Legislature(2001 - 2002)
05/03/2002 08:05 AM House O&G
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
May 3, 2002
8:05 a.m.
MEMBERS PRESENT
Representative Hugh Fate, Vice Chair
Representative Fred Dyson
Representative Mike Chenault
Representative Vic Kohring
Representative Gretchen Guess
Representative Reggie Joule
MEMBERS ABSENT
Representative Scott Ogan, Chair
OTHER LEGISLATORS PRESENT
Representative John Coghill
COMMITTEE CALENDAR
HOUSE BILL NO. 527
"An Act relating to entry into the Minto Flats State Game Refuge
for purposes of exploration and development of oil and gas
resources."
- MOVED HB 527 OUT OF COMMITTEE
PREVIOUS ACTION
BILL: HB 527
SHORT TITLE:MINTO FLATS GAME REFUGE
SPONSOR(S): RESOURCES
Jrn-Date Jrn-Page Action
04/30/02 3238 (H) READ THE FIRST TIME -
REFERRALS
04/30/02 3238 (H) O&G, RES
05/02/02 (H) O&G AT 1:00 PM CAPITOL 124
05/02/02 (H) Heard & Held -- Recessed to
5/3/02 8:00 am --
MINUTE(O&G)
05/03/02 (H) O&G AT 8:00 AM CAPITOL 124
WITNESS REGISTER
MARK MYERS, Director
Division of Oil & Gas
Department of Natural Resources (DNR)
550 West 7th Avenue, Suite 400
Anchorage, Alaska 00501-3560
POSITION STATEMENT: Testified on HB 527.
JAMES HANSEN, Leasing/Evaluations
Central Office
Division of Oil & Gas
Department of Natural Resources
550 West 7th Avenue, Suite 800
Anchorage, Alaska 99501-3560
POSITION STATEMENT: Answered questions pertaining to HB 527.
CHIP DENNERLEIN, Director
Division of Habitat and Restoration
Alaska Department of Fish & Game
333 Raspberry Road
Anchorage, Alaska 99518-1579
POSITION STATEMENT: Testified on HB 527.
JIM HAINES (ph)
(No address provided)
POSITION STATEMENT: Testified on HB 527, saying he wants to
ensure that Andex Resources LLC has access and can get its
product to market.
KEN BOYD, Oil and Gas Consultant
(No address provided)
POSITION STATEMENT: Testified in support of HB 527.
ACTION NARRATIVE
TAPE 02-26, SIDE A
Number 0001
VICE CHAIR HUGH FATE reconvened the House Special Committee on
Oil and Gas meeting at 8:05 a.m. [The meeting had been recessed
on May 2, 2002.] Representatives Fate, Dyson, Kohring, and
Guess were present at the call to order. Representatives Joule
and Chenault arrived shortly thereafter.
VICE CHAIR FATE called an at-ease at 8:06 a.m. and called the
meeting back to order at 8:07 a.m.
HB 527-MINTO FLATS GAME REFUGE
Number 0086
VICE CHAIR FATE announced that the committee would consider
HOUSE BILL NO. 527, "An Act relating to entry into the Minto
Flats State Game Refuge for purposes of exploration and
development of oil and gas resources." [HB 527 was sponsored by
the House Resources Standing Committee.]
VICE CHAIR FATE called attention to a Department of Natural
Resources (DNR) report dated April 12, 2002 [from the Division
of Oil & Gas, titled "Notice of Issuance of the Preliminary
Finding under AS 38.05.035(e); Proposed Nenana Basin Oil and Gas
Exploration License"]. Vice Chair Fate said the report has a
"licensee advisory that basically denied anybody from getting a
license, and it was brought to the attention of the Interior
delegation simply because it was [an] Interior thing, and we
talked with [Alaska Department of Fish & Game (ADF&G)]
Commissioner Rue about this because it was ... [ADF&G that had
objected more] to it than the Department of Natural Resources."
Vice Chair Fate noted that Commissioner Rue had written a letter
of clarification, which Vice Chair Fate believed had fallen a
little short, although it did clarify some of the questions
cited in the April 12 report.
VICE CHAIR FATE said there had been oil and gas development in
other game refuges, and the thought [behind the bill] was that
it would be prudent, at least for the exploration for gas, to
apply the language for the "game refuge on the Kenai game
reserve" to the Minto [Flats] refuge as well, since the latter
lies over the Nenana basin where the highest potential for gas
exists. He concluded, "We were concerned and, as a result,
we've had this very simple and modest piece of legislation that
is extremely important to not only rural Alaska along the Yukon
drainage, but to Fairbanks [his own district] also."
VICE CHAIR FATE reiterated the previous day's question to Mr.
Myers about where the most valuable resource is, relative to the
Nenana Basin.
Number 0398
MARK MYERS, Director, Division of Oil & Gas, Department of
Natural Resources, testified via teleconference, noting that
there are maps in the April 12 preliminary best-interest
finding. He said the heart of the potential area lies,
unfortunately, underneath the northern part of the Minto Flats
State Game Refuge. The sedimentary basin is pretty well defined
by seismic data shot there in the past; by two exploration wells
that were drilled, one in the 1960s and one in the 1980s; and by
gravity data, which can give an approximate outline of the basin
itself. The basin, which trends northeast-southwest from the
Nenana area, almost parallels the Tanana River, which, where it
turns north, then bisects the basin. Mr. Myers said the deepest
part of the basin, and the most prospective part for generating
gas and for potential traps for gas, is north of the Tanana
River, approximately underlying the refuge area.
MR. MYERS pointed out that the geologic potential is highest
where the wildlife values are highest also. He offered the
belief that there is very little potential in the basin for oil,
based on data from the two wells and "surrounding outcrop rock
data on the fringes of the basin, where it's exposed." He said
examples of those rocks are in the coal measures mined by
Usibelli [Coal Mine, Inc.] in the Healy area. Because that is
the geology believed to underlie the subsurface, the right kinds
of rocks to create oil deposits simply aren't believed to be in
the basin. However, the right kinds of rocks that can generate
gas - mainly coals and associated rocks - are there.
MR. MYERS offered the belief that the basin's depth is at least
16,000 feet, the deepest being in the northern part of the game
refuge. There are two kinds of gas: biogenic gas, generated
from microorganisms chewing on the coal, and thermogenic gas,
generated from deep enough that temperatures and pressures are
high enough to generate gas. The two wells drilled on the very
fringe of the basin have gas in them, so it is known that gas
was generated in the basin. The so-called kitchen, the area
where that generation is most likely to have occurred, is
believed to be in the northern part of the Minto Flats State
Game Refuge. Referring to Andex Resources LLC, he told members:
Again, when we looked at Andex's proposed exploration
license, we thought their proposed outline, ... about
500,000 acres, basically encompassed almost all the
basin, with the critical area being the 277,000 acres
or so in the northern ... part of the basin underlying
... the game refuge. So, again, it's not that we can
customize this license area to eliminate that high-
potential area if the project is to have a reasonable
chance of success.
Number 0678
VICE CHAIR FATE inquired about the two exploratory wells.
MR. MYERS explained that Unocal drilled a well in 1962 on the
very edge of the basin, and ARCO drilled the [Totek] Hills well
in the early 1980s, perhaps 1984. Offering the belief that both
wells were tests for oil because of not understanding the basic
geology of the basin, he said they didn't encounter any
indications of oil source rocks or any oil in the wells, but did
encounter gas; that is the evidence that gas has been generated
in the basin. He suggested the need to demonstrate that there
is a sufficient thickness of section to encounter a significant
thickness of gas for commercial quantities, as well as a
trapping mechanism - some way to seal the gas once it is
generated.
MR. MYERS explained that under the exploration license process,
a licensee will shoot seismic data. The [potential] licensee
wants to focus on that northern area, he said, where it sees the
best geologic potential. He indicated DNR agrees with that
geological assessment, as does the U.S. Geological Survey data,
to his understanding; he also said Doyon, Limited, to his
belief, has hired some consultants, has done work in the area,
and has a very similar view of the basin. He said this is one
case in which geologists from various agencies and the private
sector all agree where the best potential is: in that northern
area [underlying the game refuge].
Number 0809
REPRESENTATIVE CHENAULT said it appears both those test wells
were outside the game refuge.
MR. MYERS affirmed that, saying they were drilled at the fringe
of the southern part of the basin, outside the proposed license
area. He explained that basically there is a prospective
reservoir interval of sedimentary rock; below that, in stark
contrast, are igneous and metamorphic rocks that have no
potential whatsoever for oil or gas. Either those companies had
insufficient data or deliberately targeted, in the case of
[Totek] Hills, to his belief, the very fringe of the basin; they
only got to a few thousand feet in depth and then encountered
this nonreservoir-potential rock. That is why the [current
potential] licensee is considering needing to go deeper into the
basin. He said the gas encountered by those wells at the
basin's fringe indicated some gas had migrated into that zone,
but not in commercial amounts. "To explore and find commercial
quantities of gas, you've clearly got to move deeper into the
basin, into where the basin is thicker," he concluded.
Number 0911
VICE CHAIR FATE asked how much certainty the lessee will have,
going into this area, of finding gas in quantity.
MR. MYERS replied that it is always a risk, although these
indicators are positive and he believes it is a very good risk.
It is known that gas is generated and that many coals are in the
basin, so the volume of gas generated is probably "very, very
significant." Also, the reservoir rocks "that you produce the
gas from" are present and of very high quality. What isn't
known is whether the trapping mechanisms or "containers" are
there to deal with a large, commercial quantity; he suggested
that is much more probable in the northern area.
MR. MYERS brought up another aspect of risk: a licensee going
into an area doesn't have the right to produce. The license is
a first step, followed by leases if there was success under the
licensing program; from those leases would come the production.
A licensee in this area would shoot seismic data, the basic tool
for finding gas. He pointed out that the technology has changed
dramatically since the early 1980s. Modern seismic techniques
can find direct indicators of gas. Mr. Myers said:
We think the rocks are the right type in the basin, at
the right depths, that there would be direct
hydrocarbon indicators from the seismic data, that
several different techniques called amplitude versus
offset would work here; flat spots or bright-spot
technology used in the Gulf of Mexico ought to work
... in this basin as well. So we think this basin is
prime, that there's a pretty high likelihood that the
seismic data will give a very, very good indication of
where to drill here, and that there's a high
probability of success (indisc.--coughing) the seismic
analysis. That's not always the case ... in other
basins. But the rocks are the right type, and the gas
indicators ought to work, seismically.
MR. MYERS pointed out that a licensee will spend millions of
dollars to shoot modern seismic data, but not without confidence
that at the next stage - the lease - there will be access to the
land to put facilities in, as well as reasonable confidence
about the ability to put a pipeline in to deliver the gas. A
licensee has to look way down the road, and uncertainty with
regard to surface access is a huge issue. Mr. Myers elaborated,
"They cannot afford to do this project unless they're reasonably
comfortable that they can get into the area, and they can - with
proper environmental standards - go through the permitting
process and actually be able to get the gas to market." He
suggested it would be a good question for Andex [Resources LLC],
the proposed licensee. He suggested that uncertainty in this
case, with regard to the ability to actually build the necessary
facilities [because of the game refuge], is perhaps higher than
the exploration risk of actually finding commercial quantities
of hydrocarbons.
Number 1186
VICE CHAIR FATE asked whether Mr. Myers was saying, then, that
it is unlikely the company will try to get the license without
the ability to get into the deepest portion [underlying] the
game reserve.
MR. MYERS reiterated that it is a good question for the
licensee. He surmised that the license would be significantly
less desirable to the company, and that the economics would be
severely damaged by not having access to the northern area. He
said if he were the "explorationist," he probably wouldn't do
the project without access to the highest-potential area. He
concluded that it is "very, very problematic, to say the least."
Number 1277
VICE CHAIR FATE said some of the conflict was mitigated "when we
did discuss this with ... [ADF&G] Commissioner Rue," and that a
letter had helped clarify it somewhat. He asked whether Mr.
Myers believed the legislature should be involved.
MR. MYERS replied that it's a loaded question, but that with
regard to state land, he believes the judgment call is in the
legislature's purview. The issue is that this area has known,
high wildlife values as well as high gas potential, and oil and
gas exploration and development will have some effect on the
environment. Mentioning the governor's philosophy of "doing it
right, and that we can balance it," Mr. Myers offered his
personal belief by drawing an analogy to ANWR [Arctic National
Wildlife Refuge], "where we say we can do responsible, safe
development." He said it is a balancing act, and a test. The
Minto Flats State Game Refuge was created a game refuge because
of its wildlife values; the game management plan has some very
tough language, he pointed out, particularly with regard to that
northern area. He said [DNR] can work with ADF&G, but ADF&G's
mandate is to protect the wildlife, whereas [DNR's] is "to see
responsible state oil and gas development." He reiterated his
belief that it is predominantly a policy call by the
legislature.
Number 1411
REPRESENTATIVE GUESS asked how many other refuges have been
opened up to exploration and development.
MR. MYERS answered that Kenai is the classic example. He
mentioned Cook Inlet and deferred to Jim Hansen.
Number 1440
JAMES HANSEN, Leasing/Evaluations, Central Office, Division of
Oil & Gas, Department of Natural Resources, answered via
teleconference, noting that he is the leasing manager for the
division. He listed the following refuges in Cook Inlet:
Redoubt Bay, Trading Bay, and Susitna Flats. He said those have
exploration, and some have production. He noted that the Kenai
[National Wildlife] Refuge mentioned by Mr. Myers is a federal
one. Mr. Hansen said other state game refuges in the Cook Inlet
area have had exploration, but not all of those have production.
In response to Representative Guess, he said there are none on
the North Slope in the leasing area, and that Cook Inlet has the
only ones.
Number 1493
MR. HANSEN, in reply to Representative Chenault, explained that
state refuges are called game refuges, whereas the federal ones
are called wildlife refuges.
MR. MYERS remarked, "We've seen, I think, pretty successful
mitigation of the effects of oil and gas ... in these refuges;
we haven't seen, at least to my knowledge, major conflict." He
offered his belief that "the system of dual management" can
work, "if ... it's so inclined to be done." He also said gas
exploration and development is a very different process from
that for oil; the environmental impact is far less, and the
environmental risks to "wildlife and other values" is a lot
less. He said the dominant risk is an oil spill; he asked
members to think of the effects on rivers and drainages.
Therefore, there are setbacks and protections built in when
licensing and leasing [for oil] in order to protect against an
oil spill. With gas, however, that isn't an issue.
Furthermore, he mentioned the thermodynamics of a gas line and
the permafrost and said:
A gas line in this area would be a buried gas line.
It'd be an 18-inch gas line; it would be buried with
something like a Ditch Witch, a small piece of
equipment. So, again, ... the pad size [is] smaller;
again, you don't have oil storage facilities,
gathering facilities. There's going to be no tank
farms in the area. It'd be a relatively small gravel
pad that would be in the area, with producing wells, a
little capability to generate electricity for those
wells, and a little bit of ... water-and-gas
separation equipment. So, [it would have] a very,
very small impact. And, again, the examples of that
are ... in some of these game refuges. And we think
those really are de minimis effects [on] wildlife.
If we were talking about oil, I think we would ...
have a lot different, higher level of concern of what
could be the catastrophic effects. A little ...
buried gas line would be not affected by forest fires
or other natural disasters, and, of course, ... a
buried line, you can't shoot a hole in it. So, again,
if we look at ... the environmental effects, we have
to be real cognizant that, in this case, we're
overlying an area that ... we basically see no oil
potential in, and we're looking at gas, which has very
different environmental impacts as well as positive
environmental advantages ... to the communities
involved and to Fairbanks.
Number 1657
REPRESENTATIVE GUESS asked whether exploration can happen
without this bill. She said it seems to be a "certainty" bill
to clarify tension between [DNR and ADF&G].
MR. MYERS answered that with or without the bill, there are
still outstanding issues of certainty that the lessee has to
answer in terms of whether or not, in the northern area, there
will be access; it doesn't guarantee that. He added:
I think legislative intent on the issue has value, so
I think the bill has some value. But ... it's quite
clear there is tension between the agencies, ... I
think rightfully so; that's how the system's supposed
to work, because we have competing value systems here,
and there still is that judgment that ultimately has
to be made. So if the legislature deems it
appropriate to clarify, I think that's fine. Is the
bill absolutely critical? No. What is critical is,
the lessee has significant comfort that if they do
discover something, they can, in fact, produce it.
Without that, they can't go ahead and explore.
Number 1758
REPRESENTATIVE JOULE mentioned public meetings at the end of
April in Nenana, Minto, and Fairbanks. He asked whether there
was concern about this, especially in the smaller communities in
terms of their hunting and trapping issues.
MR. MYERS deferred to Mr. Hansen, who had led those three public
meetings.
MR. HANSEN reported that there was concern, especially in Minto
and in Nenana, about other people having access to the lands on
which they do subsistence hunting. He said, "Their concern is
that the wildlife not be impacted, and that ... their way of
life not be impacted. In the same meetings, however, they all
said they want gas, Minto especially." He said a gentleman in
Minto had reported that he pays $130 a barrel for heating oil,
"and they want gas." He added, "As long as it can be done with
mitigation measures to protect the wildlife and the habitat, as
that's how we do it elsewhere, they have no problem with this
project going forward, but they do want their way of life
preserved."
Number 1840
REPRESENTATIVE JOULE said it seems the biggest issue would be
access, including how it would work; he suggested that impact
would be from the initial accessing. He offered his
understanding from testimony that day that impacts on wildlife
could be mitigated.
MR. MYERS replied:
Yes, we can mitigate those impacts. As far as access,
that is something that will be worked out with
[ADF&G], the [DNR's] Division of [Mining], Land &
Water ..., who also deals with access, and the
Division of Oil & Gas. It's also a concern ... of
Doyon [Limited] to want this project to go forward;
they are concerned about access also. So, it's an
issue that's there, and it's something we can deal
with ... to everybody's satisfaction.
Number 1912
CHIP DENNERLEIN, Director, Division of Habitat and Restoration,
Alaska Department of Fish & Game, speaking via teleconference,
offered to provide an overview from the department's perspective
or to answer questions.
REPRESENTATIVE JOULE asked whether, as [ADF&G] went through the
process, the local fish and game advisory committees were
utilized, to what extent, and what their reaction was.
MR. DENNERLEIN said they'd talked with the local advisory
committees, and the office in Fairbanks had a series of
discussions with Doyon, Limited, whose executive, Jim Mery, he
has known for a very long time. Noting that he'd worked with
Mr. Mery and with CIRI [Cook Inlet Region, Incorporated] and
CIRI Production Company, Mr. Dennerlein said that in his past,
he did the environmental work on a development gas well that
CIRI Production Company drilled in the Kenai National Wildlife
Refuge, and thus is familiar with "both sides of the house
here." He reported that Doyon, Limited, has dual concerns:
protection of subsistence resources, particularly for the
villages, as well as wanting the gas. He remarked, "So we've
made extra effort - our staff up there - and Doyon has been
excellent in sitting down and working with us to balance those
concerns. So, the answer is yes, with the advisory committees,
with villages, and through ... Doyon and TCC [Tanana Chiefs
Conference, Inc.]."
Number 2041
REPRESENTATIVE GUESS requested Mr. Dennerlein's overview and his
thoughts about this process, the need for this bill, and whether
he and the Division of Oil & Gas can work this out.
MR. DENNERLEIN agreed with Mr. Myers that there are two valuable
resources [in the basin]: it is known that there is wildlife,
and it is suspected and hoped, by the state, that there is gas.
With regard to the area north of the river, the Minto Flats
area, Mr. Dennerlein said the concern with and attention to it
predates establishment of the refuge. In all of the Tanana
basin plan, it was the single area of most importance for
wildlife; areas of that were the most productive, particularly
for waterfowl, and some of the most sensitive in all the Tanana
basin plan. Establishment of the refuge followed. Furthermore,
this area has the highest public-use harvest of waterfowl in
Alaska, for both sport and subsistence use, and is consistently
productive. Areas north of the river are pretty extensive
complexes of interwoven lakes, ponds, and wetlands that are
prominent from the air, he noted.
MR. DENNERLEIN explained that development of subsurface oil and
gas resources is allowed in the Minto Flats State Game Refuge by
law; the test is compatibility with the fundamental purposes -
"in other words, that you can do it right, and you can do it
without harming the fundamental purposes of wildlife protection
... and public use in sustaining ... those uses and harvests."
It is not only in statute, but also is in the plan and in the
"publicly adopted regulations."
Number 2188
MR. DENNERLEIN addressed access to the northern area. He said
it is hard to look at such access as a "blanket over the whole
area." There are three aspects of access. With regard to the
first, access for exploration, he said, "We don't see that as a
problem"; referring to Mr. Myers' testimony, he said there are
new techniques, for example. The second aspect of access for a
company, for drilling and development, involves pads and may
involve reserve pits and "getting on the ground and producing."
The third, long-term access is production and maintenance.
MR. DENNERLEIN noted that a licensee or operator needs to know
two things if [gas] is found: whether the company can produce
it, and whether the company can get it out [to market].
Therefore, the issues are pads and onsite development of a gas
well or wells, and the pipeline. Referring to the
commissioner's letter mentioned earlier, he offered that [ADF&G]
can "work with those" and define specific areas that are better
to operate from; for example, there can be directional drilling.
He suggested the big issue would be the ability to get the
resource across [the refuge] or out, if found. He said, "If we
can do the submerged or the buried pipeline, great; ... that's
going to take some in-field work because of the wetlands
complexes and things, but it's really a matter of ... having the
company know that we can work with them over the general area,
which we can, and the commissioner's letter says that."
Number 2335
MR. DENNERLEIN also indicated the commissioner's letter says
there will be some places incompatible with onsite, physical
development such as an access road or a pad. He added, "The
statute says that, and I think we can make that determination."
He suggested that within those sideboards, however, a variety of
techniques can be found using today's technology to "accomplish
the project." As for the pipeline, he said it will just require
a combination of design, engineering, and siting; [ADF&G] and
[the Division of] Oil & Gas will have to work in the field to
get it right. He mentioned having the legislation reflect what
the regulations say, that as long as it's compatible with those
fundamental purposes, development of these resources is allowed
by law in the refuge.
Number 2393
REPRESENTATIVE GUESS asked whether that means that the bill
doesn't prohibit ADF&G from following its [current] statutory
guidelines.
MR. DENNERLEIN answered in the affirmative, noting that some
areas in the Minto Flats are physically, from a biological and
terrain [standpoint], much more sensitive than the coastal plain
of ANWR, where the state has taken the position that it can be
developed correctly but that some places may be precluded from
development. With regard to Minto Flats, he said it is exactly
the same situation, and concluded, "We don't think that it
precludes the overall development, and we think this bill allows
us to make those site-specific decisions in the field, ...
moving forward with the intent that we're going to have a viable
natural-gas production program if the company is good enough and
lucky enough to define producible quantities of a reserve."
Number 2470
REPRESENTATIVE GUESS asked Mr. Dennerlein whether the Kenai
[National Wildlife Refuge] is similar, and what those impacts
have or have not been.
MR. DENNERLEIN answered that there are similarities and
differences. The interior complex of ponds and wetlands in
Minto Flats is the "hot spot" in that whole drainage. The
similarities are on the west side along some of the key rivers,
and the mix of wetlands adjacent to those; there are some
similar environments. He said it is [easier] siting, in most
cases, on the west side. Another difference is that in the
Susitna Flats there is both oil and gas. When oil is produced,
it is still shipped by boat, he said, noting that this week he
and the Department of Environmental Conservation (DEC) were
dealing with an old reserve pit in a refuge "that has some nasty
stuff in it and needs to get out of there." That won't be the
case for Minto Flats, he indicated, adding that drilling fluids
and pad sizes have really changed, as have directional drilling
opportunities. He emphasized changes in technology, but said
there is more sensitivity in parts of the Minto Flats refuge;
thus siting will be "a little trickier, but doable, and we have
the advantage of better in-field practices and knowledge over
time."
Number 2583
VICE CHAIR FATE asked Mr. Dennerlein whether any endangered
species are in the sensitive areas.
MR. DENNERLEIN replied, "Not that we are aware of." Indicating
there is a large mix of waterfowl species, many of them
harvestable, he mentioned management plans and "joint flyway
plans that we're involved in with ... 11 other states we share
resources with."
Number 2626
REPRESENTATIVE CHENAULT noted that one proposal talks about ice
roads. He asked what concerns the department would have with
regard to wintertime drilling and waterfowl issues.
MR. DENNERLEIN answered, "Seasonal operations would be very
important to us." Surmising that any company would like as much
of a window as possible, he characterized DNR as very sensitized
"on seasonal." Furthermore, Doyon, Limited, is a major player
there; mentioning its shareholders and subsistence users, he
said, "We would have pretty common agreement and allies about
what would be ... reasonable windows to ... go in on the ground
and do some of the ... work. I don't see a problem there."
Number 2761
MR. DENNERLEIN referred to an issue raised by Representative
Joule and a message sent by Jim Mery [of Doyon, Limited] to
Representative Coghill expressing initial confusion and concern
about ADF&G's position and whether it was a "blanket
prohibition." Mr. Dennerlein told members:
I want to let the committee know that our biologists
first said, "Yes, our preference - our world view,
I'll be honest - is we'd rather this not be in the
lease sale." The advisory was meant to say, if the
core area is going to be included, then we want to put
this advisory in to let the licensee know we need to
sit down and do this site-by-site work, and there may
be ... some places ... we want to avoid.
MR. DENNERLEIN noted that [Mr. Mery] of Doyon, Limited, had sent
a note to Representative Coghill that said the following:
The current ADF&G position and commitment are all that
we could reasonably expect at this early stage, [and]
recognize that there are sensitive areas, ... some of
which will need to be avoided; others will require
appropriate mitigation measures; and in some, we are
satisfied with ADF&G's position and look forward to
continue to working with them in a positive and
productive manner.
Number 2801
JIM HAINES (ph) testified via teleconference, emphasizing that
he was speaking as a private citizen, although he'd recently
retired from the Division of Oil & Gas. He said he'd worked
with Jim Mery for more than ten years, trying to put some sort
of program together, and has had some "face-to-face
confrontations at the commissioner level with [ADF&G] over the
refuge and the language." He said the access language was
addressed more than ten years ago, and that he would like to
help however he can in ensuring that Andex Resources LLC, which
is committed to spending millions of dollars, has proper access
and the ability to get its product out and to market.
Number 2869
KEN BOYD, Oil and Gas Consultant, came forward to testify,
noting that he was speaking on his own behalf, although he'd
been either deputy director or director of the Division of Oil &
Gas for more than 10 years, and had been an exploration
geophysicist for 17 years with a couple of oil and gas
companies. He concurred with Mr. Myers' testimony in terms of
the basin, as well as the testimony of Mr. Haines; he said both
had worked for him for 10 years, working closely on these
issues. Stating support for HB 527, he remarked, "I'm actually
sorry that we need it." He noted that he'd worked for Arctic
Power [a lobbying group dedicated to opening ANWR to
exploration] and said he'd made about 20 trips to the North
Slope and had taken the Secretary of the Interior on her first
trip to ANWR, NPR-A [National Petroleum Reserve - Alaska], and
Alpine to see the operations in those very sensitive areas.
Mentioning the discussion of evolving technology, he stressed
its importance.
MR. BOYD offered his belief that [the state] should either be
"open for business" or not; he said the problem here is
uncertainty. He mentioned that in 1992 he and Mr. Haines, then
manager of "permit and compliance," had met with Jim Mery of
Doyon, Limited, at a time when companies were "leaving the state
in droves."
TAPE 02-26, SIDE B
Number 2960
MR. BOYD mentioned the North Slope and Cook Inlet, and said
companies would nominate small areas and wind up cutting up
prospects in half; some year passed, and finally areawide
leasing was adopted, which he said has been one of the most
successful programs. Returning to 1992, he said a huge amount
of land in Interior basins wasn't being developed; companies
weren't nominating these basins because they were geologically
difficult, unknown, and far from infrastructure, and companies
were "sticking right close to TAPS [Trans-Alaska Pipeline
System]." A new program was needed, and what was adopted for
exploration licensing is a hybrid of "a whole bunch of programs
that are done all over the world."
MR. BOYD said the United States is unique in some ways: the
federal and state programs are "auction programs" whereby the
highest bidder wins the lease for a period of time, pays a bonus
and rental, and has a fixed royalty; overseas, however, it is
mostly done "by license, or some version of that word, or
'concession' is often used." He added, "We decided not to use
'concession' because it just doesn't sound right, so we use the
word 'license.'" He said that with the licensing program, there
is no upfront bonus bid; the purpose is to put the money that a
company bids "into the ground, just as Andex has done." He said
he thinks it is an important program, but acknowledged that it
hadn't caught on right away. He asked Mr. Myers to correct him
if necessary, then remarked, "I would say that ... exploration
licensing was conceived in the Tanana and Nenana basins; it was
actually born in Copper River, where the first license was
issued a couple of years ago. The division now has licenses
before them in ... the Susitna area, and now here ... in the
Nenana basin."
Number 2854
MR. BOYD offered his belief that exploration isn't a problem in
ANWR or "virtually anywhere" because it is mostly done in winter
and is easily mitigated. However, no company will explore
without development [if something is found]. He said he
believes there needs to be certainty with regard to both
exploration and development; if areas are to be identified as
off-limits, it should be specified where those are, and what the
reasoning is. Saying he perhaps should have been a biologist,
Mr. Boyd remarked, "You follow the animals around, and the ones
that are most critical, that's where the oil is. It works in
ANWR, it works in NPR-A, it works in the Kenai, and it seems to
work here." He concluded by saying he believes this area can be
opened for successful exploration and development, and that
access to these lands is needed in order to have a successful
licensing program.
Number 2763
REPRESENTATIVE GUESS asked whether Mr. Boyd believes there is a
problem with what Mr. Dennerlein was talking about, the need for
site-by-site work.
MR. BOYD replied:
If those areas are currently identified and there's a
reason for that, I guess I don't have a problem. My
problem is that those areas have a tendency to sort of
wander sometimes. ... If the areas can be identified
upfront, I think the company then has the certainty to
say, "I'm not interested anymore; it just takes too
much off the table."
Number 2763
REPRESENTATIVE GUESS asked whether, by definition, the oil and
gas industry is an uncertain industry.
MR. BOYD responded, "There's no question about that, ... but you
don't want to keep piling uncertainty on top of uncertainty."
He recalled that when he was in the business, the greatest risk
was the exploration risk, with a one-in-ten chance of success.
With new technology, there is a five-in-ten success ratio in
some areas. Now, however, there seems to be risk with regard to
permitting, and companies have expressed concern about access
and mitigation measures. He concluded, "More risk doesn't make
it better."
Number 2707
VICE CHAIR FATE asked whether anyone else wished to testify; he
then closed public testimony. He surmised that if this is
commercially successful, it will potentially bring cheaper
energy to the Yukon basin as well.
REPRESENTATIVE GUESS asked why Andex Resources LLC hadn't
testified, since this is a bill the company should support.
VICE CHAIR FATE noted that Andex Resources LLC had provided a
lot of testimony on HB 307, an "incentive bill."
Number 2581
REPRESENTATIVE KOHRING moved to report HB 527 out of committee
with individual recommendations and the accompanying zero fiscal
note. There being no objection, HB 527 was moved out of the
House Special Committee on Oil and Gas.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at
9:02 a.m.
| Document Name | Date/Time | Subjects |
|---|