Legislature(2003 - 2004)

02/26/2004 03:28 PM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                       February 26, 2004                                                                                        
                           3:28 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Vic Kohring, Chair                                                                                               
Representative Cheryll Heinze                                                                                                   
Representative Jim Holm                                                                                                         
Representative Lesil McGuire                                                                                                    
Representative Harry Crawford                                                                                                   
Representative Beth Kerttula                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Norman Rokeberg                                                                                                  
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Nancy Dahlstrom                                                                                                  
Representative Les Gara                                                                                                         
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
HOUSE BILL NO. 395                                                                                                              
"An  Act  relating  to  shallow   natural  gas  leasing  and  the                                                               
regulation of shallow natural gas operations."                                                                                  
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
CS FOR SENATE BILL NO. 265(RES)                                                                                                 
"An Act  relating to the schedule  of proposed oil and  gas lease                                                               
sales and to  a related report to the  legislature; and providing                                                               
for an effective date."                                                                                                         
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
SENATE BILL NO. 266                                                                                                             
"An Act  approving an interim classification  by the commissioner                                                               
of natural resources closing certain  land within the area of the                                                               
proposed Bristol  Bay (Alaska Peninsula) competitive  oil and gas                                                               
areawide  lease sale  to oil  and gas  exploration licensing  and                                                               
shallow  natural  gas leasing;  and  providing  for an  effective                                                               
date."                                                                                                                          
                                                                                                                                
     - SCHEDULED BUT NOT HEARD                                                                                                  
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                              
BILL: HB 395                                                                                                                  
SHORT TITLE: SHALLOW NATURAL GAS                                                                                                
SPONSOR(S): REPRESENTATIVE(S) HARRIS                                                                                            
                                                                                                                                
01/23/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/23/04       (H)       O&G, RES, JUD, FIN                                                                                     
02/05/04       (H)       O&G AT 1:00 PM CAPITOL 124                                                                             
02/05/04       (H)       Heard & Held                                                                                           
02/05/04       (H)       MINUTE(O&G)                                                                                            
02/24/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
02/24/04       (H)       Heard & Held                                                                                           
02/24/04       (H)       MINUTE(O&G)                                                                                            
02/26/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                              
ERIC MUSSER, Staff                                                                                                              
to Representative Vic Kohring                                                                                                   
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Explained aspects of HB 395.                                                                               
                                                                                                                                
REPRESENTATIVE CARL GATTO                                                                                                       
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions about HB 395 as                                                                         
cosponsor of the bill.                                                                                                          
                                                                                                                                
REPRESENTATIVE PAUL SEATON                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Answered questions about HB 395 as                                                                         
cosponsor of the bill.                                                                                                          
                                                                                                                                
KRISTIN RYAN, Director                                                                                                          
Division of Environmental Health                                                                                                
Department of Environmental Conservation                                                                                        
POSITION STATEMENT:  Answered questions about water regulations                                                                 
as they applied to HB 395.                                                                                                      
                                                                                                                                
JEFF ARNDT, Member                                                                                                              
Friends of Mat-Su                                                                                                               
Palmer, Alaska                                                                                                                  
POSITION STATEMENT:  Testified during the discussion of HB 395.                                                                 
                                                                                                                                
MYRL THOMPSON, Spokesman                                                                                                        
for Ogan is So Gone                                                                                                             
Wasilla, Alaska                                                                                                                 
POSITION STATEMENT:  Testified during the discussion of HB 395.                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-6, SIDE A                                                                                                             
Number 0001                                                                                                                     
                                                                                                                                
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas  meeting to  order  at 3:28  p.m.   Representatives  Kohring,                                                               
Holm, Heinze, McGuire,  and Crawford were present at  the call to                                                               
order.   Representative Kerttula  arrived as  the meeting  was in                                                               
progress.  Representatives Dahlstrom and Gara were also present.                                                                
                                                                                                                                
HB 395-SHALLOW NATURAL GAS                                                                                                    
                                                                                                                                
[Contains discussion of SB 312 and SSHB 364]                                                                                    
                                                                                                                                
Number 0086                                                                                                                     
                                                                                                                                
CHAIR KOHRING  announced the only  order of business,  HOUSE BILL                                                               
NO. 395, "An Act relating to  shallow natural gas leasing and the                                                               
regulation  of  shallow natural  gas  operations."   [A  proposed                                                               
committee substitute  (CS), Version  V, labeled  23-LS1314\V, had                                                               
been adopted 2/24/04.]                                                                                                          
                                                                                                                                
Number 0176                                                                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE  informed members  that she  has a  lot of                                                               
concerns  about   HB 395,  isn't   comfortable  moving   it  from                                                               
committee  today,  and  wants an  in-depth  hearing  because  she                                                               
believes it  is one of  the most important  bills to come  out of                                                               
this session.                                                                                                                   
                                                                                                                                
CHAIR  KOHRING  noted  that  [Version   V]  was  a  result  of  a                                                               
collaborative  effort between  the sponsor  of the  bill and  his                                                               
staff.  He  said he believes it's now in  an acceptable form, but                                                               
is happy  to honor  the committee's wishes  and work  through any                                                               
additional problems.                                                                                                            
                                                                                                                                
Number 0375                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE  agreed the  committee should  work through                                                               
the issues.                                                                                                                     
                                                                                                                                
CHAIR KOHRING  reminded members that  there had  been significant                                                               
testimony during the two public hearings.                                                                                       
                                                                                                                                
Number 0468                                                                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE said she  understands there is a political                                                               
problem with  the bill and wants  to try to address  the concerns                                                               
of  her colleagues'  constituents, but  emphasized that  [shallow                                                               
natural gas] is a statewide issue.  She remarked:                                                                               
                                                                                                                                
     This  is  the kind  of  thing  we've been  asking  for.                                                                    
     We've  been asking  for development  of our  resources.                                                                    
     We've asked these  folks to come in and  put some hard-                                                                    
     earned money into  the leases, and they  went through a                                                                    
     process,  and it  wasn't their  fault, I  guess, in  my                                                                    
     opinion, that  we didn't require,  for example,  a best                                                                    
     interest finding and some of these other things.                                                                           
                                                                                                                                
REPRESENTATIVE  McGUIRE opined  that [HB  395] is  fatally flawed                                                               
and that  there would only be  about two pages of  workable ideas                                                               
when the discussion is over.  She continued:                                                                                    
                                                                                                                                
     I  tend  to  support  the idea  that  is  contained  in                                                                    
     another  bill that's  moving  through  the Senate,  and                                                                    
     maybe  doing a  House  version  of that.    I think  we                                                                    
     should have  a best  interest finding, because  I think                                                                    
     one of  the big concerns  ... [was that]  people didn't                                                                    
     feel like they  were part of the public  process.  They                                                                    
     felt like  it snuck  up on  them.   They didn't  get an                                                                    
     opportunity  to express  their  fears, their  concerns,                                                                    
     and things like that.                                                                                                      
                                                                                                                                
     A  best interest  finding requirement  would allow  for                                                                    
     that  so that  people's concerns  would be  out on  the                                                                    
     table.    We've  got   very  strict  requirements  with                                                                    
     noticing  and  opportunity   for  public  comment,  and                                                                    
     things like  that, and we  use that model,  frankly, in                                                                    
     the other areas where we do lease sales.                                                                                   
                                                                                                                                
REPRESENTATIVE  McGUIRE  said  the   aforementioned  idea  is  in                                                               
SB 312,  sponsored  by  Senator  Scott  Ogan,  who  is  from  the                                                               
Matanuska-Susitna area.                                                                                                         
                                                                                                                                
Number 0707                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE  stated  her  concerns  about  the  bill,                                                               
mentioning that  she and Representative Kerttula  had discussions                                                               
about several  troubling issues.   She reported that it  has been                                                               
explained to her  that the vertical depth limit of  3,000 feet is                                                               
a very  difficult restriction.   A requirement  for the  coal bed                                                               
methane company to  come back and apply for  a conventional lease                                                               
is onerous  at that point  in the process.   She added,  "It does                                                               
the exact  opposite of what  I think we want  to do, which  is to                                                               
spur  development, responsible  development,  and  that's what  I                                                               
think your best interest finding would  get you."  She called the                                                               
true vertical  depth limit  of 3,000  [feet] throughout  the bill                                                               
irresponsible, and  recalled that  one constitutional  mandate is                                                               
to develop resources for the maximum benefit.                                                                                   
                                                                                                                                
REPRESENTATIVE McGUIRE  spoke of  concerns with respect  to water                                                               
issues, some  of which  she recalled  were touched  on in  a bill                                                               
sponsored by  Representative Gatto.   She mentioned that  she and                                                               
Representative  Kerttula had  discussed  language throughout  the                                                               
bill  that  is  legally  indefinable.     She  gave  an  example:                                                               
"probable  cause of  the  contaminant".   Representative  McGuire                                                               
referred to  standards on page  5 that are  being set up  both in                                                               
the  section  that pertains  to  water-well  testing and  in  the                                                               
section  about what  to do  if the  water is  contaminated.   She                                                               
noted that line 17, which  mentions water purity, doesn't include                                                               
a standard, is vague, and could lead to bureaucratic red tape.                                                                  
                                                                                                                                
Number 0937                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE addressed  the noticing  issue on  page 4                                                               
and  voiced  concern  that  since  this  wasn't  done  for  other                                                               
disposal programs, she didn't know why  it was being done in this                                                               
bill.  She pointed  out that it could be part  of a best interest                                                               
finding  also.    She  noted  on  page  4  the  wording  about  a                                                               
director's  not  being  able  to   execute  a  lease  under  this                                                               
subsection unless  the director  first provides notice  of intent                                                               
to award the lease in at least two newspapers.  She said:                                                                       
                                                                                                                                
     It  is my  understanding  that, at  that  point in  the                                                                    
     process, the public can't do  anything about it anyway,                                                                    
     so  why are  we  circulating it  in  the newspaper  and                                                                    
     getting  people riled  up or  leading  them to  believe                                                                    
     that  they  can respond  to  what's  contained in  this                                                                    
     newspaper  circulation in  a meaningful  way?   We want                                                                    
     them to be participating earlier on in the process.                                                                        
                                                                                                                                
REPRESENTATIVE McGUIRE  told members  she wanted to  prevent what                                                               
happened in the Matanuska-Susitna area,  where people were angry,                                                               
frustrated, and wanting to participate in a meaningful way.                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE  next addressed the topic  of setbacks and                                                               
appropriate distances  from drinking  activities.   She explained                                                               
that she  has dealt with  the issue  with regard to  aquifers and                                                               
gravel pits  in her district.   She deemed "three to  four miles"                                                               
as  outrageous and  wanted to  see different  requirements.   She                                                               
referred  to  the  gravel  pits   in  her  district  and  testing                                                               
requirements  in  Representative  Hawker's  district  up  on  the                                                               
hillside, and  said she  doesn't see the  relevance.   Asking how                                                               
"four miles  away" will impact  the drinking water on  an aquifer                                                               
in  her  district,  she  requested  more  testimony  on  why  the                                                               
distance of three to four miles is being used.                                                                                  
                                                                                                                                
Number 1155                                                                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE turned  attention to page 5  [lines 21 and                                                               
22], the  words "to  ensure that  the owner  will not  forego the                                                               
peaceful enjoyment  of the  property owned".   Saying  she didn't                                                               
have a legal  definition for "peaceful enjoyment",  she called it                                                               
a lawyer's dream.  She  mentioned the noise-abatement statutes in                                                               
place and cautioned  that noise mitigation on page 6  might be an                                                               
area to avoid unless it is better defined.                                                                                      
                                                                                                                                
REPRESENTATIVE McGUIRE quoted  in part from page 6,  line 6, "the                                                               
owner may  not unreasonably  withhold agreement".   She  said the                                                               
committee needs to think about the  fact that a lot of people own                                                               
property that  others live on.   She  asked whether the  bill was                                                               
directed  at the  people who  actually live  on the  property and                                                               
would have to  deal with the noise.  Another  point, according to                                                               
her  understanding, is  that it  is an  extremely rare  case that                                                               
coal  bed methane  drilling occurs  without an  agreement between                                                               
the property owner and the  company.  When she'd asked [Evergreen                                                               
Resources Inc.  ("Evergreen")], they  could not  think of  a case                                                               
that had occurred,  she said.  She emphasized that  the intent is                                                               
for  the company  and  the property  owner to  "be  at the  table                                                               
together" to  work out these  agreements, so the  line previously                                                               
stated undermines the agreement, she opined.                                                                                    
                                                                                                                                
Number 1342                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE   relayed  her   opinion  that   the  tax                                                               
mentioned in  the bill  was a  bad idea, and  that it  would only                                                               
serve to  "protect bad actors."   She assured Chair  Kohring that                                                               
she believed the  idea of a tax was borne  out of good intentions                                                               
toward his district.  She noted  that there already was a bonding                                                               
provision in  the bill,  which, in her  opinion, is  how problems                                                               
are  dealt with.    She  said the  bonding  requirement could  be                                                               
raised if  the problems  weren't being solved,  but a  tax should                                                               
not  be required  of every  company.   She gave  an example  of a                                                               
company  doing a  great  job and  a bad  company  that comes  in;                                                               
noting that there  will be a pool of money  available, she opined                                                               
that there  is no  incentive for  good behavior  because everyone                                                               
pays in and then the penalty is exacted against all.                                                                            
                                                                                                                                
CHAIR  KOHRING  replied,  "Point   well-taken."    He  asked  for                                                               
suggestions on how that should be adjusted.                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE  said she  didn't  think  it was  a  real                                                               
problem  and  said the  bond  takes  care  of it,  but  suggested                                                               
looking at the amount of the bond.                                                                                              
                                                                                                                                
Number 1499                                                                                                                     
                                                                                                                                
CHAIR  KOHRING suggested  perhaps having  clarifying language  to                                                               
make it clear that the bonding  program is intended to help those                                                               
who need  remedial measures taken  to compensate them for  a well                                                               
gone bad or a polluted well, for  example.  He said the intent of                                                               
the language was to give  assurances to property owners that they                                                               
have a  means with which to  be remediated or compensated  in the                                                               
event  there are  problems  with their  wells  that are  directly                                                               
associated with the drilling.                                                                                                   
                                                                                                                                
Number 1532                                                                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE said a remediation  provision might be put                                                               
into the bond.  She added that  she didn't know the legal part of                                                               
it  very  well,  but  understood  Chair  Kohring's  intent.    In                                                               
response to  questions from Representative Heinze,  she said this                                                               
was on page 9.                                                                                                                  
                                                                                                                                
REPRESENTATIVE  HEINZE   asked  if  Representative   McGuire  was                                                               
referring to raising the bond and not the $250,000.                                                                             
                                                                                                                                
REPRESENTATIVE McGUIRE said she was  not suggesting that the bond                                                               
be  raised.   She explained  that she  understands the  sponsor's                                                               
intent in  the idea posed  in Section  10, but she  doesn't think                                                               
requiring  every producer  to pay  an  extraction tax  to be  set                                                               
aside for  mediation is the  right way to  do it.   She clarified                                                               
that what  she suggested to  Representative Kohring is, if  he is                                                               
concerned that the bond amount  isn't enough to cover remediation                                                               
of a well gone  bad, for example, that rather than  have a tax on                                                               
every producer, the bond amount could be raised.                                                                                
                                                                                                                                
REPRESENTATIVE HEINZE said, "And not the penny tax."                                                                            
                                                                                                                                
REPRESENTATIVE McGUIRE  responded, "Frankly,  I'll be  honest, in                                                               
spending time  talking to the folks  that I have, the  wells just                                                               
simply don't  go bad like  that."   She said she  understood that                                                               
there was  a fear about  it, which  she didn't want  to minimize,                                                               
but opined that the evidence isn't there.                                                                                       
                                                                                                                                
Number 1667                                                                                                                     
                                                                                                                                
CHAIR  KOHRING agreed  with  Representative McGuire's  estimation                                                               
that the chances a  well will go bad because of  lack of water or                                                               
the quality  of water  is virtually  zero because  "we're talking                                                               
about drilling  at substantial  depths that  are way  outside the                                                               
realm  of aquifers."   He  said he  thought the  pool of  dollars                                                               
would alleviate some of the people's concerns.                                                                                  
                                                                                                                                
REPRESENTATIVE  McGUIRE   said  she  hears   what  Representative                                                               
Kohring  is  saying,  but  encouraged  him  to  think  about  the                                                               
hypothetical situation  of [a company]  following every  rule and                                                               
going  beyond what  is required,  and then  ending up  paying the                                                               
penalty "for somebody else who comes in."                                                                                       
                                                                                                                                
CHAIR KOHRING offered,  "Like Evergreen has."  He  said the point                                                               
was well-taken.                                                                                                                 
                                                                                                                                
Number 1743                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE  turned  attention  to  another  possible                                                               
solution  besides   [SB  312].     She  suggested  the   idea  of                                                               
eliminating the  discretion of the  [director of the  Division of                                                               
Oil & Gas,  Department of Natural Resources] to  extend the lease                                                               
after three years,  because in reality many  of the controversial                                                               
leases would then expire.  A  fear people might have right now is                                                               
that through the discretion given  to the director, and without a                                                               
public process,  the director would  simply extend a lease.   She                                                               
termed it  "bad following bad,"  and suggested there should  be a                                                               
best-interest-finding  format  in  place.    She  also  suggested                                                               
letting the old leases expire and,  for the new leases, she hoped                                                               
they'd go  through a new  format in place  due to the  passage of                                                               
[SB 312] or  a House companion version of the  bill.  She offered                                                               
to cosponsor a House Special Committee on Oil and Gas bill.                                                                     
                                                                                                                                
CHAIR KOHRING  added, "That  reflected the  Senate version."   He                                                               
said that idea  would be explored.  He noted  that he'd taken all                                                               
of   Representative  McGuire's   concerns   very  seriously   and                                                               
suggested they work together on those points.                                                                                   
                                                                                                                                
Number 1890                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE  asked   Representative  McGuire,  if  the                                                               
$250,000  pool  were  in  place, whether  she  could  envision  a                                                               
company creating a  problem to get at those funds.   She wondered                                                               
if the $250,000  would be returned to the producers  if it wasn't                                                               
needed.  She indicated she could see both sides of the issue.                                                                   
                                                                                                                                
Number 1950                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM asked Representative  McGuire about the three                                                               
to four  miles she'd mentioned.   He  said he couldn't  find that                                                               
number anywhere in the bill.                                                                                                    
                                                                                                                                
REPRESENTATIVE McGUIRE  said she thought it  was on page 5.   She                                                               
asked Chair Kohring if he remembered where it was.                                                                              
                                                                                                                                
CHAIR KOHRING asked his staff.                                                                                                  
                                                                                                                                
REPRESENTATIVE McGUIRE  then recalled that it  was a hypothetical                                                               
number related to  the compressor station setback.   She said she                                                               
has  been told  that is  the  distance it  could be,  but what  a                                                               
reasonable distance is needs to be clarified.                                                                                   
                                                                                                                                
Number 2037                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HOLM  suggested  that a  reasonable  number  also                                                               
should   be  determined   for  the   1,500-foot  and   3,000-foot                                                               
distances.  He  said it was his understanding  that the companies                                                               
don't care what number it is, as long as it is reasonable.                                                                      
                                                                                                                                
Number 2068                                                                                                                     
                                                                                                                                
ERIC MUSSER,  Staff to Representative  Vic Kohring,  Alaska State                                                               
Legislature,   addressed  the   question  about   the  1,500-foot                                                               
distance.  He  said that issue, on  page 8, is up to  the will of                                                               
the committee.  A  limit has to be in place, and  1,500 feet is a                                                               
starting point.                                                                                                                 
                                                                                                                                
REPRESENTATIVE HOLM asked  Mr. Musser if he is  familiar with the                                                               
process the  committee is talking about  and has seen one  of the                                                               
drilling rigs.                                                                                                                  
                                                                                                                                
MR.  MUSSER replied  that  he  has seen  them  in the  Matanuska-                                                               
Susitna area.                                                                                                                   
                                                                                                                                
REPRESENTATIVE HOLM said  he hasn't seen one,  but understands it                                                               
is like a water well, so  it seems inconceivable that while water                                                               
wells are  being drilled,  there are  hydrological concerns.   He                                                               
said he  has talked to people  at [Usibelli Coal Mine,  Inc.] who                                                               
said they didn't have contaminated  water but couldn't spread the                                                               
water  out   over  the  tundra.     He  called  it   "silly"  and                                                               
"nonsensical"  to force  them to  reinject perfectly  good water.                                                               
He asked  Mr. Musser how the  bill could be phrased  so there are                                                               
no undue requirements.                                                                                                          
                                                                                                                                
Number 2193                                                                                                                     
                                                                                                                                
REPRESENTATIVE McGUIRE said Representative  Holm had brought up a                                                               
good point.  She highlighted page  2, lines 13-17, and said there                                                               
are fundamental problems with that language, too.                                                                               
                                                                                                                                
Number 2221                                                                                                                     
                                                                                                                                
MR.   MUSSER  explained   that  the   term  "probable   hydraulic                                                               
fracturing" first was inserted in the  bill because it is used in                                                               
surface mining  statutes, which are  federally defined.   He said                                                               
"probable  hydraulic consequences"  is a  determination based  on                                                               
base line  hydraulic, geologic,  and other  information collected                                                               
during  a permit  application.   He offered  his belief  that the                                                               
language is referred to on page 8.                                                                                              
                                                                                                                                
MR. MUSSER  said in  using that  baseline, which  is used  in the                                                               
federal  Clean  Water  Act and  all  other  resource  development                                                               
activities,  the  whole intent  is  presumed  liability.   If  an                                                               
applicant  obtains  a  permit to  conduct  shallow  gas  drilling                                                               
activities  within, currently,  1,500 feet  of an  existing well,                                                               
the well  is going  to be tested  by an  independent well-testing                                                               
company, even if flow and purity  are broadly defined.  Once that                                                               
is done and  the property owner's well is working,  the intent is                                                               
that  down the  road after  drilling activities  commence, it  is                                                               
presumed  to be  a probable  hydraulic consequence  if the  water                                                               
disappears.    The property  owner  will  then  have a  new  well                                                               
drilled.                                                                                                                        
                                                                                                                                
MR. MUSSER pointed  out that Tom Wright,  staff to Representative                                                               
John  Harris, sponsor  of  the bill,  could  have addressed  this                                                               
issue but had left the meeting.   He said he would try to address                                                               
hydraulic fracturing as best he could.                                                                                          
                                                                                                                                
Number 2391                                                                                                                     
                                                                                                                                
MR.  MUSSER explained  that the  hydraulic fracturing  regulation                                                               
came  through  because  it was  determined,  during  the  initial                                                               
reviews of  water disposal, that  reinjection was the way  it had                                                               
to  be, given  Alaska's  climate, terrain,  and  volume of  water                                                               
being produced.                                                                                                                 
                                                                                                                                
REPRESENTATIVE HOLM asked how big the well rig is.                                                                              
                                                                                                                                
CHAIR KOHRING replied that the casing is about eight inches.                                                                    
                                                                                                                                
REPRESENTATIVE  HOLM continued,  "So, we're  going to  drill this                                                               
well  and go  through an  aquifer that  maybe is  100 feet  deep;                                                               
maybe it's not  even that.  When we get  through that, there's no                                                               
more water, correct?                                                                                                            
                                                                                                                                
[Mr. Musser nodded.]                                                                                                            
                                                                                                                                
REPRESENTATIVE HOLM  continued, "We have a  casing through there.                                                               
Relatively,  there's  no water  because  you  start getting  into                                                               
sedimentary formations  that have  trapped the aquifer  up above,                                                               
correct?  Are you following me here?"                                                                                           
                                                                                                                                
[Mr. Musser nodded.]                                                                                                            
                                                                                                                                
Number 2508                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HOLM  continued, "So  once  we  get through  that                                                               
point, why would we inject water  back down 3,000 feet?"  He also                                                               
asked  if the  water removed  from  the hole  would be  put in  a                                                               
holding pond  of some sort, or  if another well would  be put in,                                                               
to pump the water back into.                                                                                                    
                                                                                                                                
CHAIR KOHRING answered  based on what he  knows about Evergreen's                                                               
Matanuska-Susitna  operation, "They  first  drill  the well,  and                                                               
then when  they do the fracturing,  it releases water that  is in                                                               
the  coal at  depths of  anywhere from  500 feet  to 3,000  feet,                                                               
depending on the geological formations."   He went on to say that                                                               
the water is  drawn out of the  coal seams; there is  a pond that                                                               
holds water, or trucks take the  water to a different location to                                                               
an  injection  well  drilled  to  about  4,000  feet.    He  said                                                               
sometimes  in the  Lower 48  the water  is used  for agricultural                                                               
purposes or for  livestock in places such as  Wyoming where there                                                               
are arid  conditions.  In  the case  of Evergreen in  Alaska, the                                                               
reinjection method is used.                                                                                                     
                                                                                                                                
REPRESENTATIVE  HOLM asked  if it  is a  necessary expense  or is                                                               
done just because it is a requirement.                                                                                          
                                                                                                                                
CHAIR KOHRING asked Mr. Musser if he knew.                                                                                      
                                                                                                                                
MR. MUSSER said he didn't know.                                                                                                 
                                                                                                                                
CHAIR KOHRING  said he isn't aware  of its being a  Department of                                                               
Environmental   Conservation   (DEC)    requirement   and   asked                                                               
Representative Gatto if he knew  the answer.  He acknowledged the                                                               
presence  of Representatives  Gatto,  Seaton,  and Dahlstrom  and                                                               
invited them to join the committee at the table.                                                                                
                                                                                                                                
Number 2575                                                                                                                     
                                                                                                                                
REPRESENTATIVE  CARL GATTO,  Alaska State  Legislature, cosponsor                                                               
of HB 395, replied  that some of the water that  comes out of the                                                               
ground might  be saline,  have sulfur,  or be  perfectly potable.                                                               
He said  he believes the federal  Environmental Protection Agency                                                               
(EPA)  has declared  that  any  water taken  from  the ground  is                                                               
considered  hazardous   material  and,   therefore,  has   to  be                                                               
reinjected.   He  reported that  Evergreen has  been putting  the                                                               
water in a  very large tank, a tower, holding  it there, and then                                                               
trucking it to a facility where  it is reinjected.  The company's                                                               
intention is  to eventually  take care  of the  water by  using a                                                               
buried pipeline  rather than  trucking it.   But now,  during the                                                               
exploratory stage, they  have to remove the water  to release the                                                               
gas.   Ideally,  the water  would be  removed and  held, the  gas                                                               
would be extracted, and the water  would be returned to the site.                                                               
He  said that  is not  plausible because  there is,  literally, a                                                               
lake of water, and Alaska doesn't have a need for the water.                                                                    
                                                                                                                                
Number 2657                                                                                                                     
                                                                                                                                
REPRESENTATIVE   HOLM  thanked   Representative  Gatto   for  his                                                               
information.  He wondered why EPA  makes the decision, and why it                                                               
is  different   in  Wyoming  than   in  Alaska  under   the  same                                                               
circumstances.                                                                                                                  
                                                                                                                                
REPRESENTATIVE GATTO said he didn't have an answer.                                                                             
                                                                                                                                
CHAIR  KOHRING said  he'd  like  to try  to  get those  questions                                                               
answered by  DEC.  He  noted that Representative Gara  had joined                                                               
the meeting.                                                                                                                    
                                                                                                                                
Number 2698                                                                                                                     
                                                                                                                                
REPRESENTATIVE CRAWFORD  told members  he has been  reading about                                                               
the ranches in  Wyoming, where not all people are  happy with the                                                               
water, some of which has killed  their pastures.  He asked if, in                                                               
this bill,  all of the  water is required  to be reinjected.   He                                                               
mentioned a  constituent with  a wilderness  lodge on  the Copper                                                               
River who returned  to his lodge and found a  two-acre gravel pad                                                               
that  a shallow  gas  company had  made for  a  staging area  for                                                               
machinery.  The  person was livid that  the wilderness experience                                                               
was  ruined for  his  customers.   Representative Crawford  asked                                                               
what can be  done to remediate staging-area damage  and damage to                                                               
the land for things other than the wells and gathering stations.                                                                
                                                                                                                                
CHAIR KOHRING answered that the  legislation doesn't address that                                                               
particular issue,  but as far  as a company's going  on someone's                                                               
property,  that is  allowed for  developing of  natural resources                                                               
according to  the constitution,  if the state  believes it  is in                                                               
the public's  best interest.  He  said he didn't agree  with what                                                               
happened  in the  example and  didn't believe  the Department  of                                                               
Natural  Resources (DNR)  would  be careless  in issuing  permits                                                               
which would  allow that to  happen.   He made suggestions  to the                                                               
bill  such   as  adding  increased  notice   requirements  before                                                               
development  occurs,  or  requiring   an  agreement  or  sit-down                                                               
meeting between the parties involved.                                                                                           
                                                                                                                                
Number 2858                                                                                                                     
                                                                                                                                
REPRESENTATIVE PAUL  SEATON, Alaska State  Legislature, cosponsor                                                               
of HB  395, responded to  several questions that had  been asked.                                                               
He said one  problem deals with the assumption that  the rigs are                                                               
water-well  style.    The  problem  is  that  without  the  depth                                                               
restriction in the  bill - the lease is for  shallow natural gas,                                                               
which specifies  3,000 feet  - there is  a backdoor  approach for                                                               
full-blown  conventional gas  rigs of  any  size.   "That is  the                                                               
potential that exists down in my  area," he said.  He pointed out                                                               
that  that  was  the  reason   the  3,000-foot  limit,  with  the                                                               
permission of the commissioner to  go to 4,000-foot limit, was in                                                               
the bill.  He said this is what  is in the bid for the leases for                                                               
shallow natural gas.                                                                                                            
                                                                                                                                
REPRESENTATIVE SEATON explained that  on a noncompetitive bid, it                                                               
allows drilling down to 12,000  feet, which is not necessarily in                                                               
the best  interests of the state.   If the geologic  formation is                                                               
such  that there  is gas  above 3,000  feet and  it continues  on                                                               
down,  then the  way  the law  reads, the  company  can be  given                                                               
permission to  go all the  way down to  the necessary depth.   He                                                               
said there could  be another situation of a pool  of gas at 4,000                                                               
to 8,000 feet,  which they cannot drill to under  the shallow and                                                               
natural  gas program  because they  cannot  demonstrate that  the                                                               
geologic formation came  above 3,000 feet and  is contiguous with                                                               
same pool of  gas.  He said it's a  challenging situation, and he                                                               
reiterated that the purpose of  the 3,000-foot limit in this bill                                                               
is to get back to the original purpose of the bill.                                                                             
                                                                                                                                
REPRESENTATIVE  SEATON remarked,  "People put  up their  $500 for                                                               
nine square miles  of bidding  on shallow  natural gas,  and it's                                                               
not really  in the interest [of]  the state to say,  'Now you can                                                               
have all the  gas all the way  to the center of  the earth, under                                                               
these noncompetitive lease sales'."   He added that he has talked                                                               
to the  companies that are  functioning in  the Matanuska-Susitna                                                               
area, and the 4,000-foot extension solved their problem.                                                                        
                                                                                                                                
TAPE 04-6, SIDE B                                                                                                             
Number 2962                                                                                                                     
                                                                                                                              
REPRESENTATIVE SEATON  continued, "These leases are  not coal bed                                                               
methane leases.  These are shallow  natural gas leases, and in my                                                               
area in  Homer, the general intention  is not to go  for coal bed                                                               
methane, but to go for conventional gas."                                                                                       
                                                                                                                                
CHAIR KOHRING asked, "Deeper wells?"                                                                                            
                                                                                                                                
REPRESENTATIVE SEATON replied:                                                                                                  
                                                                                                                                
     Not  necessarily   deeper  wells,  just   in  different                                                                    
     substrate,  rather  than  in coal  bed  methane.    One                                                                    
     always  has to  remember  that under  the leasing  that                                                                    
     we've  done,  we have  not  restricted  this to  small,                                                                    
     water-well-style  rigs.   And  so,  that  is why  we're                                                                    
     trying to put on the  original intention of the bill of                                                                    
     saying this is shallow natural  gas, which would be the                                                                    
     smaller  rigs, and  that there  is a  maximum depth  to                                                                    
     which you are to explore.                                                                                                  
                                                                                                                                
Number 2934                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE said  it  is very  interesting and  makes                                                               
sense.  She asked if there could be a coal seam at 5,000 feet.                                                                  
                                                                                                                                
REPRESENTATIVE SEATON replied that there  could be a coal seam at                                                               
5,000-6,000  feet, but  the earth's  compression  makes the  seam                                                               
tight at those depths and gas isn't  likely.  He said that is why                                                               
companies aren't concerned about deeper depths.                                                                                 
                                                                                                                                
REPRESENTATIVE  McGUIRE  stated  that  she has  no  problem  with                                                               
keeping  the distinction  between  a conventional  gas lease  and                                                               
coal  bed   methane  [lease],  but   hesitates  to  sit   from  a                                                               
legislator's seat  with no  engineering background  regarding the                                                               
depth limits.   She wanted to know, with a  best interest finding                                                               
requirement,  if  limiting the  type  of  lease would  solve  the                                                               
problem.                                                                                                                        
                                                                                                                                
Number 2841                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON responded  that there  wouldn't have  been                                                               
any of  the recent  problems if  there had  been a  best interest                                                               
finding.    "Everybody agrees  and  understands  that there  were                                                               
unintended  consequences  that  came about  because  the  shallow                                                               
natural gas program  was thought to be for rural  areas where you                                                               
had one or two landowners, not  in urban Homer," he remarked.  He                                                               
said he  has no problem  having a  moratorium on the  leases, not                                                               
extending them unless  they are already in production  and are in                                                               
"paying quantities," and then having  a best interest finding and                                                               
a conventional  lease that could be  applied for.  He  noted that                                                               
this idea is  in SSHB 364, which  he wasn't sure would  pass.  He                                                               
emphasized  that  HB  395  is  an attempt  to  fix  the  problems                                                               
identified under the shallow natural gas program.                                                                               
                                                                                                                                
Number 2767                                                                                                                     
                                                                                                                                
REPRESENTATIVE  McGUIRE   characterized  Representative  Seaton's                                                               
information  as "hitting  the  nail on  the  head" regarding  her                                                               
fundamental  problem with  the  bill.   She  expressed hope  that                                                               
there  will be  a companion  [bill]  fix or  a Senate  fix.   She                                                               
voiced  a concern  about  how HB  395 would  fit  into the  other                                                               
legislation.   She said  she'd rather put  effort into  getting a                                                               
best interest  finding into the  bill to eliminate  problems with                                                               
depth limits.  She added  that she respects Representative Seaton                                                               
and the  work he does, and  concluded that she may  be "seeing it                                                               
wrong."                                                                                                                         
                                                                                                                                
Number 2715                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON replied  that he appreciates Representative                                                               
McGuire's  comments,  fully agrees  with  her,  and supports  the                                                               
vision in [SB 312].  He  said the shallow natural gas program has                                                               
not worked the  way anyone envisioned it.  There  are problems in                                                               
the shallow  natural gas leases  in his  area [Homer] and  in the                                                               
Matanuska-Susitna  area, and  enacting a  bill for  future leases                                                               
doesn't solve the problems, he pointed out.  He emphasized:                                                                     
                                                                                                                                
     The  whole  purpose  of  this   bill  is  to  get  some                                                                    
     reasonable  balance  between  the development  and  the                                                                    
     people  that are  living in  these  fairly urban  areas                                                                    
     where  this drilling  activity is  going to  occur that                                                                    
     wasn't anticipated in  the original bill.   This is not                                                                    
     an  attempt  to  equalize the  subsurface  and  surface                                                                    
     rights.    This is  just  to  bring  a balance  in  the                                                                    
     development of these leases.                                                                                               
                                                                                                                                
CHAIR  KOHRING asked  Ms. Ryan  to  answer Representative  Holm's                                                               
question about water regulations.                                                                                               
                                                                                                                                
Number 2505                                                                                                                     
                                                                                                                                
KRISTIN  RYAN,   Director,  Division  of   Environmental  Health,                                                               
Department   of   Environmental   Conservation,   said   no   DEC                                                               
regulations  require reinjection  of produced  water from  a coal                                                               
bed methane  well.  She explained,  "What is required is  that no                                                               
discharges of  the water can  violate a clean water  standard, so                                                               
what we  do require  is testing  of the water."   She  added that                                                               
it's  cheaper  to   reinject  water  than  to   treat  it  before                                                               
discharging it.                                                                                                                 
                                                                                                                                
REPRESENTATIVE HOLM  said he couldn't understand  why there would                                                               
be  separate  EPA  rules  for   different  states.    He  thanked                                                               
Ms. Ryan.                                                                                                                       
                                                                                                                                
CHAIR KOHRING  said he hadn't  intended to have a  public hearing                                                               
on  the  bill  today,  but  three  people  had  driven  from  the                                                               
Matanuska-Susitna area to Wasilla  to testify via teleconference,                                                               
and so he would allow it.                                                                                                       
                                                                                                                                
Number 2407                                                                                                                     
                                                                                                                                
JEFF ARNDT, Member, Friends of  Mat-Su, an organization concerned                                                               
with responsible  development, said he  isn't taking a  stand for                                                               
or  against coal  bed methane,  but wants  good regulations.   In                                                               
terms  of  HB  395,  he  said his  group  likes  that  it  offers                                                               
reinjection and vastly  improved notice.  On the  other hand, the                                                               
group  doesn't like  that  mandating  nontoxic "fracting"  fluids                                                               
hasn't  been settled  on, which  is vitally  important, he  said.                                                               
They  also don't  like  the fact  that  compensation for  surface                                                               
owners, if anything goes wrong, is removed from the bill.                                                                       
                                                                                                                                
MR. ARNDT  said it  looked as  if "the business  from HB  69" had                                                               
been reinserted,  which negates local control;  he emphasized the                                                               
need  for local  control.   He  said he  was glad  Representative                                                               
Seaton showed up to clarify a  number of points, but believes the                                                               
committee's level of knowledge on this  issue is low.  He offered                                                               
to send information  and directed the committee to  his web site,                                                               
gasdrilling@matsu.org,  and   to  the  DNR  web   site  for  more                                                               
information.    He  noted  the  difficulty  of  becoming  instant                                                               
experts on a  complex subject, and suggested  the committee could                                                               
benefit  from  hearing  from  unbiased   expert  testimony.    He                                                               
concluded:                                                                                                                      
                                                                                                                                
     You can call  it anything you want.  You  can call it a                                                                    
     moratorium, a  buy back,  a sunset  clause.   We really                                                                    
     need  to   stop  and  start   over.    Let's   get  the                                                                    
     regulations in  place.  We're in  no rush.  The  gas is                                                                    
     always going to be there.   And I think you need to get                                                                    
     back  to the  concept  of giving  the private  property                                                                    
     owners rights of first refusal.                                                                                            
                                                                                                                                
[It was announced that Robin  McLean's testimony was given to the                                                               
Legislative Information Office (LIO) office in Wasilla.]                                                                        
                                                                                                                                
Number 2165                                                                                                                     
                                                                                                                                
MYRL THOMPSON, Spokesman  for Ogan is So Gone, a  recall group of                                                               
22,000  members, said  his group  has a  number of  problems with                                                               
[Version V].   They'd  like to see  the compensation  for surface                                                               
use  be a  charge per  wellhead, per  month, and  the charge  per                                                               
compressor  per month  that was  in the  original version  of the                                                               
bill restored.  He said that is  a point of contention with a lot                                                               
of the people he represents.                                                                                                    
                                                                                                                                
MR.  THOMPSON noted  that  the  aquifers in  his  area have  huge                                                               
underground  lakes  that  sometimes  stretch for  miles  in  each                                                               
direction, so  a 1,500-foot  or 3,000-foot limit  on a  well that                                                               
may be polluted could affect people  quite a distance away.  Some                                                               
of  the aquifers  are moving  like underground  rivers and  could                                                               
carry pollutants farther than the  set limits.  He explained that                                                               
the  9th Circuit  Court of  Appeals has  already determined  that                                                               
[produced   water]  is   classified  as   industrial  waste   and                                                               
pollution.  He  said this is done because it  doesn't meet [clean                                                               
water] standards, and his group does  not want this kind of water                                                               
on the surface, where it can drain back into the aquifers.                                                                      
                                                                                                                                
MR. THOMPSON said putting the water  back into the streams or the                                                               
ocean is unacceptable because even  water claimed by the industry                                                               
to be clean  and potable drinking water, when it  was dumped into                                                               
the  streams,  killed  about  70   percent  of  the  invertebrate                                                               
population in the  stream; this caused a reduction  in the number                                                               
of fish.  Trout Unlimited  published a very large, in-depth study                                                               
on that subject, he noted.                                                                                                      
                                                                                                                                
Number 2013                                                                                                                     
                                                                                                                                
CHAIR  KOHRING asked  Mr. Thompson  to  cite a  specific case  in                                                               
order for  the committee  to have that  documentation, or  to fax                                                               
information to the LIO in Juneau.                                                                                               
                                                                                                                                
MR. THOMPSON  asked if Representative  Kohring was  talking about                                                               
the processed water.                                                                                                            
                                                                                                                                
CHAIR KOHRING answered that he was.                                                                                             
                                                                                                                                
MR.  THOMPSON  responded by  providing  the  Trout Unlimited  web                                                               
site, www.tu.org, saying  the link for the studies is  there.  He                                                               
spoke highly of the site.                                                                                                       
                                                                                                                                
Number 1854                                                                                                                     
                                                                                                                                
CHAIR  KOHRING noted  that he'd  pledged to  move HB  395 out  of                                                               
committee  today,  but  had  taken  the  committee's  discussions                                                               
seriously and would  make the effort to improve  and expedite the                                                               
bill.  [HB 395 was held over.]                                                                                                  
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Special  Committee  on  Oil  and Gas  meeting  was  adjourned  at                                                               
4:41 p.m.                                                                                                                       

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