination of shallow oil and gas leasing
programs, all decisions related to oil and gas will be made
under the notice provisions that are currently used for the oil
and gas leases and exploration licenses. The proposed draft
standards go beyond statutory requirements and include
additional requirements for display ads, public service
announcements and direct notice to individuals who have
requested to be on a notice list.
Concern was noted about notice that would be provided on
activities taking place outside of DNR leases and the Alaska Oil
and Gas Conservation Commission (AOGCC) would review drilling
permits on private subsurface estate lands. But those reviews
aren't noticed publicly.
Another area of interest has been what types of disclosures are
made public with regard to operations and potential public
hazards that may be associated with it. Some information is held
confidential by developers for proprietary reasons and not
disclosed to the public for two years. The proposed standards
would provide that components of the fracturing materials be
provided to DNR as part of the plan of operations, which would
be made available to the public. However, the exact formula of
how those are put together would remain confidential.
SENATOR ELTON asked what an enforceable standard is.
MR. GALVIN replied that it is a type of regulation that would
apply to DNR leases within the Mat-Su area.
SENATOR ELTON asked if it would consist of contract terms
between the person that gets the lease and the state. Mr. Galvin
said yes.
CHAIR OGAN asked if more statutory authority would be needed for
the department to implement this requirement.
MR. GALVIN replied he didn't believe that DNR needed additional
authority to enforce and apply these standards to existing or
future leases. It would be accomplished through union agreements
and other contractual relationships that would be set up in the
future. The Mat-Su area is the only area right now that has
coalbed methane activities taking place. Enforceable standards
will be developed for other areas that are location-specific.
TAPE 04-46, SIDE B
SENATOR ELTON asked how standards would be applied to existing
contracts.
MR. GALVIN explained that all the leases require the approval of
DNR before work takes place. The decision of whether or not that
activity is in the best interest of the state would take place
at that time.
He said that coalbed methane operators in the Lower 48
voluntarily agreed to not use diesel-based fracturing materials.
The standards prohibit its use, but it is the wrong type of
material to be used to fracture coal anyhow. Operators are
required to obtain an agreement with the surface owner to
establish what damages may be for access activities and to make
arrangements for payment of those damages. If they do not reach
agreement, the operator can come to DNR and establish a bond.
Both bills have provisions that affect the bonding relationship.
The primary issue has to do with the type of notice that is
being provided and what should be included in the damages for
the bond. Whether this is the only reasonable location for these
activities to take place is also considered.
Current authority in enforceable standards provides a framework
for a company to request a bond hearing from DNR and includes
provisions to ensure good faith negotiations. State law doesn't
address these issues outside of the DNR reserved minerals
mandate. Instances of different private subsurface and surface
owners is common in the Lower 48, but less so in Alaska.
Currently, no provisions address how access would be acquired
and whether or not a surface use agreement would be needed. One
of the house bills would set up a process similar to DNR's
process for mineral leasing.
MR. GALVIN continued saying that the enforceable standards
provide a number of factors that DNR should look at in
determining the value of the bond.
CHAIR OGAN said he thought the split estate issue was probably
the thorniest in the entire coalbed methane situation. People
get mad when someone can show up with a big drill rig and start
drilling on their property. He asked him to explain what really
happens.
MR. GALVIN replied that two different requirements involve the
surface owner and his relationship with the operator. One is the
requirement for establishing a value for the damages and going
to DNR for bonding if an agreement can't be reached. Secondly,
when a developer wants to actually do something on a lease, he
will have to submit a plan to DNR. Currently, he provides a copy
of that plan to any surface owner where operations are taking
place along with a notice telling the surface owner how to
participate in DNR's review of the plan. He would also be
required to provide notice of his application to any surface
owner within a half-mile of operations. If an agreement can't be
reached, the operator would ask DNR for a bond hearing to
determine what the possible damages would be and the amount of
the bond that would cover it.
CHAIR OGAN asked, assuming a worst-case scenario, if currently
an aggressive operator could simply send out the required notice
to the last owner of record, who may be absent, and put in a
road and drill pad without hearing from the owner.
MR. GALVIN replied if attempts have been made to contact the
surface owner and there is no response, DNR would have to move
forward with the decision on approving a plan of operations that
would look out for the interests of the owners by establishing a
bond.
CHAIR OGAN put himself in the landowner's shoes and said that he
would be mad about someone drilling on his land without him
knowing about it even though he knew when he bought the land
that he didn't buy the subsurface rights.
MR. GALVIN said one of the areas needing a great deal of
discussion is what is considered a good faith effort to identify
and contact the owner of a property.
CHAIR OGAN asked if signing the title at the land office gives
permission to the state to access subsurface minerals in
advance.
MR. GALVIN clarified that it's not exactly considered
permission. When property is conveyed by the state, it retains
the right to the minerals and the right to access those minerals
by entry onto the land.
CHAIR OGAN asked if any laws had been established that would
change the status of the relationship between the subsurface and
surface owners.
MR. GALVIN answered no; this issue has been in place since
Statehood and will remain in place for any conventional oil and
gas lease or any other potential conflict between a private
surface owner who acquired his title from the state and the
state's interest in developing those minerals some time later.
This is the first wide-scale situation where a potential
conflict of interest has arisen here.
MR. GALVIN said the different pieces of legislation address
surface impact issues related to coalbed methane through setback
requirements. Currently, developers are required to only
minimize their impact to residential or commercial activities,
but the public wants specifics; so the draft standards have very
specific setbacks. Noise and visual mitigation measures are also
part of the standards.
Wastewater disposal is a public concern related to coalbed
methane specifically and currently DEC statutes exempt it from
its wastewater permitting requirements. Well spacing is another
issue that is addressed in the standards. Presently, well
spacing is addressed only by the AOGCC, which evaluates it on
the most efficient means of developing the resource - their
statutory responsibility. It will not look at the issue the way
the public is expecting it to be looked at or how to minimize
the surface impact associated with well spacing.
The enforceable standards recognize that almost any coalbed
methane development is going to be done after a development unit
has been formed. A unit is a method to tie leases together
including lands of different ownership in order to develop the
collective resource in a more efficient manner. DNR will engage
the public in a review of the proposal. Specific well spacing
density is not suggested - just a recognition that any well
spacing decision would be based upon balancing the need to
develop the resource with surface impacts.
SENATOR ELTON asked if DNR could go further with non-statutory
authority for well spacing.
MR. GALVIN answered that it is an issue of having to recognize
the different function of the AOGCC versus DNR. The AOGCC is
looking at well spacing as an issue associated with developing
the well in the most efficient manner possible. From DNR's
perspective, it is the land manager. While it cooperates with
the AOGCC, DNR has the additional responsibility to make sure
that the activities take place in a responsible manner.
SENATOR ELTON asked if his answer was yes.
MR. GALVIN said yes and elaborated, "We're going to look at well
spacing primarily from a surface impact standpoint.... AOGCC is
going to look at well spacing at the bottom of the holes...."
Two different authorities would be used, but no additional or
contradicting authorities. "It's looking at different issues
associated with the same activity."
CHAIR OGAN related that the Mat-Su Borough has a draft
regulation that mandates well spacing.
MR. GALVIN warned that there is a potential for conflict in that
regard. However, the issue is also a function of the state of
technology for coalbed methane in this country, which is to have
vertical wells. Therefore, there is almost a one-to-one
relationship in the well spacing at the bottom of the hole as
well as the surface. New technologies are continually being
developed in this regard, but DNR is not in a position at this
point to say what is or is not an appropriate well spacing at
the surface.
He said that AOGCC has the authority to protect drinking water
sources from any drilling operation that is proposed. The
concern is what if something goes wrong and how that can be
known as soon as possible and how redress efforts can be
conducted. DNR is responsible for baseline water testing for
wells; AOGCC is responsible for water quality testing in
general. Monitoring will be needed for quality and quantity and
it may occur at the drinking water well or maybe at additional
wells in between the drilling site and the drinking water well
to identify an impact before it actually gets to the well.
Surface discharge standards allow discharge on the surface if
water quality does not have a negative environmental impact.
CHAIR OGAN concluded the hearing on SB 312.
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