Legislature(2005 - 2006)BUTROVICH 205

04/13/2005 03:30 PM RESOURCES


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+= SB 53 AK PENINSULA OIL & GAS LEASE SALE; TAXES TELECONFERENCED
Heard & Held
*+ SB 163 COOK INLET OIL & GAS TAX CREDIT TELECONFERENCED
Heard & Held
*+ SCR 6 COOK INLET OIL & GAS PLATFORM ABANDONMENT TELECONFERENCED
Moved CSSCR 6(RES) Out of Committee
*+ SCR 7 OIL AND GAS REG REVISIONS TELECONFERENCED
Moved SCR 7 Out of Committee
        SCR  6-COOK INLET OIL & GAS PLATFORM ABANDONMENT                                                                    
                                                                                                                              
CHAIR WAGONER announced SCR 6 to be up for consideration.                                                                       
                                                                                                                                
MARY JACKSON,  staff to  Senator Wagoner,  sponsor, said  the two                                                               
resolutions coming before  the committee are part  of the results                                                               
of the February Kenai meeting  about abandonment of the platforms                                                               
in Cook Inlet, a serious  issue since 1996. This resolution urges                                                               
the  governor to  ask the  department to  promulgate regulations.                                                               
There was some  question about whether the  Department of Natural                                                               
Resources  or  the Alaska  Oil  and  Gas Conservation  Commission                                                               
(AOGCC)  had precedence  over  that  and it  was  found that  the                                                               
department does.                                                                                                                
                                                                                                                                
4:02:03 PM                                                                                                                    
MARK  MYERS, Director,  Division of  Oil and  Gas, Department  of                                                               
Natural Resources  (DNR) said abandonment  is really a  big deal.                                                               
Many wells are  ending their lives; some  have been "lighthoused"                                                               
and  some have  been partially  abandoned. It  involves a  lot of                                                               
stakeholders  and  has  issues   like  navigability.  The  leases                                                               
require  full-abandonment -  full  removal and  back to  original                                                               
condition.                                                                                                                      
                                                                                                                                
However, there  are questions  of whether  there might  be better                                                               
and higher uses  for the platforms and who  retains the liability                                                               
at the  point of abandonment.  The state has  historically relied                                                               
on  parent  company  guarantees  and  the  deep  pockets  of  the                                                               
original lessee. "It's not a  liability you can sign away. That's                                                               
a very strong  incentive, again, a very strong  protection in the                                                               
process."                                                                                                                       
                                                                                                                                
Smaller companies  can take over  some of the platforms  and that                                                               
has happened,  but the  state wants to  make sure  it's protected                                                               
from  liability. With  all that  said, the  liability becomes  an                                                               
issue when  folks want to sell  the platforms and they  should be                                                               
entitled to some certainty about  how, in fact, and what standard                                                               
the state is going to hold the lessee to.                                                                                       
                                                                                                                                
     In the end,  we fully need a process. We  need a series                                                                    
     of regulations about how we  deal with these things and                                                                    
     quite  honestly,  since  statehood, really  we  haven't                                                                    
     gone through  full abandonment of these  platforms. So,                                                                    
     we're into new territory. We  expect to hold a full set                                                                    
     of procedures  this year  on this  issue, but  until we                                                                    
     have  our  act together,  but  until  we have  all  the                                                                    
     participants  at   the  table,  all   the  stakeholders                                                                    
     involved,  we  haven't been  prepared  to  do it.  This                                                                    
     urges  us to  do it.  We recognize  in fairness  to all                                                                    
     parties we need to do it;  we recognize there are a lot                                                                    
     of stakeholders involved and we are the lead agency.                                                                       
                                                                                                                                
He supported the resolution, but admitted it is a daunting task.                                                                
                                                                                                                                
4:04:39 PM                                                                                                                    
DAN  SEAMOUNT,   Alaska  Oil  and  Gas   Conservation  Commission                                                               
(AOGCC), said he  really supports the goal of future  oil and gas                                                               
exploration  and  development. He  said  there  is potential  for                                                               
undiscovered  oil  within  reach  of  the  Cook  Inlet  platforms                                                               
because the  known reservoirs still  have a lot of  oil. Recovery                                                               
of  the original  oil in  place has  been relatively  slow off  a                                                               
number of the platforms - less  than 30 percent compared to other                                                               
field  such as  Prudhoe Bay  with recoveries  of greater  than 50                                                               
percent of the original oil in place.                                                                                           
                                                                                                                                
     We believe  there are hundreds  of millions  of barrels                                                                    
     of oil  left in  the produced fields  of Cook  Inlet in                                                                    
     known  reservoirs. With  this, motivated  and energized                                                                    
     production  companies  such  as Crosstimber  should  be                                                                    
     encouraged  to use  technology to  recover more  of the                                                                    
     known oil  - that's the  oil that's reachable  from the                                                                    
     platforms.  Also,  there's exploration  potential  left                                                                    
     within  reach. There  are  fewer  than 300  exploration                                                                    
     wells and 1,000  total wells that have  been drilled in                                                                    
     the entire history of the 10,000 square mile basin.                                                                        
                                                                                                                                
MR. SEAMOUNT  said that he knows  of similar size basins  such as                                                               
the San  Juan Basin  in New  Mexico, which  has 29,000  wells and                                                               
discoveries are still being made there.                                                                                         
                                                                                                                                
     Leslie  Lagoon with  the USGS  -  expert geologist  and                                                                    
     geochemist -  has concluded that  only four  percent of                                                                    
     the total  oil generated in  Cook Inlet Basin  has ever                                                                    
     been found.  We don't  know yet  if condensing  oil has                                                                    
     escaped  to  the  surface  or  it's  still  trapped  in                                                                    
     undiscovered oil fields or both,  but there is a lot of                                                                    
     oil that has not been  accounted for yet. As Mark Myers                                                                    
     was  saying, there  are  untested  fault blocks  within                                                                    
     reach  and  under  exploratory prospects  that  there's                                                                    
     been identified by  many petroleum explorationists over                                                                    
     the last 50 years.                                                                                                         
                                                                                                                                
     Possibly  the  highest  potential   play  is  the  Pre-                                                                    
     tertiary,  Cretaceous  and  Jurassic rocks  that  we've                                                                    
     been hearing  about lately  in the  news and  Mr. Myers                                                                    
     mentioned. The  Jurassic rocks is where  almost all the                                                                    
     oil  is generated.  To date,  only 55  wells have  been                                                                    
     drilled  in this  section and  most  have been  drilled                                                                    
     only  into  the  very  top.  Little  is  known  of  its                                                                    
     productive  potential. We  feel  the existing  offshore                                                                    
     platforms represent viable  infrastructure and it makes                                                                    
     sense to  reenter their idle  well bores and  deepen or                                                                    
     sidetrack  to test  the Pre-tertiary  section of  5,000                                                                    
     ft. extra  depth below the Tertiary.  It's an arbitrary                                                                    
     number, but  it really comes close  to fully evaluating                                                                    
     the  Pre-tertiary sections  potential.  You could  also                                                                    
     drill  to  see  the  new fault  blocks  and  the  other                                                                    
     prospects before abandoning the platforms.                                                                                 
                                                                                                                                
     As I've alluded  to, there are four  tiers of potential                                                                    
     that  are within  reach of  the platforms.  There's the                                                                    
     unproduced  oil  in  known reservoirs;  there  are  new                                                                    
     fault  blocks. There  are  many identified  exploration                                                                    
     prospects  and  there's  the Pre-tertiary  play.  These                                                                    
     plays would  most likely be uneconomic  and unreachable                                                                    
     if it were not [indisc.] to existing platforms.                                                                            
                                                                                                                                
     Our new  commissioner, Kathy  Forester, pointed  out to                                                                    
     me  -  she's got  a  lot  of  experience on  the  North                                                                    
     Slope.... She pointed  out to us that  the situation at                                                                    
     Cook  Inlet is  analogous to  that of  the North  Slope                                                                    
     where  ConocoPhillips and  BP  are  already using  idle                                                                    
     well bores on existing pads  to deepen or sidetrack for                                                                    
     small  accumulations   of  reservoirs  that   would  be                                                                    
     uneconomic if  not for the existing  infrastructure. In                                                                    
     other words, it's possible that  Cook Inlet has already                                                                    
     been  shown to  be  successful by  the  success on  the                                                                    
     North Slope.                                                                                                               
                                                                                                                                
     We feel  the platforms should  be viewed as  assets and                                                                    
     we  recommend that  all  stakeholders  be very  careful                                                                    
     when  considering abandonment  and  do everything  they                                                                    
     can to have  all of the potential oil  and gas reserves                                                                    
     tested   before  abandonment.   There's  a   window  of                                                                    
     opportunity right  now to capture  additional reserves.                                                                    
     Platform abandonment would close  that window. Once the                                                                    
     window closes, much of the  state's resources and Kenai                                                                    
     Peninsula's economic potential could be lost.                                                                              
                                                                                                                                
4:10:34 PM                                                                                                                    
CHAIR  WAGONER  added that  currently  there  are over  300  jobs                                                               
directly related to Cook Inlet  platforms. "It's a very important                                                               
part of  the overall oil  and gas economy  that we have  based in                                                               
Cook Inlet right now."                                                                                                          
                                                                                                                                
4:11:05 PM                                                                                                                    
MIKE  MONGER, Executive  Director, Cook  Inlet Regional  Citizens                                                               
Advisory  Council   (CIRCAC),  said   the  council   has  similar                                                               
interests in the Cook Inlet  platform removal. Their research has                                                               
revealed  that  DNR  has  no  specific  regulations  or  statutes                                                               
governing lessee's  obligations and determines  their obligations                                                               
on a  case-by-case basis.  He said  the council's  research paper                                                               
will be released  in May and he  would be happy to  share it with                                                               
them.                                                                                                                           
                                                                                                                                
4:13:28 PM                                                                                                                    
CHAIR WAGONER closed the public hearing.                                                                                        
                                                                                                                                
4:13:33 PM                                                                                                                    
SENATOR GRETCHEN GUESS moved Amendment 1.                                                                                       
                                                                                                                                
                                                    24-Ls0775\A.1                                                               
                                                        Chenoweth                                                               
                                                          4/12/05                                                               
                          AMENDMENT 1                                                                                           
                                                                                                                                
OFFERED IN THE SENATE                         BY SENATOR WAGONER                                                                
   TO: SCR 6                                                                                                                    
   1 Page 2, line 6:                                                                                                            
   2     Delete "smaller"                                                                                                       
   3     Insert "growing, independent"                                                                                          
                                                                                                                                
SENATOR ELTON objected to ask  if using the word "growing" limits                                                               
the intent.                                                                                                                     
                                                                                                                                
MS. JACKSON  explained that this paragraph  references XTO Energy                                                               
that  is no  longer in  a smaller  bracket. "They  are a  growing                                                               
independent company."                                                                                                           
                                                                                                                                
CHAIR WAGONER said it is  growing worldwide since taking over the                                                               
Shell platforms.                                                                                                                
                                                                                                                                
SENATOR ELTON removed his objection.                                                                                            
                                                                                                                                
4:15:32 PM                                                                                                                    
SENATOR   SEEKINS  moved   CSSCR  6(RES)   from  committee   with                                                               
individual recommendations.  There were no objections  and it was                                                               
so ordered.                                                                                                                     

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