Legislature(2021 - 2022)BUTROVICH 205
05/13/2022 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SJR11 | |
| HB349 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| = | SJR 11 | ||
| * | SB 244 | ||
| * | HB 349 | ||
HB 349-HEARING ESTABLISH DRILLING UNITS/SPACING
3:54:38 PM
VICE CHAIR MICCICHE announced the consideration of the CS FOR
HOUSE BILL NO. 349(RES)"An Act relating to the establishment of
oil and gas drilling units, spacing, and patterns."
He noted that this was the first hearing in this committee.
3:55:20 PM
REPRESENTATIVE GEORGE RAUSCHER, Alaska State Legislature,
Juneau, Alaska, introduced HB 349 paraphrasing the sponsor
statement:
[Original punctuation provided.]
HB 349 was written because the way we search for and
produce oil in the 21st century, has changed since the
1950's. During that time, policymakers were worried
that oil companies might drill too many vertical wells
that were spaced too tightly together, resulting in
oil left in the ground that could no longer be
recovered. Try googling Spindletop images.
Today, no one is spending millions of dollars to drill
unnecessary wells in Alaska. In the decades since the
early days of the industry, advancements in drilling
technology allows wells to be directionally drilled
underground, sometimes with multiple lateral wells
from a single motherbore or parent well. Holes can be
a few thousand feet deep, yet tens of thousands of
feet long to recover greater amounts of oil and gas.
Unfortunately, our outdated statutes have not kept up
with the advancements in the oil and gas industry. The
statutes being amended by this legislation were
originally designed to provide oversight by involving
another step, to provide assurance that perforations
into the ground were not going to be too close,
jeopardizing substructure integrity of the field or
zone. This extra oversight is no longer necessary,
slows down development and costs the state time and
money. HB 349 eliminates needless regulatory red tape,
as drilling and production processes have
fundamentally changed since the statue was written.
3:57:51 PM
RYAN MCKEE, Staff, Representative George Rauscher, Alaska State
Legislature, Juneau, Alaska, paraphrased the sectional analysis
on behalf of the sponsor:
[Original punctuation provided.]
Section 1: AS 31.05.100(a)
This amends section 1 - part a, starting on
page 1, line 7 and 8. This would remove the
hearing requirement before the commission can
establish the drilling unit or units for each
pool.
Section 2: AS 31.05.100(b)
This amends section 2 - part b, starting with
page 2 line 2. This removes the notice and
hearing requirement exceptions to the rules and
spacing pattern. Meaning that the need for proof
of public notice of a hearing would no longer be
needed. The remaining changes in section 2, legal
language that was needed to update the bill to
reflect the changes made above.
Section 3: AS 31.05.100(f)
This adds a new subsection (f) that protects
correlative rights.
3:59:05 PM
SENATOR KAWASAKI asked what the original purpose was for holding
public hearings and public notification.
3:59:19 PM
REPRESENTATIVE RAUSCHER answered that the public hearing was a
process required every time another hole was drilled in a nearby
unit. HB 349 proposes to drill a single mother bore [also known
as a parent bore]. When the bottom of the hole is reached,
offshoots are drilled at different angles, avoiding the need to
drill multiple wells. One single well hole would allow for 160
to 240 acres of exploratory drilling. Thus, it would enable the
company to drill at any point underneath the oil by using a
single mother borehole.
4:00:04 PM
SENATOR KAWASAKI surmised that the bill's primary purpose would
be to eliminate numerous unsightly, large, above-ground wells in
favor of multidirectional underground drilling.
4:00:38 PM
REPRESENTATIVE RAUSCHER deferred to Mr. Price to respond.
4:00:44 PM
JEREMY PRICE, Commissioner, Alaska Oil and Gas Conservation
Commission (AOGCC), Anchorage, Alaska, answered that is correct.
He directed attention to the photo [of the Spindletop Oil Field,
Beaumont, TAX CREDIT 1903, shown on slide 1 AOGCC's
PowerPoint]. He said the photograph [depicting numerous closely
spaced oil rigs] shows that drilling vertical holes together
results in waste, leaving unrecoverable oil in the reservoir.
MR. PRICE explained that AOGCC's statute was based on one that
all state oil and gas commissions had 70 years ago when the
commissions were created. The issue of waste when oil wells were
drilled too closely together within the hydrocarbon reservoir is
no longer the concern that it once was.
4:01:49 PM
SENATOR BISHOP related his understanding that Senator Kawasaki
acknowledged that the purpose of HB 349 was to allow drilling
laterally from one wellbore.
4:02:06 PM
VICE CHAIR MICCICHE commented that Alaska modeled some of its
statutes regarding oil fields on the Lower 48, but those fields
are not similar to Alaska's oil fields. Alaska has always
conducted oil drilling differently. He related his understanding
that this was a late adjustment to the statutes.
4:02:35 PM
MR. PRICE stated that he serves in the public seat on AOGCC. The
purpose of HB 349 is to reduce administrative barriers. He
related that AOGCC is tasked under AS 31.05.100 (a) and (b) to
hold hearings for any changes to oil and gas pool unit
designations, rules, or spacing patterns, even where all
relevant properties within a given pool belong to a single
owner. This requirement for hearings in every instance causes an
unnecessary delay for pool owners. It generates unnecessary
costs for the state as AGOCC must engage in the protracted
process of issuing notice and holding hearings before taking
action. HB 349 would update the process, reduce unnecessary
delays to oil and gas operators, and save the state time and
money that would otherwise be spent on superfluous notice and
hearing requirements.
4:03:30 PM
MR. PRICE noted that as Mr. McKee stated, Section 1 of HB 349,
page 1, line 5 would delete the correlate of rights of lessees
in a pool because the definition of correlative rights is
already in AS 31.05.170. That definition is more comprehensive,
and AOGCC commissioners rely on that definition.
4:04:03 PM
MR. PRICE referred to Section 1, lines 7 and 8, which would
remove the hearing required before the commission can establish
the drilling unit or units for each pool. Current statutes
require AOGCC to hold a hearing when an operator drills an
exploratory well and discovers oil and gas. The statutes require
AOGCC to hold a hearing on the spacing of additional wells
drilled within the same pool and establish a drilling unit or
units for that pool. He noted that the default drilling unit size
for a governmental section for gas is 640 acres, and a
governmental quarter section for oil is 160 acres.
MR. PRICE stated that Section 1 of HB 349 would remove the
requirement to hold a hearing and to establish a drilling unit.
He recalled that some confusion exists between a drilling unit,
which AOGCC creates, and a unit boundary created during the
Department of Natural Resources leasing process.
4:05:09 PM
MR. PRICE explained that establishing drilling units, which are
essentially boxes on a map within which only one vertical well
can be drilled, is an outdated process due to horizontal
drilling.
MR. PRICE explained that Section 2 would make it discretionary
rather than mandatory for AOGCC to issue notice and hold a
hearing in each instance where an exception is granted to the
rule regarding spacing patterns prescribed to a particular pool.
With this change, AOGCC could allow the operator to drill
additional wells within the same pool without having a 30-day
public notice and comment period, followed by the issuance of a
conservation order. He noted that from 2016 to 2020, before the
pandemic, AOGCC publicly noticed 47 hearings for non-
controversial well spacing exceptions, but no member of the
public requested nor submitted testimony.
4:06:08 PM
MR. PRICE referred to Section 3, subsection (f), which would
retain public notice requirements to protect correlative rights
by requiring public noticing when operators apply to drill within
a certain distance of property lines when the landowners are not
the same.
MR. PRICE referred to a one-page handout in members' packets,
entitled 20 AAC 25.520, Drilling Units and Well Spacing, that
shows how these changes would affect AOGCC. This provides an
example of changes to regulations that could occur if this bill
were to pass. He highlighted that the effect would be to delete
the underlined portion in 20 AAC 25.055(a), which pertains to
creating drilling units that would no longer be required. The
drilling default unit size of the governmental core section and
the spacing restriction between wells producing from the same
pool would be repealed. Subsection (a), paragraphs (1), and (2)
provide protections for correlative rights and establish a
requirement to hold hearings for those spacing restrictions.
4:07:42 PM
JESSIE CHMIELOWSKI, PE; Commissioner, Alaska Oil and Gas
Conservation Commission, Anchorage, Alaska, stated that she
serves as the engineering commissioner on AOGCC. HB 349 would
modify statutes that have not been changed since 1955. If
approved, this bill would not affect AOGCC's mission but would
allow the commission to be more efficient.
4:08:18 PM
MS. CHMIELOWSKI stated that the bill title refers to drilling
units, but the proposed language relates to inter-well safe and
exceptions, or how far one well must be from another in the
subsurface. She noted that it does not relate to anywhere below
the surface but in the targeted, productive reservoir. When the
statute was written in the 1950s, it was common for oil and gas
fields to be developed with vertical wells. At times operators
would drill wells that were too close together, resulting in
waste or a reduction in the hydrocarbons that could be
recovered.
MS. CHMIELOWSKI referred to the photo of the Spindletop Oil
Field, which was a first-come-first-served approach with no
controls over development. She stated that too many wells were
drilled too close together, and the reservoir pressure would
drop off too rapidly, resulting in stranded reserves or waste.
After states passed conservation acts in the 1930s, agencies
like AOGCC adopted reforms throughout the US to prevent wasting
hydrocarbon resources.
4:09:45 PM
MS. CHMIELOWSKI reiterated that establishing the default
drilling units and requiring AOGCC to hold hearings for spacing
exceptions was to prevent waste of the resource or to encourage
ultimate resource recovery. As previously mentioned, in Alaska,
the default drilling unit size for a governmental section for
gas and a governmental quarter section for oil only allows one
well per default drilling unit unless AOGCC grants a spacing
exception, which requires a hearing.
MS. CHMIELOWSKI discussed allowing wells to be drilled closer
than the default spacing. She said it encourages greater
ultimate recovery. With modern technology, wells are drilled
based on geology and reservoir characteristics. Default drilling
units based on governmental sections are out of date. It is
common for wells to be planned and drilled closer than the
default spacing.
4:10:26 PM
MS. CHMIELOWSKI stated that when Prudhoe Bay was initially
started 44 years ago, the estimated recoverable reserves were 9
billion barrels of oil. However, with advancements in drilling
and reservoir management, the estimated recoverable reserves are
now 14 billion barrels of oil. She highlighted that updating the
best practices would benefit Alaska.
4:10:50 PM
MS. CHMIELOWSKI stated that she had two examples.
4:11:18 PM
SENATOR STEVENS referred to the figures for recoverable oil in
Prudhoe Bay. He asked whether the later projection that Prudhoe
Bay contained 14 billion barrels of recoverable oil included the
original estimate of 9 billion.
MS. CHMIELOWSKI answered that the 14 billion barrels of oil
represent the estimated total recoverable reserves.
SENATOR STEVENS further asked whether that was for the entire
Prudhoe Bay field from its inception until now.
MS. CHMIELOWSKI answered that is correct.
4:11:46 PM
MS. CHMIELOWSKI reviewed the slide titled AOGCC Well Spacing
Exception Example: BlueCrest Energy which provided a birds-eye
view of the BlueCrest Energy Development in Cook Inlet. She said
the green lines represent the wells, which start at one onshore
pad located at the right-hand side. She explained that the wells
were drilled underground offshore to the oil and gas reservoir.
Although difficult to see on the slide, the text shows the
governmental sections in the area, consisting of a grid pattern
laid across the map. She pointed out that each of these wells
has a series of dots and unreadable text on the slide,
representing the multi-lateral or fishbone lateral.
4:12:56 PM
MS. CHMIELOWSKI turned to the rainbow slide titled H-12
Multilateral. She said this shows a side view of one of the
multi-lateral wells. The well begins on the right side of the
slide, cutting across the reservoir, with the parent or mother
bore extending to the far left. The drill rig pull back and
sidetrack to drill the lateral wells that extend up. She
referred to the series of laterals that are called fishbone
laterals. She stated that BlueCrest Energy tried several ways to
produce this reservoir most efficiently and found this to be the
best way. She said it is a modern well design that optimizes the
ultimate recovery of oil and gas. In this instance, each of the
laterals required an inter-well spacing exception and a hearing.
She indicated this created a substantial administrative burden
for the operator and AOGCC. Nevertheless, developing the
drilling in this way is the right thing to do, which AOGCC
verifies through its permitting process.
4:14:22 PM
MS. CHMIELOWSKI reviewed the slide titled AOGCC Well Spacing
Exception Example: ConocoPhillips. She said this shows a birds-
eye view of a map of the Rendezvous Oil Pool Development Plan in
the Greater Mooses Tooth Unit. She directed attention to the
governmental and quarter sections overlaid on the map. She
directed attention to the red dot on the field labeled MT7,
which identifies the drilling pad location where the wells will
be drilled, with orange parallel lines depicting the planned
wells. She stated that ConocoPhillips makes an alternating
pattern of injectors or producers, which the next slide zooms in
on. She noted the purple curved line that outlines the
Rendezvous Oil Pool, and a squared-off jagged line that
indicates the leases the company has secured for this oil pool.
4:15:32 PM
MS. CHMIELOWSKI reviewed the last slide, which shows a zoomed-in
view of the wells. She indicated that the wells drilled begin at
the same location with a series of parallel wells that alternate
blue and green based on the producers and injectors to bring oil
to the producers for optimal maximum recovery. Each of these
wells covers multiple governmental quarter sections, so every
well would require an inner-well spacing exception from AOGCC,
including noticing a hearing. She stated that this proposed
horizontal well development would yield greater recovery than a
conventional vertical development plan with minimum spacing. She
offered her belief that the request for inter-well spacing
corrections is unnecessary to prevent waste or protect
correlative rights. She summarized that the technical review of
drilling permit sites by AOGCC engineers and geologists is
robust and would not change. With the passage of HB 349, AOGCC
will continue to fulfill its mission to prevent the waste of
Alaska's valuable hydrocarbon resources.
4:17:16 PM
SENATOR KIEHL related that the bill indicates that the
commission can adopt regulations for a more moderate approach.
He asked what the public notice or comment opportunities for the
public would be if the bill were to pass.
4:17:54 PM
MR. PRICE answered that the ability to request a petition for a
hearing exists and will remain in statute. A member of the
public can petition AOGCC for a hearing on any matter within its
jurisdiction. In addition, the Department of Natural Resources
(DNR) provides multiple opportunities for public comment to
raise concerns about when the leasing process begins. He stated
that once the project comes to AOGCC, the commission will hold
hearings on correlative rights issues, but it would no longer be
holding hearings on the well spacing or the distance between
wells within the reservoir.
4:19:15 PM
SENATOR KIEHL said he would contemplate this.
4:19:25 PM
SENATOR BISHOP, following up on Senator Kiehl's question,
recalled that AOGCC held 47 public-noticed hearings, and no one
testified.
MR. PRICE responded that is correct.
4:19:52 PM
SENATOR STEVENS asked whether the producers could return to the
original wells constructed or drilled at Prudhoe Bay and use the
more modern approach of horizontal drilling.
MR. PRICE deferred to Ms. Chmielowski.
4:20:23 PM
MS. CHMIELOWSKI answered absolutely. The oil wells in Prudhoe
Bay were drilled in the 1970s, and Hilcorp Alaska LLC returns to
those wells, performs lateral drilling to sidetrack, and recover
additional reserves.
4:21:05 PM
VICE CHAIR MICCICHE opened public testimony on HB 349; he found
none and closed public testimony.
4:21:35 PM
SENATOR KIEHL related to his understanding that AOGCC would
still hold hearings on correlative rights. Still, his reading is
that the bill would remove the hearings to prevent waste and
protect correlative rights.
MR. PRICE answered that there are still requirements in statute
that relate to waste and ensure ultimate recovery. It would not
specifically apply to waste pertaining to well spacing or inter-
well spacing. Suppose an operator is drilling through a gas zone
that the commission's geologists believe could contain
significant hydrocarbons. The commission may want to require
that the gas zone be cemented to prevent any hydrocarbons from
migrating into another zone. He stated that it would be an issue
of waste, and AOGCC would hold a hearing on that matter. He
indicated that other places in statute still require AOGCC to
hold hearings and issue a public notice and comment.
4:23:31 PM
SENATOR KIEHL commented that Senator Bishop reminded him that
Mr. Price mentioned that AOGCC held 47 hearings on non-
controversial spacing exemptions. He asked whether controversial
exemptions occur.
MR. PRICE answered that, in his experience, all inter-well
spacing issues have been non-controversial.
4:23:58 PM
VICE CHAIR MICCICHE questioned whether he had answered the
question on correlative rights. He asked whether other sections
would protect those correlative rights.
MR. PRICE responded that the protection of correlative rights
exists throughout the statute. He stated that when the
legislature amended Section 1 in the House Community and
Regional Affairs Committee, Representative Hannan requested
assurance that AOGCC would preserve the requirement in statute
to hold hearings for correlative rights. This led to adding
Section 3 to the bill to ensure that AOGCC would have specific
statutory authority to continue holding those hearings. He noted
that AOGCC has historically held those hearings and will
continue to do so.
4:25:05 PM
SENATOR KIEHL replied that it does answer his question. He asked
for a brief description of how the commission informs various
owners about specific correlative rights and issues.
MR. PRICE deferred to Ms. Chmielowski to respond.
MS. CHMIELOWSKI explained that HB 349 only affects the
requirement to notice hearings on inter-well spacing. As Senator
Kiehl mentioned, AOGCC also oversees the correlative rights
related to leasing boundaries and how close a well can be
drilled to a boundary when the owners are not the same on both
sides. She indicated that AOGCC has strict rules and requires a
minimum standoff from these boundaries where the owner is not
the same. AOGCC requires a minimum distance of 500 feet for an
oil well and 1500 feet for a gas well. She elaborated that
correlative rights are the rights of an owner of a resource to
recover their share of the resource. AOGCC would still be
required to notice hearings for spacing exceptions of this type.
She noted that when AOGCC receives a request for a spacing
exception for a well that will go close to a boundary where
ownership is not the same, AOGCC has a specific list of things
that need to occur in the application to drill the well in
advance of issuing an approval. She offered her belief that this
was in regulation. Further, AOGCC must notify every landowner or
subsurface owner within a certain radius of the entire length of
the wellbore by certified mail. That evidence must be presented
to the commission as part of their application.
SENATOR KIEHL said the explanation helped him understand the
noticing requirements.
4:27:51 PM
VICE CHAIR MICCICHE solicited the will of the committee.
4:28:04 PM
At ease
4:28:39 PM
VICE CHAIR MICCICHE reconvened the meeting.
4:28:45 PM
SENATOR STEVENS moved to report CSHB 349(RES), work order 32-
LS1542\I, from committee with individual recommendations and
attached fiscal note(s).
VICE CHAIR MICCICHE found no objection, and CSHB 349(RES) was
reported from committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 349 AOGCC Presentation to House Resources 4.27.2022.pdf |
SRES 5/13/2022 3:30:00 PM |
HB 349 |
| HB 349 DCCED Fiscal Note.pdf |
SRES 5/13/2022 3:30:00 PM |
HB 349 |
| HB 349 Explanation of Changes 4.29.2022.pdf |
SRES 5/13/2022 3:30:00 PM |
HB 349 |
| HB 349 Sectional Analysis.pdf |
SRES 5/13/2022 3:30:00 PM |
HB 349 |
| HB 349 Sponsor Statement.pdf |
SRES 5/13/2022 3:30:00 PM |
HB 349 |
| SB 244 AOGCC Presentation.pdf |
SRES 5/13/2022 3:30:00 PM |
SB 244 |
| SB 244 Fiscal Note DCCED.pdf |
SRES 5/13/2022 3:30:00 PM |
SB 244 |
| SB 244 Sponsor Statement.pdf |
SRES 5/13/2022 3:30:00 PM |
SB 244 |