Legislature(2001 - 2002)
03/21/2001 03:48 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SB 125-LAND ENTRY UNDER STATE RESERVATION OF RT. CHAIRMAN JOHN TORGERSON called the Senate Resources Committee meeting to order at 3:48 p.m. and announced SB 125 to be up for consideration. He explained that it sets up procedures to handle damage to land owners' property. SENATOR HALFORD said that his intern, Alex Kopperud, has long-term roots in the Mat-Su Valley and came up with this situation, which concerns the way the state deals with subsurface values as they apply to surface values. He explained, "It is clear the subsurface estate is paramount in the mineral values that are leased and developed, but when you get to major activities and you find that the surface estate is much more developed, as it is in the Mat Valley now and as it is in the Kenai Peninsula, you start to get potential conflicts. The preference for subsurface values isn't without limitation." He noted this bill tries to put those limitations on the table. It deals with the questions of damage to the surface estate, of what the legal authorities are between surface and subsurface owners, of notice and how it's provided, of how damages are assessed, and of / how bonds are dealt with. SENATOR HALFORD said, "It has raised quite a bit of objection from some of our friends in the subsurface industry…. I think some of those objections are reasonable." The surface estate, in some cases, has been substantially abused by the owners of the subsurface estate. He thought the issue would get bigger in the future. MR. ALEX KOPPERUD, staff to Senator Halford, explained that Section 1 makes stylistic changes to AS 38.05.130. Section 2 prescribes a definition of damages, which comes from the model Surface Use and Mineral Development Accommodation Act from the National Conference of Commissioners on Uniform State Laws in 1990. MR. KOPPERUD explained that there are two primary areas in the definition of damage: (1) loss of or injury to the value of the owner's property, improvements or personality; or (2) interference with or interruption of the owner's access to or use of the property or improvements. The bill provides the means to measure those two definitions of damages in (d), which attempts to provide a meaningful remedy for subsurface lessee and surface owner, by trying to provide a reasonable deterrent that says before you enter surface estate, you should really comply with AS 38.05.130, settle the damages up front with the owner and, if you can't do that, post a surety bond. MR. KOPPERUD explained that the damages in Mat-Su were laid out by the Alaska Supreme Court in a similar case regarding this issue in Hays vs. AG Associates. Subsection (2)(a) and (b) gives the surface owner the option of pursuing the lessee for punitive damages. Subsection (e) provides recognition that the surface owner and a subsurface lessee are allowed to come to a different measure of damages and agree on it by themselves. Subsection (f) describes the bond to be either the assessed value of the entire parcel or $100,000. Currently, DNR takes the assessed value of the property, identifies the areas that will be impacted and uses the value of that. The assumption is that all portions of the property are worth the same. There is a problem with that rationale in the Mat-Su Valley where it's not uncommon to have a 10-acre parcel of record and find that only one or two acres are really developable. If, for some reason, the subsurface lessee chooses to enter onto those one or two acres, those are the most valuable acres in the entire parcel. The lessee needs some kind of reasonable assurance that they are going to have enough room to take on the matter and cover the costs that may go as far as the Superior Court. MR. KOPPERUD said that typically, you don't get bond money just by asking for it. $100,000 is what they determined to be the minimum [bond amount] necessary to take the issue seriously. Some areas don't have an assessed value and those are determined on page 4, line 6. Some boroughs have cycles for assessed values and a property owner has the room to get an appraisal done. The basic liability provision in (g) says that a surface owner should not be liable for the actions of a subsurface lessee. MR. KOPPERUD said that Section 3, page 4, contains the notice provisions. He explained that he has found that not every one understands the law in Alaska and many people don't know that they are even entitled to discuss damages with a subsurface lessee. As a surface owner, one needs to know what kind of damages to expect and that is covered in this section. Number 1000 SENATOR ELTON said he was concerned that the words "immediately preceding the entry" on page 2, lines 29 and 30, may not cover the situation of a summer cabin or Boy Scout camp use. MR. KOPPERUD agreed and said he thought that language could be delineated further. MR. MARK MEYERS, Director, Division of Oil and Gas, DNR, said that oil and gas and mining activities are increasing in areas with significant private surface ownership. This is particularly true in the Mat-Su Valley. DNR estimates that about 75 percent of the approximately 300 outstanding shallow gas leases have privately held surface estates. He said that Mr. Bill Van Dyke, as hearing officer, has dealt directly with these issues. He turned the discussion over to him. MR. BILL VAN DYKE, Petroleum Manager, Division of Oil and Gas, DNR, said his home is subject to a mineral reservation similar to what's described in SB 125, so he is aware of the potential conflicts that can arise. He noted that Mr. Meyers and Mr. Loeffler [wrote] memos with comments on the issue and proposed amendments, which would reduce the cost of implementing the bill. The fiscal note reflects the costs that would occur if the bill is enacted as currently written. He said DNR does not have to issue a lease or license for someone to shoot seismic operations. He explained that once an agreement has been reached or a bond has been set, the mineral developer can enter onto the private surface. Under existing law, DNR is not the body that ultimately determines damages; that would be done in court. DNR believes that is where the authority should stay. The owner of the subsurface estate has the right, with some limitations, to enter onto some privately held surface to explore and develop the underlying minerals. This concept is pretty foreign to people in the Mat-Su Valley, although it is common practice in the Lower 48. He stated, "All the mineral reservations are in the people's deeds and they really do mean something." The surface owner is entitled to damages, if damages do occur, but defining those damages through legislation or regulation will start DNR "down a slippery slope." MR. VAN DYKE said he didn't think that any state had actually adopted the model act that Mr. Kopperud had talked about. They have found that just occupying unimproved land with a drill rig usually does not constitute damages. He noted, "It's not what a surface owner wants to hear, but it's the law and it's the practice in other jurisdictions." He said that one has to proceed with caution when giving either the surface owner or the mineral owner more rights, because you can't give one party rights without taking some rights away from the other. He advised, "In this case they are discussing the state's mineral estate and we do derive substantial value from that mineral estate." He thought expanding the definition of damages to be too inflexible would impose an additional burden upon the subsurface owner or their agents. MR. VAN DYKE highlighted three points in his memo. · A $100,000 [bond] is too high because it uses a one-size-fits- all approach. He proposed a tiered approach that also reflects the differences between mining and drilling for oil and gas. · This bill would cover seismic operations so a $100,000 [bond] to walk on someone's property is too high. There are hundreds of properties in a given seismic survey. They don't think that certain activities require a bond at all, like surveying activities. · They also believe the lessee should be required to notify surface owners. He said their proposal takes more of a "meat cleaver" approach to the defining damages section. This is the point at which the surface owner can't be compensated without taking something from the subsurface owner or vice versa. He didn't think either one of those actions were justified. He gave an example of a lessee who is not supposed to work between the hours of 10 p.m. and 6 a.m., but gets in the middle of cementing casings and can't get it done by 10 p.m. The lessee would then be subject to punitive damage claims. DNR does not think that should happen. It's a perceived value question. He maintained: Entry by a mineral developer on to any privately held surface estate is going to be a traumatic experience for the surface owner. We try to make that experience understandable and trouble-free. The surface owner regardless of whether you follow existing law or the law that would be in place if this bill is enacted, the owner is still not going to be happy. That issue we have to work through. Mineral reservations are real and they're binding and the state derives substantial revenue from those mineral reservations. We hope to be able to work with Senator Halford and the committee to craft solutions that will work for all parties involved. Number 1700 SENATOR TAYLOR said it seemed to him that Alaskans are in a very difficult position with the reservation of subsurface rights as compared to the citizens of Oklahoma, Louisiana, Georgia and Texas or any citizens of this state who may have received patented title to their lands prior to statehood, who may very well own their subsurface rights. He noted, "Apparently, if you go on a person's property in Texas and want to drill for oil under his land, you enter into an agreement with him on how much you're going to give him as far as a royalty coming out of his land." He bet there isn't much of a problem with surface owners in Texas, because they get a piece of the same action. However, in the Mat-Su Valley, a developer can run roughshod over the owner; the developer doesn't have to tell the owner a thing about what is taken out of the ground underneath his house or his property. He maintained, "He gets no interest in it. So his only concern then is the impact and effect upon his surface estate. I can certainly understand how that conflict is not only continued, but as we sell more state land and as we expand and ask the industries to expand both in mineral and oil and gas development, we're going to be setting up those additional conflicts and the state is going to be the person sitting at the table getting a piece of the action while the home owner gets run off the property." He didn't think an oil company would be encountering these problems if it was talking to the landowner about giving them 10 percent. SENATOR ELTON asked how the lessee is supposed to notify the surface landowner and whether that is part of the lease or license agreement with the lessee. He questioned whether they are compelled to notify by some other means or method. MR. VAN DYKE answered that AS 38.05.130 and provisions in the leases require notification. He said,"We won't issue a permit until we know those notifications have been made." SENATOR TAYLOR asked about the form of notification: how many days prior to the issuance of the permit it is required; whether notification must be sent via certified mail or whether a notice is placed in the newspaper. MR. VAN DYKE answered, "Right now it is the responsibility of the person who is going to do the seismic operations or the drilling activity to notify the owners. We would require some sort of certification or notice that all those notifications have been made. If a surface agreement has been entered into, we could have a hearing to post a bond, if they don't have a damages agreement or surface use agreement." SENATOR TAYLOR asked what a state agency does when someone doesn't comply. MR. VAN DYKE replied that in the Valley they had an instance where two people had the same name and the wrong person got notified. A second instance was a surface agreement that was entered into, but there was a disagreement about what that surface agreement meant and in that case, they don't bond after the fact. SENATOR TAYLOR said the department said it is the responsibility of the permit applicant to provide notice to the landowner. He asked if DNR requires that it receive a copy of a particular form. MR. VAN DYKE replied, "No. The proof would be either a surface entry agreement or having a bond hearing. The notice has to get done one way or the other in order to get to the next step, but we don't have a specific procedure right now on notice." Number 1900 SENATOR HALFORD said he thought an exemption for seismic or diminimous activity makes sense. MR. LOEFLER, Director, Division of Mining, Land and Water, DNR, told members the division has experience working with mineral values on shales and subsurface and surface. In most cases, the division expects to work with a borough, although in some cases it is a private developer. He thought the bill worked quite well, but his memo laid out his three significant comments. MR. LOEFFLER said if the legislature decides to require notice for diminimous activities, DNR had an instance in which a surface owner got notice that a subsurface owner was going to do exploration. The surface owner either went or threatened to go stake it himself, which would deprive the subsurface owner access to the minerals. He thought a $100,000 bond would be too much for any realistic placer operator. He also thought the Division of Land and Water had a regulation procedure that works reasonably well for split estate situations. He said for the most part, the bill is consistent with that, but the Division does require the developer to make the contact. SENATOR LINCOLN said that Mr. Loeffler and Mr. Meyer's memo made sense to her and asked if the sponsor was going to work with the different divisions to address some of their concerns. SENATOR HALFORD responded that the criticisms were well taken. He suggested, with regard to prospecting and mineral activities, they might want to simply require a notice provision and no bonding provision. He stated, "This is a case where one side of the equation is traditionally a giant and the other side of the equation is a very small property owner. So you've got to try and balance that as best you can. Yes, I intend to work with the departments, because most of their criticism is pretty well taken." SENATOR TAYLOR asked, under conveyances with land claims, if the subsurface fell within a category where they had to be shared with the other corporations. He asked if the subsurface is conveyed then. MR. HALFORD responded that the profits of the subsurface are shared between regional corporations, but the regional corporations own subsurface under land owned by the village corporations. So they also have a split ownership and may have a split in terms of what they want to do with it. SENATOR TAYLOR said he understood the dispute as to the utilization of the land, but he asked if that landownership got its mineral rights. He asked, "So if you're going to drill for gas underneath a certain village's property, do they have the rights to that and it's just a dispute as to how that was going to be divvied up?" SENATOR HALFORD responded, "That 44 million acres included mineral rights, as did federal transfers before statehood." SENATOR LINCON added, "To the regional corporations." SENATOR TAYLOR said that wouldn't be a problem on their land, because they were going to negotiate it probably. SENATOR HALFORD responded, "Probably." MR. JOHN RODDA said he is the son of a property owner in the Big Lake area. He told members, "Something has to be done to protect us. We homesteaded on this property 45 years ago. Our intent from the beginning was that our property held our family's future…" He thought the issue boiled down to lack of interest in a surface owner's rights beginning with a lack of notice when a subsurface lease is offered. He asked if a subsurface lease is offered to the surface owner or whether it is only offered to oil, gas and mineral developers. MR. RODDA said he had been dealing with two separate operations for 10 years: an ARCO oil exploration process (the lease has expired); and with Ocean Energy that has a gas exploration operation. He pointed out, "Once there has been an approved plan, the plans do not always get adhered to." He noted a buried waste reserve pit on his property about 100 ft from Big Lake Road is about 1/3 the size of a soccer field and six to eight feet thick mixed with concrete. He said DEC permitted that without his family's knowledge. MR. RODDA said the owner needs to have the opportunity to object before a full and complete plan is approved. Modifications need to be disclosed and the opportunity to concur or object to those modifications should be provided. TAPE 01-23, SIDE B MR. RODDA said a solution to specifically address the damages that can't be seen needs to be found. He noted that complaints and letters need to be addressed in a timely manner. He noted he hadn't received any decision from Mr. Van Dyke on a bond hearing that had been held 10 months ago. Also, Mr. Rodda said he has to appear at his own cost to defend his position. He said he also paid for 68 pages of transcription and monitoring of the site since it is not secured. When the gate protecting the entrance to his property was torn down, it took a phone call from him to Matt Raider, who works for Mr. Van Dyke, to get Ocean Energy to fix it. He remarked, "That repair constituted taking a piece of cable and wrapping it around the poles and leaving it hanging there in another dangerous situation." He said that Mr. Van Dyke knows about the gate, the problems with the waste, the unevenness on the land and the unsafe condition. His family has spent hundreds of hours to protect the property that has been theirs for 45 years. CHAIRMAN TORGERSON said he thought the Division of Oil and Gas should give Mr. Rodda a call and, "get some of this stuff worked out." He announced that they would hold the bill so Senator Halford could work on it.