Legislature(1995 - 1996)

04/16/1996 10:11 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                            
                         April 16, 1996                                        
                           10:11 a.m.                                          
                                                                               
                                                                               
 MEMBERS PRESENT                                                               
                                                                               
 Representative Norman Rokeberg, Chair                                         
 Representative Scott Ogan, Vice Chair                                         
 Representative Gary Davis                                                     
 Representative Bill Williams                                                  
 Representative Tom Brice                                                      
 Representative Bettye Davis                                                   
 Representative David Finkelstein                                              
                                                                               
 MEMBERS ABSENT                                                                
                                                                               
 All members present                                                           
                                                                               
 COMMITTEE CALENDAR                                                            
                                                                               
 *HOUSE BILL NO. 381                                                           
                                                                               
 "An Act relating to oil and gas conservation and recovery."                   
                                                                               
      - MOVED CSHB 381 (O&G) OUT OF COMMITTEE                                  
                                                                               
 (* First public hearing)                                                      
                                                                               
 PREVIOUS ACTION                                                               
                                                                               
 BILL:  HB 381                                                               
 SHORT TITLE: OIL AND GAS CONSERVATION & RECOVERY                              
 SPONSOR(S): REPRESENTATIVE(S) GREEN,B.Davis                                   
                                                                               
 JRN-DATE     JRN-PG           ACTION                                          
 12/29/95      2366    (H)   PREFILE RELEASED                                  
 01/08/96      2366    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 01/08/96      2366    (H)   OIL & GAS, RESOURCES                              
 03/26/96              (H)   O&G AT 10:00 AM CAPITOL 124                       
 03/26/96              (H)   MINUTE(O&G)                                       
 04/16/96              (H)   O&G AT 10:00 AM CAPITOL 124                       
                                                                               
 WITNESS REGISTER                                                              
                                                                               
 REPRESENTATIVE JOE GREEN                                                      
 Alaska State Legislature                                                      
 State Capitol, Room 24                                                        
 Juneau, Alaska  99801                                                         
 Telephone:  (907) 465-4931                                                    
 POSITION STATEMENT:  Sponsor of HB 381                                        
                                                                               
 DAVID JOHNSTON, Chair                                                         
 Oil and Gas Conservation Commission                                           
 3001 Porcupine Drive                                                          
 Anchorage, Alaska  99501-3120                                                 
 Telephone:  (907) 279-1433                                                    
                                                                               
 ACTION NARRATIVE                                                              
                                                                               
 TAPE 96-15, SIDE A                                                            
 Number 000                                                                    
                                                                               
 The House Oil & Gas Special Committee was called to order by                  
 Chairman Norman Rokeberg at 10:11 a.m.  Members present at the call           
 to order were Representatives Rokeberg, Ogan, Gary Davis, and                 
 Brice.  A quorum was present.  This meeting was teleconferenced to            
 Anchorage.                                                                    
                                                                               
 HB 381 - OIL AND GAS CONSERVATION & RECOVERY                                
                                                                               
 Number 0083                                                                   
                                                                               
 CHAIRMAN ROKEBERG announced that the agenda was HB 381, "An Act               
 relating to oil and gas conservation and recovery."                           
                                                                               
 REPRESENTATIVE JOE GREEN, Sponsor of HB 381, read from a sponsor              
 statement, "HB 381 clarifies that the powers of the Alaska Oil and            
 Gas Conservation Commission, commonly called AOGCC, to prevent                
 waste, protect correlative rights and realize ultimate recovery on            
 all state land lawfully subject to its police powers prevails over            
 a contrary decision by DNR (Department of Natural Resources).                 
                                                                               
 AS 31.05.027 states, `The authority of the commission applies to              
 all land in the state lawfully subject to its police powers.'                 
 However, recently the Administration has raised the specter of                
 overlapping jurisdiction.                                                     
                                                                               
 I believe that a clear, concise line of authority from the                    
 legislature to the independent agency is important for the                    
 development of our hydrocarbon resources."                                    
                                                                               
 Number 0151                                                                   
                                                                               
 REPRESENTATIVE GREEN said the AOGCC is charged by statute with                
 correlative rights and the prevention of ultimate waste.  Under               
 this authority, AOGCC has the police power to "force unitization              
 where they have enough people wanting to form a unit and some                 
 individual who may decide that they don't want to, in the effort of           
 maintaining the best, ultimate recovery program, they have the                
 police power to force a pool unit."  He said in the state of                  
 Alaska, with the exception of the Swanson River federal unit, all             
 units are on state owned mineral leases and the DNR acts as royalty           
 owner.  The DNR, as royalty owner, has exercised authority to grant           
 or not grant formation of voluntary units and this authority has              
 worked well in the Prudhoe Bay unit and the Kuparuk River unit.  He           
 said there are issues over what the overlapping authority between             
 AOGCC and the DNR.                                                            
                                                                               
 Number 0321                                                                   
                                                                               
 REPRESENTATIVE GREEN said, if you have a unit with one horizon with           
 production going into a common facility treating oil, water and gas           
 and this unit is combined with another unit, a problem over DNR or            
 AOGCC jurisdiction occurs.  He said the biggest item of contention            
 is with gas metering and the liquids involved in the North Slope              
 production.                                                                   
                                                                               
 Number 0386                                                                   
                                                                               
 REPRESENTATIVE GREEN referred to pages 81 and 82 of a document                
 titled, "Decision Regarding Jurisdiction," written by the DNR,                
 which says the DNR commissioner has the authority and duty to                 
 investigate and issue orders preventing economic and physical                 
 wastes, which is also the AOGCC charge.  The document also states             
 the authority of the DNR commissioner and the AOGCC, over parts of            
 the Miscible Injectant/Natural Gas Liquids (MI/NGL) dispute, are              
 overlapping.  He said when there are overlapping decisions it                 
 creates problems.                                                             
                                                                               
 Number 0525                                                                   
                                                                               
 REPRESENTATIVE GREEN said when a voluntary unit has been affected,            
 on a voluntary basis, the DNR would make the decision.  He said HB            
 381 establishes, when it comes to correlative rights or waste, that           
 the AOGCC would have authority to modify actions of the DNR.  He              
 said this provision is found in HB 381, on the second page, "but              
 the provisions of (p), the unitization portion of 180 Statute,                
 section and this subsection may be modified by the AOGCC by an                
 order under AS 31," the statute under which the AOGCC operates.               
                                                                               
 Number 0587                                                                   
                                                                               
 CHAIRMAN ROKEBERG asked for clarification on the language, "the               
 prevention of physical wastes."                                               
                                                                               
 Number 0638                                                                   
                                                                               
 REPRESENTATIVE GREEN said, in Title 31, physical waste refers the             
 actual waste of the resources such as inappropriate flaring or not            
 developing the reservoir with the best method for maximum, ultimate           
 recovery.  He said one of the things determined by the AOGCC is the           
 maximum efficient rate, the rate at which the operator cannot                 
 exceed withdrawals.  He said an operator, who has invested money to           
 develop, by blowing the wells too hard can create damage in the               
 reservoir which affects ultimate recovery.  He said AOGCC is                  
 charged with ensuring that this situation won't happen.  He said              
 the reservoir in Prudhoe Bay was capable of producing 2 million or            
 3 million barrels of oil per day, but the maximum efficient rate at           
 which they were authorized to operate was 1.5 million barrels per             
 day.  He said the purpose of setting this rate was to maximize                
 ultimate recovery, rather than maximize immediate return.                     
                                                                               
 Number 0727                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN referred to the letter from the Attorney           
 General, dated March 4, 1996, and said it addresses the question              
 raised by Chairman Rokeberg on whether the decisions on royalty               
 reductions would be covered under HB 381.  He said there seems to             
 be a number of topics within HB 381 which are economic topics and             
 reading through existing law 31.05.030, regarding the powers and              
 duties of the AOGCC, he said he did not find anything in the                  
 statutes that relate to these economic relations and expressed                
 concern over this issue.                                                      
                                                                               
 Number 0799                                                                   
                                                                               
 REPRESENTATIVE GREEN said HB 381 has nothing to do with economic              
 waste, and said economic waste is not a charge of the AOGCC.  He              
 said HB 381 relates to, by statute, the charge of the AOGCC.  He              
 said reducing royalty or economic waste would not be a purview                
 within the AOGCC's authority.                                                 
                                                                               
 Number 0829                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said the conclusion of the Attorney                
 General, in his letter, is that HB 381 would allow the issues of              
 royalty reduction and economic waste to become part of the province           
 of the AOGCC.  He read the Attorney General's letter, "maximizing             
 economic and physical recovery of resources may be a consideration            
 in many determinations made by the commissioner...if the purpose,             
 in fact,...is to insure a greater ultimate recovery of oil and gas            
 , then that determination,... will be subject to modifications by             
 the commission" and said the letter makes a different conclusion              
 from the conclusion made by Representative Green.  He said the                
 Attorney General said these issues, royalty reductions and other              
 economic determinations would, under HB 381, allow the AOGCC to               
 override the commissioner of DNR.                                             
                                                                               
 Number 0892                                                                   
                                                                               
 REPRESENTATIVE GREEN said royalty reduction would only be given as            
 an incentive to produce and would contribute to the ultimate                  
 recovery.  He said this charge would be required by the AOGCC and             
 "probably would never be an issue."  He said an ultimate recovery             
 increase would be to the benefit of both the AOGCC and the DNR.  He           
 said, "when the economic situation would result in less ultimate              
 recovery, or that there was a jurisdictional dispute as to how                
 facilities are monitored to determine allocations between units,              
 but that is not an economic waste...I guess you could track that to           
 economics if the field operating netback costs were different from            
 one field to another or the allocations of the operation of the               
 facility were somehow different from the allocations of the fluids            
 going through it, but I think that's not an issue of the                      
 conservation commission."                                                     
                                                                               
 Number 0939                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said in HB 381 the area that the AOGCC             
 would  modify the action of the DNR would be to "ensure a greater             
 ultimate recovery of oil or gas".  He said there is a previous                
 section that relates to the waste of oil and gas, but clarified               
 that anything insuring a greater ultimate recovery of oil or gas,             
 as the Attorney General states would include royalty reductions.              
 He said, because this is a subsection of 180 that relates to                  
 insuring a greater ultimate recovery of oil or gas, which is what             
 the royalty reduction provision does, then the AOGCC would become             
 the final arbiter on that decision.                                           
                                                                               
 Number 1012                                                                   
                                                                               
 REPRESENTATIVE GREEN said, "when there is going to be an ultimate             
 increase, because of a royalty reduction, that will be the same               
 argument that conservation commission would make, they wouldn't by            
 statute be able to say, no, you can't do that because you are going           
 to get more oil, that is the whole purpose of prevention of waste."           
                                                                               
 Number 1044                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said if the DNR commissioner turned them           
 down, the AOGCC could say that they get final determination when it           
 is to insure a greater ultimate recovery of oil or gas and AOGCC is           
 going to modify the termination or action of the commissioner of              
 DNR by overriding their decision in order to give the oil or gas              
 company the royalty reduction.                                                
                                                                               
 Number 1067                                                                   
                                                                               
 REPRESENTATIVE GREEN said this is an economic consideration by the            
 applicant and is not a purview of the AOGCC.  He said AOGCC is not            
 empowered to make an operator go out and spend more money or do               
 something to produce, they are charged with ensuring the method by            
 which the oil or gas company uses, not whether or not he can                  
 produce because of a royalty reduction.                                       
                                                                               
 Number 1093                                                                   
                                                                               
 REPRESENTATIVE GREEN said when an oil or gas company finds the                
 economic limit and shows cause that he can no longer operate under            
 the conditions set forth, wants to abandon the wells, the AOGCC               
 does not have the authority to say, "no, you won't shut in."  He              
 said the DNR can help an operator by assisting them with a                    
 reduction in royalty burden.  He said it is not within the purview            
 of the AOGCC.                                                                 
                                                                               
 Number 1127                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said he agreed with Representative Green           
 in regards to the old law, but said HB 381 would change the law.              
 He read from HB 381, "the commission may modify the determination             
 of the commissioner of natural resources, authorized by another               
 subsection of 180 which includes royalty reduction, if the purpose            
 of the determination is to insure a greater ultimate recovery of              
 oil or gas."  He said HB 381 changes the law by amending it to say            
 the commission can do this in any case where there is an issue of             
 greater ultimate recovery of oil or gas.  He said the Attorney                
 General, in the aforementioned letter, agreed with this conclusion.           
                                                                               
 Number 1165                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said the Attorney General states, under            
 the new law, the AOGCC would take over various areas which were not           
 under their original statutory purview.                                       
                                                                               
 Number 1183                                                                   
                                                                               
 REPRESENTATIVE GREEN said he respectfully disagreed with the                  
 Attorney General's opinion and said the AOGCC could answer this               
 question.                                                                     
                                                                               
 Number 1204                                                                   
                                                                               
 CHAIRMAN ROKEBERG said this was a discussion of economic waste                
 versus physical waste and asked for a definition of physical waste.           
                                                                               
 Number 1247                                                                   
                                                                               
 REPRESENTATIVE GREEN said the prevention of physical waste was a              
 determination of the most efficient and ultimately the best way to            
 develop the reservoir to get the most recovery.  He said well                 
 spacing, well rates and field rates are all methods utilized.  He             
 said it is not within the purview of the AOGCC to determine how               
 many wells would need to be drilled, 80 versus 60 wells.  He said,            
 on the 60 wells the operator decided to drill, the AOGCC would                
 determine co-mingling in the well bore, completion types and rates            
 of production.  He said if you withdraw too fast you can dissipate            
 reservoir energy and leave recovery that otherwise would have been            
 producible.  He said, if the operator decides they cannot continue            
 production when the rate falls to 100 barrels a day, the AOGCC                
 cannot force the operator to continue.                                        
                                                                               
 Number 1332                                                                   
                                                                               
 REPRESENTATIVE GREEN said the DNR can reduce royalties to provide             
 an economic basis to allow the operator to continue production.  He           
 said there would be no reason for conflict to occur between DNR and           
 AOGCC regarding royalty reduction.  He reiterated Representative              
 Finkelstein's concern about the possibility that AOGCC could force            
 DNR to reduce the royalty, but he said this is an economic                    
 consideration and the AOGCC has no authority to do that.                      
                                                                               
 Number 1360                                                                   
                                                                               
 CHAIRMAN ROKEBERG said the charge of the AOGCC is to prevent                  
 physical waste not to reduce economic waste, although there are               
 economic benefits to preventing physical waste.                               
                                                                               
 Number 1409                                                                   
                                                                               
 DAVID JOHNSTON, Chair, Oil and Gas Conservation Commission, was               
 next to testify via teleconference from Anchorage.  He discussed a            
 hearing, currently being held, on whether the AOGCC should order              
 compulsory unitization of the Prudhoe oil pool.  He said this                 
 hearing was the result of hearings held last year on the proper mix           
 between natural gas liquids and miscible injectant.  He said these            
 hearings last year created the needed emphasis for HB 381.  He said           
 the AOGCC hearings were followed by hearings from the DNR in                  
 conjunction with the Department of Revenue (DOR).                             
                                                                               
 Number 1468                                                                   
                                                                               
 MR. JOHNSTON said, in the jurisdictional brief prepared by the DNR            
 relative to their authority to hold this particular hearing, the              
 brief indicated that there was certain ambiguity existing between             
 the jurisdiction of the AOGCC, under AS 31, and the jurisdiction of           
 DNR, under AS 38.  He said if there is ambiguity on jurisdiction              
 then there is probably a need for HB 381.  He said AOGCC believes             
 the statute, AS 31.05.027, is clear that the jurisdiction extends             
 to all lands within the state of Alaska including federal lands,              
 state lands and Native lands.  He said, generally, the jurisdiction           
 of the AOGCC is authority relative to conservation principles such            
 as the prevention of waste, prevention of correlative rights and              
 the realization of accident recovery.                                         
                                                                               
 Number 1527                                                                   
                                                                               
 MR. JOHNSTON said the AOGCC view HB 381 as a bittersweet bill,                
 because on one hand they feel their statutory authority is clear              
 but on the other hand if there are individuals that feel there is             
 ambiguity with the statutes as currently written then perhaps it is           
 appropriate to clarify this to avoid confusion on the part of                 
 various Departments and the decisions that are rendered.  He said,            
 potentially, the AOGCC could get into a "catch 22" situation with             
 this (indiscernible) issue if the AOGCC renders one decision and              
 the DNR renders an opposite decision, if this had happened the                
 issue would probably been resolved by the courts.  Under HB 381               
 there would be no need for court action, because it would make the            
 authority of AOGCC, at least when it pertains to conservation                 
 issues, superior to that of the DNR.                                          
                                                                               
 Number 1592                                                                   
                                                                               
 CHAIRMAN ROKEBERG clarified that AOGCC has authority in AS                    
 31.05.027.                                                                    
                                                                               
 MR. JOHNSTON said this was correct and read from the statute, "the            
 authority of the commission applies to all land in the state                  
 lawfully subject to its police powers including land of the United            
 States and land subject to the jurisdiction of the United States.             
 The authority of the commission further applies to all land                   
 included in voluntary cooperative or human plans of development or            
 operations entered into in accordance with AS 38.05.180(p)."                  
                                                                               
 Number 1621                                                                   
                                                                               
 CHAIRMAN ROKEBERG referred to Section 2, of HB 381, "in the other             
 subsection of 38.05.180 which could include 180(j), the royalty               
 reduction under HB 207," and asked if AOGCC had an opinion on this.           
                                                                               
 Number 1638                                                                   
                                                                               
 MR. JOHNSTON said he could not see the AOGCC ever being concerned             
 with royalty reduction.  He said if the royalty owner wished to               
 lower his royalty it is within his prerogative to do so, but he               
 could not see that there would be any need for the AOGCC's                    
 attention in that regard.  He said this would not be an issue of              
 physical waste, correlative rights or an issue of ultimate                    
 recovery.                                                                     
                                                                               
 Number 1672                                                                   
                                                                               
 CHAIRMAN ROKEBERG said HB 381 provides for a specific application             
 to 180(p), (q), (u), or any subsections of 180.  He asked if the              
 areas of overlap between the DNR and the AOGCC were specifically in           
 (p), (q), (u) or if they were in other subsections of 180 that come           
 into play.                                                                    
                                                                               
 Number 1690                                                                   
                                                                               
 MR. JOHNSTON said principally, the overlap occurs in (p), (q) and             
 (u), although, generally, the DNR statute does indicate a                     
 particular concern that the state has relative to the prevention of           
 wastes, correlative rights and the realization of ultimate                    
 recovery.  He said, it appeared to him, as AS 38 directs DNR,                 
 because of the interest of the state in achieving agreements that             
 would protect correlative rights insuring ultimate recovery and               
 preventing waste, it gives DNR certain authorities to negotiate               
 those agreements to insure that those things are realized.  He said           
 this authority raises the possibility that an eventual conflict               
 would arise between the DNR and the AOGCC's interpretation of                 
 prevention of physical waste, correlative rights and the                      
 realization of ultimate recovery.                                             
                                                                               
 Number 1761                                                                   
                                                                               
 CHAIRMAN ROKEBERG said this would be prevented under Section 3 of             
 HB 381.  He referred to the DNR report conclusion that there are              
 overlapping jurisdictions between the DNR and the AOGCC, but said             
 the report goes on to say, "which has paramount authority or what             
 are the limits of each agency's authority need not be decided."  He           
 said the report talks about one specific case, but added that this            
 appears to be a problem which would be resolved in HB 381.                    
                                                                               
 Number 1797                                                                   
                                                                               
 MR. JOHNSTON said the Department of Law (DOL) might also be of                
 assistance.                                                                   
                                                                               
 Number 1808                                                                   
                                                                               
 CHAIRMAN ROKEBERG asked his opinion on "your authority, if this is            
 the overlap, of the existing statutory regime."                               
                                                                               
 Number 1828                                                                   
                                                                               
 MR. JOHNSTON said the AOGCC would have the superior jurisdiction in           
 terms of the narrow issue having to do with physical waste,                   
 correlative rights and ultimate recovery.  He said if there is                
 confusion over this jurisdiction, then HB 381 would be appropriate            
 to avoid jurisdictional disputes.                                             
                                                                               
 Number 1859                                                                   
                                                                               
 CHAIRMAN ROKEBERG asked what the involvement was of the DOL.                  
                                                                               
 MR. JOHNSTON said the Attorney General was asked to look at the               
 statutes of both the DNR and the AOGCC to make a determination of             
 whether there was ambiguity.  He said he was not aware of the                 
 status of this inquiry.                                                       
                                                                               
 Number 1891                                                                   
                                                                               
 REPRESENTATIVE GREEN said Representative Finkelstein expressed                
 concern over the language of HB 381 in that it could force DNR to             
 reduce royalty to allow for an operator to continue production and            
 asked if this was a possibility given the AOGCC charge.                       
                                                                               
 Number 1931                                                                   
                                                                               
 MR. JOHNSTON said he did not think this was the case.  He said the            
 AOGCC had hypothetical discussions on this issue, relative to the             
 Milne Point, and AOGCC concluded that there was no AOGCC role in              
 royalty reduction.  He said this issue relates to correlative                 
 rights in that certain rights have been established between the               
 lessor and the lessee.  He said, once a particular royalty was                
 established in the lease document, it establishes the correlative             
 rights issue between the lessor and the lessee and the AOGCC would            
 not have an interest in changing that, it would be outside the                
 jurisdiction of the AOGCC.                                                    
                                                                               
 Number 1990                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said he was not asking whether                     
 the current members of AOGCC would feel it was appropriate to                 
 modify the determination by the commissioner on these matters,                
 rather he stated that HB 381 would give them the power to do so.              
 He clarified that Mr. Johnston had the most recent copy.  He                  
 referred to the beginning of HB 381 and said the commission may               
 modify the determination of the commissioner of natural resources             
 authorized by another section of 38.05.180, which Chairman Rokeberg           
 mentioned included royalty reduction, if the purpose of the                   
 determination was to ensure a greater ultimate recovery of oil or             
 gas.  He referred to the letter from the Attorney General and said            
 that the royalty reduction provision fits in because it is another            
 subsection of 180 and because it is to insure a greater ultimate              
 recovery of oil or gas.  He said his question isn't whether or not            
 the AOGCC would decide it would work on these issues, but would               
 this section of HB 381 give the commission the power to intervene             
 as the Attorney General has suggested.                                        
                                                                               
 Number 2054                                                                   
                                                                               
 MR. JOHNSTON said HB 381 was also written to protect the                      
 correlative rights of persons and said he did not think the AOGCC             
 would move to a direction changing the arrangements between the               
 lessor and the lessee, he could not imagine that this would be a              
 factor for the AOGCC and would be prevented by the statute which              
 governs the AOGCC.  He said the governing statute would prevent the           
 AOGCC from engaging in any sort of attempt to overturn or order a             
 reduction of another royalty which has been established by the DNR.           
                                                                               
 Number 2102                                                                   
                                                                               
 REPRESENTATIVE GREEN said he indicated that the governing statute             
 of AOGCC gives no authority on an economic basis and royalty                  
 reduction is economic.                                                        
                                                                               
 MR. JOHNSTON said he would agree that this statement was correct.             
                                                                               
 Number 2144                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said the statement that AOGCC wouldn't             
 do this keeps being mentioned, but the question is could AOGCC be             
 involved in royalty reduction under the new law that is being                 
 formulated under HB 381 which would override the old law.  He said            
 the Attorney General, the one who will decide whether or not there            
 is an issue of the authority of the AOGCC, has stated that HB 381             
 allows for AOGCC involvement in royalty reduction.  He said Mr.               
 Johnston's reference to protecting correlative rights is a list of            
 "ors," there are three items on the list, each one of them has an             
 "or" statement between them, so any one item on the list is, by               
 itself, enough to allow the commission to modify the determination            
 of the action of the commissioner of DNR.  He said because there is           
 no "and" in the list, it doesn't have to meet all three                       
 requirements, it only has to meet one of these requirements.                  
                                                                               
 Number 2193                                                                   
                                                                               
 REPRESENTATIVE GARY DAVIS stated that this list does have the word,           
 "or" and then asked for examples of correlative rights.                       
                                                                               
 Number 2203                                                                   
                                                                               
 MR. JOHNSTON said correlative rights, defined by statute, is a                
 provision directing the AOGCC that the owner of each property in a            
 pool has the right to recover his just (indiscernible) net share of           
 production.  He said, generally, the AOGCC regards the property               
 right which has been agreed to by the lessee and the lessor.  He              
 said this sharing would not be something that the AOGCC would not             
 be involved with as long as there was the assurance that the lessee           
 and the lessor had received their just (indiscernible) net share.             
 He said, if the lessor wanted to lower the royalty rate, the AOGCC            
 would have no problem with that.  He said, under the current                  
 statute, the AOGCC would not have the authority to overturn a                 
 decision or substitute their judgement for that of the lessor.  If            
 the Attorney General perceives something different it would raise             
 concerns but, under the statute, he did not see that as under the             
 authority of the AOGCC.                                                       
                                                                               
 Number 2277                                                                   
                                                                               
 REPRESENTATIVE GARY DAVIS said this is interpreted as property                
 rights and asked if it was also interpreted as contractual rights.            
                                                                               
 Number 2283                                                                   
                                                                               
 MR. JOHNSTON said, within the agreements that the companies                   
 negotiated amongst themselves, that would be a subject of                     
 contractual rights as well.  In other words, correlative rights are           
 more fully articulated in the contract that the owners of the                 
 resources, the working interest owners have negotiated amongst                
 themselves.                                                                   
                                                                               
 CHAIRMAN ROKEBERG said it was his intention to hold HB 381 over and           
 expressed concern about Section 1 and 2, the entire leasing statute           
 of AS 38.05.180.  He asked that a letter be drafted to the Attorney           
 General's office requesting additional information about why they             
 haven't been able to correct this issue.                                      
                                                                               
 Number 2338                                                                   
                                                                               
 REPRESENTATIVE GREEN said this issue is outside of the intent of HB           
 381 and proposed Amendment 1 on page one, line seven and again on             
 page two, line five, that after AS 38.05.180 insert, "excluding               
 subsection (j)," and said this would alleviate any concerns.  He              
 said it is not the intent of HB 381 to get into that jurisdiction.            
                                                                               
 Number 2367                                                                   
                                                                               
 REPRESENTATIVE BRICE moved Amendment 1 to HB 381.                             
                                                                               
 Number 2375                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said the issue he raised was just an               
 example of the economic determinations that could be affected by HB           
 381.  He said royalty reduction was the most prominent issue.                 
                                                                               
 Number 2389                                                                   
                                                                               
 REPRESENTATIVE OGAN said HB 381 would go next the House Resources             
 Committee.  He said the issue concerned is (j) and if you exclude             
 (j) it would fix the problem.                                                 
                                                                               
 CHAIRMAN ROKEBERG stated that Representatives Finkelstein and                 
 Bettye Davis joined the committee meeting at approximately 10:15              
 a.m.                                                                          
                                                                               
 Number 2425                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said he would move to amend Amendment 1            
 as the proposed Amendment 1 would imply that all other economic               
 decisions besides (j) were going to be subject to override by the             
 AOGCC.  He said the amendment to the Amendment 1 would say, "does             
 not apply to economic decisions including (j)."                               
                                                                               
 REPRESENTATIVE BILL WILLIAMS objected to the amendment to the                 
 proposed Amendment 1.                                                         
                                                                               
 REPRESENTATIVE FINKELSTEIN said the amendment to Amendment 1                  
 reflects the discussions where everyone stated that HB 381 is not             
 intended to apply to economic decisions, including royalty                    
 reductions, and said he did not know how else to incorporate this             
 language into the proposed amendment to the Amendment 1 except to             
 use the words that the sponsor and the AOGCC used.                            
                                                                               
 CHAIRMAN ROKEBERG asked that the amendments be handled separately.            
                                                                               
 TAPE 96-15, SIDE B                                                            
 Number 0000                                                                   
                                                                               
 REPRESENTATIVE GREEN, "NGL dispute there may be economic                      
 consequences of that decision and this amendment to the proposed              
 Amendment 1 might preclude that, even though that is not the                  
 intent."                                                                      
                                                                               
 Number 0019                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN withdrew the amendment to Amendment 1.             
 He objected to the proposed Amendment 1 because the amendment would           
 make HB 381 worse as there are many other economic decisions that             
 AOGCC could decide as being in their province.  The proposed                  
 Amendment 1 would make the issue raised by the Attorney General's             
 letter worse, not better, because saying that HB 381 does not apply           
 to the subsection (j) regarding royalty reduction would imply that            
 all other economic decisions that DNR is involved in would be                 
 subject to override by the AOGCC.  He said making an exception                
 confirms the other possible economic decisions, the exception                 
 proposed in Amendment 1 is too narrow.                                        
                                                                               
 Number 0057                                                                   
                                                                               
 CHAIRMAN ROKEBERG said he disagreed, the issue is overlap of                  
 definition of authority and the proposed Amendment 1 makes a                  
 statement consistent with the allocation of authority between the             
 two agencies.                                                                 
                                                                               
 Number 0081                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN withdrew his objection to Amendment 1.             
 Hearing no other objections, Amendment 1 was incorporated into CSHB           
 381 (O&G) by the House Special Committee on Oil and Gas.                      
                                                                               
 Number 0086                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN made a motion to move Amendment 2.                 
                                                                               
 REPRESENTATIVE OGAN objected to the proposed Amendment 2.                     
                                                                               
 REPRESENTATIVE FINKELSTEIN said people keep saying that economic              
 decisions are not within the particular duties of the AOGCC, but HB           
 381 gives the powers and duties on 030, which runs through a number           
 of things including (f), (g), and (h), and said this will become              
 (i) and economic decisions will become part of the powers of AOGCC.           
 He said HB 381 will become part of the statutes stating what AOGCC            
 can do, it reads, "the commission may modify determination that               
 relates to that is made the DNR on relating to insuring a greater             
 ultimate recovery of oil or gas."  He said common sense tells you             
 that this language will allow the AOGCC into a lot of areas that              
 the commission has said they don't have a lot of interest in, but             
 they will be able to override those and even though the current               
 commission members may not feel the need to do this, it will allow            
 future commission members to do so.  He said, if the common sense             
 side of the argument does not convince you on this point, there is            
 a letter from the Attorney General confirming that this is the                
 case.                                                                         
                                                                               
 Number 0137                                                                   
                                                                               
 REPRESENTATIVE GREEN reiterated that the Attorney General's concern           
 was the royalty reduction which has been excluded from CSHB 381               
 (O&G).  He said those jurisdictional portions are in AS 31 now, so            
 this is the limit that they are going to do, CSHB 381 (O&G) does              
 not give AOGCC any authority on economic waste.  It is not the                
 intent, nor the desire, to grant an economic waste jurisdiction to            
 the AOGCC.                                                                    
                                                                               
 Number 0172                                                                   
                                                                               
 REPRESENTATIVE FINKELSTEIN said the Attorney General did not say              
 royalty reduction was their only concern, this was a response to              
 the question that Chairman Rokeberg happened to ask them.  Chairman           
 Rokeberg only asked them about royalty reduction and referred to              
 page one of the letter where it says, "does this apply to royalty             
 reduction," and said the Attorney General did not answer any other            
 question because it was not asked.  He said the same exact logic              
 applies to other economic decisions and it is the reason that the             
 DNR opposes CSHB 381 (O&G).  He said economic waste would be part             
 of their new standards, the powers and duties of the AOGCC would              
 include overriding DNR on economic decisions.  He said everyone on            
 the committee can say that they don't intend for this to occur, but           
 then the committee is not supporting Amendment 2 which would                  
 correct this situation.                                                       
                                                                               
 Number 0199                                                                   
                                                                               
 REPRESENTATIVE GARY DAVIS said having the AOGCC determine actions             
 preventing waste to oil or gas to insure greater ultimate recovery            
 relates to economic decisions.  He said these issues are                      
 environmental and economic.                                                   
                                                                               
 Number 0214                                                                   
                                                                               
 REPRESENTATIVE GREEN said those are the charges currently in Title            
 31 and the statute is reiterated in CSHB 381 (O&G) to make sure               
 that no one misconstrues that the AOGCC is trying to anything other           
 than what they are entitle to, but said it has nothing to do with             
 economics.  The bill says that if you get involved, this is what              
 you have to do but it does not say you will build this many wells,            
 you will operate this way, it doesn't get involved in economic                
 waste the way it was discussed in royalty reduction.                          
                                                                               
 Number 0238                                                                   
                                                                               
 REPRESENTATIVE GARY DAVIS read, "to insure greater ultimate                   
 recovery of oil or gas," and asked why that is included.                      
                                                                               
 REPRESENTATIVE GREEN said to make sure that when a reservoir was              
 tapped it was done in the most efficient and ultimately the best              
 manner achieved under current technology.  If the operator went out           
 and said he was going to drill one well, and if there were not                
 fault traps or any other way to prevent the migration of all that             
 oil to that one well over a millennium, the AOGCC could not force             
 him to drill another well.  If the AOGCC came in and told the                 
 operator that they were not going to recover oil behind this fault,           
 you will have to drill a well there.  He said the rate at which the           
 operator produces oil cannot exceed a certain number of barrels per           
 day as it would create damage to the reservoir.  He said the AOGCC            
 cannot force the operator to extract it at a rate that may be                 
 economic to them.  He reiterated that the AOGCC is not charged with           
 economic waste.                                                               
                                                                               
 Number 0274                                                                   
                                                                               
 A roll call vote was taken on Amendment 2.  Representative                    
 Finkelstein voted yes.  Representatives Rokeberg, Ogan, Gary Davis,           
 Williams, Brice and Bettye Davis voted no.  Amendment 2 failed to             
 be adopted to CSHB 381 (O&G) by the House Special Committee of Oil            
 and Gas.                                                                      
                                                                               
 Number 0290                                                                   
                                                                               
 REPRESENTATIVE OGAN made a motion to move CSHB 381 (O&G) with                 
 attached fiscal note and individual recommendations.                          
                                                                               
 REPRESENTATIVE FINKELSTEIN objected to the motion.                            
                                                                               
 Number 0297                                                                   
                                                                               
 A roll call vote was taken on the motion to move CSHB 381 (O&G).              
 Representatives Rokeberg, Ogan, Gary Davis, Williams, Brice and               
 Bettye Davis voted yes.  Representative Finkelstein voted no.  CSHB           
 381 (O&G) was moved from committee by the House Special Committee             
 of Oil and Gas.                                                               
                                                                               
 ADJOURNMENT                                                                   
                                                                               
 There being no further business to come before the House Special              
 Committee on Oil and Gas, the meeting was adjourned at 11:06 a.m.             
                                                                               
                                                                               

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