Legislature(2003 - 2004)

03/02/2004 03:23 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                                                                           
                         March 2, 2004                                                                                          
                           3:23 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Vic Kohring, Chair                                                                                               
Representative Cheryll Heinze                                                                                                   
Representative Jim Holm                                                                                                         
Representative Norman Rokeberg                                                                                                  
Representative Harry Crawford                                                                                                   
Representative Beth Kerttula                                                                                                    
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Lesil McGuire                                                                                                    
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
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."                                                                                                         
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
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."                                                                                                                          
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 265                                                                                                                  
SHORT TITLE: OIL&GAS LEASE SALE SCHEDULE/NOTIFICATION                                                                           
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/14/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/14/04       (S)       RES                                                                                                    
02/04/04       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/04/04       (S)       Moved CSSB 265(RES) Out of Committee                                                                   
02/04/04       (S)       MINUTE(RES)                                                                                            
02/06/04       (S)       RES RPT CS  5DP 1AM         SAME TITLE                                                                 
02/06/04       (S)       DP: OGAN, SEEKINS, WAGONER, DYSON,                                                                     
02/06/04       (S)       ELTON; AM: STEVENS B                                                                                   
02/25/04       (S)       TRANSMITTED TO (H)                                                                                     
02/25/04       (S)       VERSION: CSSB 265(RES)                                                                                 
02/26/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/26/04       (H)       O&G, RES                                                                                               
02/26/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
02/26/04       (H)       Scheduled But Not Heard                                                                                
02/27/04       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
02/27/04       (H)       -- Meeting Canceled --                                                                                 
03/02/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
                                                                                                                                
BILL: SB 266                                                                                                                  
SHORT TITLE: BRISTOL BAY OIL & GAS LEASE SALE CLOSURE                                                                           
SPONSOR(S): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
01/14/04       (S)       READ THE FIRST TIME - REFERRALS                                                                        
01/14/04       (S)       CRA, RES                                                                                               
02/02/04       (S)       CRA AT 1:30 PM FAHRENKAMP 203                                                                          
02/02/04       (S)       Moved SB 266 Out of Committee                                                                          
02/02/04       (S)       MINUTE(CRA)                                                                                            
02/04/04       (S)       CRA RPT    3DP 2NR                                                                                     
02/04/04       (S)       DP: STEDMAN, WAGONER, STEVENS G                                                                        
02/04/04       (S)       NR: LINCOLN, ELTON                                                                                     
02/04/04       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
02/04/04       (S)       Moved Out of Committee                                                                                 
02/04/04       (S)       MINUTE(RES)                                                                                            
02/06/04       (S)       RES RPT 6DP                                                                                            
02/06/04       (S)       DP: OGAN, SEEKINS, STEVENS B, WAGONER,                                                                 
02/06/04       (S)       DYSON, ELTON                                                                                           
02/25/04       (S)       TRANSMITTED TO (H)                                                                                     
02/25/04       (S)       VERSION: SB 266                                                                                        
02/26/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/26/04       (H)       O&G, RES                                                                                               
02/26/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
02/26/04       (H)       Scheduled But Not Heard                                                                                
02/27/04       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
02/27/04       (H)       -- Meeting Canceled --                                                                                 
03/02/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
MARK MYERS, Director                                                                                                            
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified on SB  265 and SB 266 and answered                                                               
questions from the committee.                                                                                                   
                                                                                                                              
ROBERTA HIGHLAND                                                                                                                
Homer, Alaska                                                                                                                   
POSITION STATEMENT:  Asked a question related to SB 265.                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-07, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas  meeting to  order  at 3:23  p.m.   Representatives  Kohring,                                                               
Holm, Rokeberg, and  Crawford were present at the  call to order;                                                               
Representative     Kerttula    arrived     shortly    thereafter.                                                               
Representative Heinze arrived as the meeting was in progress.                                                                   
                                                                                                                                
SB 265 - OIL&GAS LEASE SALE SCHEDULE/NOTIFICATION                                                                             
                                                                                                                                
[Contains discussion of SB 266]                                                                                                 
                                                                                                                                
Number 0040                                                                                                                     
                                                                                                                                
CHAIR KOHRING  announced that the  first order of  business would                                                               
be  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."                                                                
                                                                                                                                
Number 0105                                                                                                                     
                                                                                                                                
MARK  MYERS,  Director, Division  of  Oil  & Gas,  Department  of                                                               
Natural Resources (DNR),  referred to two maps on  the wall [also                                                               
found  in   the  packet,  labeled  "Areawide   Lease  Sales"  and                                                               
"Exploration Licensing"].   He described  the Alaska  Peninsula -                                                               
Bristol  Bay region  and  noted similarities  to  the Cook  Inlet                                                               
region with regard  to the potential for commercial  oil and gas.                                                               
Mr. Myers  explained that  there were 26  wells drilled  in those                                                               
areas before  1985; many have  oil or gas "shows,"  meaning there                                                               
is  oil  and  gas in  the  basin.    He  mentioned oil  seep  and                                                               
indicated that  the division has  found good  potential reservoir                                                               
rocks, key  components in [determining]  oil potential,  and that                                                               
there   are  large   geologic   structures,   poorly  mapped   or                                                               
understood.                                                                                                                     
                                                                                                                                
MR. MYERS  explained that the  concept of  the sale of  this land                                                               
came from within  the region.  Because of  the depressed economy,                                                               
people want to stimulate economic  activity; they feel they could                                                               
obtain a  local source of  energy, natural gas, and  also promote                                                               
commercial oil and  gas development, leading to  jobs and further                                                               
economic development.   Citing letters  of recommendation  in the                                                               
packet, Mr.  Myers said  the division  is working  in conjunction                                                               
with Bristol  Bay Native Corporation  and the  Aleut Corporation,                                                               
which have come  to an agreement with the  region's three borough                                                               
governments.   He noted that  the Alaska Peninsula -  Bristol Bay                                                               
region  encompasses  a large  fishery  and  other resources,  and                                                               
emphasized that the area has potential for oil and gas.                                                                         
                                                                                                                                
MR.  MYERS  explained the  basis  of  SB  265, pointing  out  the                                                               
significant change for  reports given to the  legislature for the                                                               
five-year program  of proposed  oil and gas  lease sales  and the                                                               
location   of  potential   tracts  proposed   for  oil   and  gas                                                               
exploration; they are  changed from biennial to  annual, to allow                                                               
the region  to increase  oil production  and exploration.   Since                                                               
the Division of  Oil & Gas wouldn't have to  wait until the start                                                               
of a new legislative session, it could lease this land sooner.                                                                  
                                                                                                                                
Number 0432                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM  asked who  would pick up  the extra  cost of                                                               
preparing an annual report versus  a biennial one, since there is                                                               
a zero fiscal note accompanying the bill.                                                                                       
                                                                                                                                
MR. MYERS replied  that there shouldn't be  much additional cost,                                                               
since the  division already produces  an annual report;  if there                                                               
were additional costs,  the division believes they'd  be so small                                                               
as to have little fiscal impact.                                                                                                
                                                                                                                                
Number 0515                                                                                                                     
                                                                                                                                
REPRESENTATIVE   ROKEBERG  asked   about  the   areawide  leasing                                                               
provisions  relating to  the lands  offered for  leasing and  the                                                               
requirement that  they had  to have  been previously  offered for                                                               
lease.                                                                                                                          
                                                                                                                                
MR. MYERS  answered that  once a best  interest finding  (BIF) is                                                               
done,  the land  would be  available  for a  10-year period,  but                                                               
without a BIF the land wouldn't  be available.  The best interest                                                               
finding process has  to occur first.  He cited  the graphs on the                                                               
bottom of the maps, stating  that the timelines illustrated there                                                               
presume the  area will be ready  by 2005; that includes  the time                                                               
needed to do the  BIFs.  He added, according to  SB 265, that the                                                               
Division  of  Oil  &  Gas  would  have  to  annually  notify  the                                                               
legislature of any findings.                                                                                                    
                                                                                                                                
Number 0602                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked for  further clarification  on the                                                               
BIFs  and how  they relate  to lands  not previously  offered for                                                               
sale or lease.                                                                                                                  
                                                                                                                                
MR. MYERS  answered that the  key to further exploration  for oil                                                               
and gas lies  with the BIFs, and determining that  the leasing of                                                               
specific  areas   is  within  the  state's   best  interests  and                                                               
expediting the litigation that would  be required to open land up                                                               
for exploration if were determined  to be within the state's best                                                               
interests.                                                                                                                      
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked whether  SB 265 would  convert the                                                               
area from the  five-year leasing program to  the areawide leasing                                                               
program.                                                                                                                        
                                                                                                                                
MR.  MYERS explained  that before  the areawide  leasing program,                                                               
every site  had to  have a  BIF performed  separately.   With the                                                               
development of the areawide leasing  program, the "artifact" of a                                                               
BIF still  exists; after  the area is  deemed within  the state's                                                               
best  interest,  a  finder's schedule  is  still  produced,  even                                                               
though most of the sites are "reofferings" of the same areas.                                                                   
                                                                                                                                
Number 0695                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG asked if the  policy or statute set up by                                                               
SB 265 would allow the Division of  Oil & Gas to reoffer the land                                                               
annually, since it would be under the areawide leasing program.                                                                 
                                                                                                                                
MR. MYERS  affirmed that is  how the  land would be  offered, but                                                               
said  it's dependent  on the  determination  that exploring  that                                                               
land would be within the state's best interests.                                                                                
                                                                                                                                
Number 0733                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked how  the  land  would be  managed                                                               
without passage of SB 265.                                                                                                      
                                                                                                                                
MR. MYERS replied  that with the current system,  the Division of                                                               
Oil & Gas can still do  the BIFs, but the notification procedures                                                               
under  the  current  law  require  the  division  to  notify  the                                                               
legislature two  years in  advance.  He  said without  passage of                                                               
SB 265, the sale of the land will be delayed until 2007.                                                                        
                                                                                                                                
Number 0799                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  how the  BIFs would  be financed,                                                               
since the costs don't appear in the fiscal note.                                                                                
                                                                                                                                
MR. MYERS  explained that the  fiscal note applies to  the change                                                               
in notification procedures that SB  265 sets up.  He acknowledged                                                               
that the sale or leasing of  land will have some costs, but those                                                               
costs fall  under the  Division of Oil  & Gas's  operating budget                                                               
that is before the Senate at this time.                                                                                         
                                                                                                                                
REPRESENTATIVE ROKEBERG requested an  estimate for the costs that                                                               
the division would accrue by conducting the BIFs.                                                                               
                                                                                                                                
MR.  MYERS said  he didn't  have a  good estimate,  but feels  it                                                               
would be in the  several-hundred-thousand-dollar range.  He added                                                               
that most of the costs would  come from staff time.  He explained                                                               
how the Division of Oil &  Gas has integrated with the people who                                                               
live   in  the   area  and   has  committed   to  make   multiple                                                               
presentations to  the people at  the various stages  of progress.                                                               
He  said  most  of  the  division's costs  will  come  from  this                                                               
integration.                                                                                                                    
                                                                                                                                
Number 0943                                                                                                                     
                                                                                                                                
MR.  MYERS explained  that  $325,000 has  been  requested by  the                                                               
Division of  Oil & Gas;  the money will  be used for  many things                                                               
besides  conducting  the  BIFs.   [The  division]  will  have  to                                                               
determine the  three-mile limit in  the region; compile a  lot of                                                               
technical data,  including seismic data; and  put the information                                                               
onto  compact disks.   The  Division of  Oil &  Gas is  trying to                                                               
generate competition for the upcoming  sale or lease of the land.                                                               
With  regard to  staff  hours,  the division  has  created a  new                                                               
position to  further help with the  BIFs.  He commented  that the                                                               
Alaska Peninsula - Bristol Bay region  was only one region out of                                                               
many in Alaska that are  conducting best interest findings.  Thus                                                               
the division has  created a schedule and has enough  work to keep                                                               
its staff of three people busy going from one area to another.                                                                  
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if  there was any  way to  use the                                                               
older  seismic data  to  make a  three  dimensional (3-D)  image,                                                               
rather than having to re-record it all.                                                                                         
                                                                                                                                
MR.  MYERS  explained  that  because  of the  way  the  data  was                                                               
collected and  the poor quality of  the old data, it  wasn't able                                                               
to be used in the 3-D imaging.                                                                                                  
                                                                                                                                
Number 1126                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if the  Division of Oil &  Gas was                                                               
allowing firms to do seismic studies  before the lease or sale of                                                               
the property.                                                                                                                   
                                                                                                                                
MR. MYERS responded that seismic  data is permitted on state land                                                               
as long  as the firm  obtains the  proper permits and  adheres to                                                               
environmental  requirements.    He informed  the  committee  that                                                               
allowing that to  happen is commonplace and that  the Division of                                                               
Oil &  Gas allows this in  order to increase the  likelihood of a                                                               
sale.  He  added that there is an extra  incentive for businesses                                                               
with regard  to the  seismic modeling because  of the  40 percent                                                               
tax credit passed in 2003.                                                                                                      
                                                                                                                                
Number 1172                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM asked if the  seismic data collected would be                                                               
available to the state.                                                                                                         
                                                                                                                                
MR. MYERS  answered that  if the firm  that collects  the seismic                                                               
data used the tax credit, it  would be available to the state and                                                               
would be released in  10 years.  If the firm  doesn't use the tax                                                               
credit,  the  state  would  obtain  the  information  during  the                                                               
permitting process.   He  said the only  time the  state wouldn't                                                               
get this  information is if  the seismic data wasn't  gathered on                                                               
state lands.                                                                                                                    
                                                                                                                                
Number 1220                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA   asked  for  clarification   about  the                                                               
duration of the best interest findings.                                                                                         
                                                                                                                                
MR. MYERS answered  that the findings would be good  for 10 years                                                               
unless  there was  substantial new  evidence or  information, and                                                               
then the findings would have to be revised.                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  asked if that  was a change that  SB 265                                                               
initiated, or is how it's presently set up.                                                                                     
                                                                                                                                
MR.  MYERS answered  that the  duration of  the BIFs  wouldn't be                                                               
affected by SB 265; just  the notification of the legislature and                                                               
the timing of the potential sale are affected.                                                                                  
                                                                                                                                
Number 1260                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA referred  to  Mr.  Myers' comment  about                                                               
establishing  a three-mile  boundary and  asked if  that boundary                                                               
would extend offshore.                                                                                                          
                                                                                                                                
MR. MYERS said  that because of the  federal offshore continental                                                               
shelf area and  the state's submerged lands, the  Division of Oil                                                               
& Gas  doesn't have a definite  line; the division needs  to work                                                               
that out with  the federal government, and it will  take at least                                                               
a year  to get  the surveyor  and work through  the process.   He                                                               
said some  of the land for  sale does go offshore  because of the                                                               
state's submerged lands, but one  promise made by the Division of                                                               
Oil  &  Gas  to  the  area's residents  was  to  require  onshore                                                               
facilities  and only  allow directional  drilling  offshore.   He                                                               
said there  wouldn't be any  offshore pads  or any other  type of                                                               
infrastructure, other than perhaps  docks that would allow access                                                               
to the coast.                                                                                                                   
                                                                                                                                
Number 1348                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  asked if the federal  moratorium covered                                                               
the state waters  and, if not, whether the Division  of Oil & Gas                                                               
was looking to lease in those areas.                                                                                            
                                                                                                                                
MR. MYERS  answered that the  state waters aren't covered  by the                                                               
federal  moratorium, and  that  the  Division of  Oil  & Gas  was                                                               
looking to lease  the land.  He added that  the decision was made                                                               
after  a full  consultation with  the local  regions.   He stated                                                               
that  the Division  of  Oil &  Gas  is just  starting  to do  the                                                               
preliminary  best interest  findings, so  no decisions  have been                                                               
made.    He  remarked  that  the  proposal  seems  to  have  wide                                                               
acceptance within the region.                                                                                                   
                                                                                                                                
Number 1381                                                                                                                     
                                                                                                                                
MR. MYERS, in  reply to a question  from Representative Rokeberg,                                                               
explained that  the federal moratorium  was initially set  in the                                                               
federal  budget  until 2012,  but,  to  his understanding,  [U.S.                                                               
Senator Ted] Stevens had removed it.   He said he doesn't know of                                                               
any intent  for the federal  government to pursue any  leasing or                                                               
selling offshore.   Citing a conversation he'd  had with Minerals                                                               
Management  Service   (MMS),  he  said  the   federal  government                                                               
wouldn't pursue  that unless there was  local input.  He  said in                                                               
order for  the federal government to  reestablish the moratorium,                                                               
it would  have to  have a conversation  with the  local residents                                                               
and the  state wouldn't be involved.   Referring to a  map of the                                                               
geological  features, he  said  the thickest  part  of the  basin                                                               
extends offshore,  but there is significant  geological potential                                                               
onshore,  so the  land can  be sold  without involving  the outer                                                               
continental shelf (OCS).                                                                                                        
                                                                                                                                
Number 1478                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA said  there is a lot of  local support in                                                               
the area  based on the  letters in  the packet, but  wondered how                                                               
local fishing groups felt about the division's proposition.                                                                     
                                                                                                                                
MR. MYERS  said he  thought the support  for [exploring]  the OCS                                                               
was split  about 50-50 in  the region, and the  fishing community                                                               
was  probably more  on the  side that  was opposed.   He  said he                                                               
hasn't  heard substantial  concerns  from  the fishing  community                                                               
about directional  drilling offshore  from an  onshore site.   He                                                               
added  that the  Division  of Oil  & Gas  expects  to have  major                                                               
dialog with the fishing community  to protect the natural streams                                                               
in an effort to keep the spawning grounds safe.                                                                                 
                                                                                                                                
Number 1546                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA  asked if  anything  in  the statute  or                                                               
legislation  requires the  offshore  drilling  to be  directional                                                               
drilling.                                                                                                                       
                                                                                                                                
MR. MYERS said that requirement  is usually worked out during the                                                               
best-interest-findings process.  He said  he believed there was a                                                               
clear understanding that  the intent of the people  in the region                                                               
was to  only allow directional  drilling and that the  BIFs would                                                               
reflect that.                                                                                                                   
                                                                                                                                
Number 1644                                                                                                                     
                                                                                                                                
ROBERTA  HIGHLAND referred  to  page  14, line  1,  and asked  if                                                               
revisions and additions could be  done at the last minute without                                                               
going through the process and the BIFs.                                                                                         
                                                                                                                                
MR.  MYERS   responded  that  the  lease   sale,  or  substantial                                                               
amendments  to  the  sale,  cannot go  forward  without  a  best-                                                               
interest-findings  report.   He explained  that the  notification                                                               
that SB  265 refers to  is to the  [legislature].  He  added that                                                               
SB 265 doesn't substantively change the existing processes.                                                                     
                                                                                                                                
Number 1757                                                                                                                     
                                                                                                                                
CHAIR KOHRING closed public testimony.  [SB 265 was held over.]                                                                 
                                                                                                                                
SB 266-BRISTOL BAY OIL & GAS LEASE SALE CLOSURE                                                                               
                                                                                                                                
[Contains discussion of SB 265]                                                                                                 
                                                                                                                                
CHAIR KOHRING  announced that the  final order of  business would                                                               
be  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."                                                                                           
                                                                                                                                
Number 1795                                                                                                                     
                                                                                                                                
MARK  MYERS,  Director, Division  of  Oil  & Gas,  Department  of                                                               
Natural  Resources,  explained  that  SB   265  and  SB  266  are                                                               
companion bills that  strive to hold a competitive  lease sale in                                                               
the Bristol Bay - Alaska Peninsula  region in 2005, if that lease                                                               
sale proves to  be in the best  interests of the state.   He said                                                               
SB 266 was  kind of a strange  bill because it is  an artifact of                                                               
having  more  than one  type  of  leasing.   Under  current  law,                                                               
because  it's not  currently classified  as an  areawide sale,  a                                                               
company or  individual can propose  either a  exploration license                                                               
or a shallow  gas lease in the  area; if that were  to occur, the                                                               
area would be  cut down or, in  the case of a  shallow gas lease,                                                               
only the deep-gas rights would be available.                                                                                    
                                                                                                                                
MR. MYERS said  in order to provide a  better competitive market,                                                               
the area needs  to be kept whole, with all  depths available.  He                                                               
also pointed out  that there may be future conflict  if there are                                                               
shallow-gas lessees  and deep-gas lessees  on the same land.   He                                                               
explained  that the  commissioner  of [DNR]  has  entered into  a                                                               
mineral closing  order to help  facilitate this process,  but the                                                               
order is  only valid  for 90  days and will  be lifted  April 12,                                                               
2004, if the legislature doesn't  affirm the order.  He explained                                                               
further that the area is being  closed now, with the intention of                                                               
opening it later in an effort to make a better sale.                                                                            
                                                                                                                                
Number 1925                                                                                                                     
                                                                                                                                
CHAIR KOHRING, referring to the list  of regions on pages 2 and 3                                                               
of SB 266, asked for assurance  that care and prudence were given                                                               
to  selecting the  right areas  and that  it will  not jeopardize                                                               
high-potential areas for future drilling of oil and gas.                                                                        
                                                                                                                                
MR. MYERS  replied that  the areas were  determined based  on the                                                               
geology, and the decision was made  to close those areas that had                                                               
at least  a kilometer of potential  reservoir rock.  He  said the                                                               
areas to the  north were set aside because the  Division of Oil &                                                               
Gas felt  there was a potential  source of natural gas  there for                                                               
the local communities, but didn't  think it would be economically                                                               
viable  for commercial  oil  and  gas extraction.    He said  the                                                               
economic border that  was chosen was a rational  one, although it                                                               
may not be  perfect.  He also said the  areas were chosen because                                                               
the division thought it would be easier to license them.                                                                        
                                                                                                                                
MR. MYERS shared  that the areas set aside  haven't been analyzed                                                               
since  the  late  1970s  to  early  1980s,  and  that  the  firms                                                               
interested  in the  sites need  time to  gather data  before they                                                               
purchase the land;  the sooner those areas  became available, the                                                               
better.  He said the division's  decision was partly based on the                                                               
geological interpretation,  as well as consultation  with Bristol                                                               
Bay Incorporated.                                                                                                               
                                                                                                                                
Number 2102                                                                                                                     
                                                                                                                                
CHAIR KOHRING  remarked that it  was commendable to  be sensitive                                                               
to areas with good fishing  grounds and areas where the viability                                                               
of the oil and gas is  questionable.  He voiced concern, however,                                                               
over  closing  up  areas  when  the goal  is  to  encourage  more                                                               
development.  He asked  if there is any way to  cease oil and gas                                                               
exploration during those times of  year when fishing is prevalent                                                               
in  that area,  as opposed  to  shutting down  those areas  year-                                                               
round.                                                                                                                          
                                                                                                                                
MR. MYERS  said part of  the process that  the Division of  Oil &                                                               
Gas  goes  through  when  determining  potential  sites  is  full                                                               
integration  of  all   resource  values.    He   shared  that  in                                                               
determining  how to  best utilize  all  resources available,  the                                                               
division works with the Alaska  Department of Fish & Game (ADF&G)                                                               
as well as  human-resource agencies and locals'  knowledge of the                                                               
area.  He  stated that the goal  of the Division of Oil  & Gas is                                                               
to come up with a win-win situation.                                                                                            
                                                                                                                                
Number 2260                                                                                                                     
                                                                                                                                
MR. MYERS  explained that many  decisions such as where  to place                                                               
facilities,   where   to   directionally  drill,   and   seasonal                                                               
restrictions  are  determined  from the  best  interest  findings                                                               
(BIFs).    For  example,  in  the Cook  Inlet  region  there  are                                                               
seasonal restrictions  during the migration of  salmon and smolt.                                                               
A mix  of tools  would be  used to determine  the best  course of                                                               
action, and  those tools  are used  during the  BIF process.   He                                                               
emphasized that each region is  different, so the solution in the                                                               
Bristol Bay -  Alaska Peninsula region will differ  from those in                                                               
the North Slope or Cook Inlet  regions.  He said the advantage of                                                               
using the  BIFs is that  it finds a  balance between oil  and gas                                                               
extraction and  what is best  for the  community.  He  added that                                                               
after  all of  the data  collection, the  Division of  Oil &  Gas                                                               
cannot presume that there will definitely be a sale.                                                                            
                                                                                                                                
Number 2312                                                                                                                     
                                                                                                                                
MR.  MYERS  commented  on  the  prospective  areas,  saying  that                                                               
because of the  earlier data that was collected,  the Division of                                                               
Oil  &  Gas has  a  pretty  good idea  where  to  draw lines  and                                                               
separate the different sections, but  it isn't a perfect science.                                                               
In  the  future,  there  may  be a  supplemental  finding  or  an                                                               
amendment that  would change  the regions.   He noted  that after                                                               
the BIFs are finalized, they may  preclude areas in the region to                                                               
leasing, but they can extend beyond  the "finding" area.  He said                                                               
the Division of Oil & Gas  appreciates the input from the region,                                                               
as well as input it receives from state and national agencies.                                                                  
                                                                                                                                
Number 2349                                                                                                                     
                                                                                                                                
REPRESENTATIVE HOLM asked  what percentage of the  areas that are                                                               
illustrated on the map [on the  wall] is being removed from being                                                               
available to lease for oil and gas.                                                                                             
                                                                                                                                
MR. MYERS replied  that all the state land within  the outline is                                                               
basically being  removed at this point  so it can be  kept intact                                                               
and  offered up  for  competitive  sale at  a  later  date.   The                                                               
Division  of Oil  &  Gas  doesn't want  the  state  to issue  any                                                               
licenses,  shallow gas  or otherwise,  that would  interfere with                                                               
the  competitive sale.   He  emphasized that  the closure  of the                                                               
licensing  is  only prior  to  the  completion  of the  BIFs  and                                                               
processing the areawide  sale.  He added that they  only want the                                                               
land closed in order to open it up at a later date.                                                                             
                                                                                                                                
Number 2425                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE  asked for  an estimate  of how  much money                                                               
would be available to the  state under the competitive leasing of                                                               
the land versus shallow gas leasing.                                                                                            
                                                                                                                                
MR. MYERS  said he  wasn't sure;  the price  would depend  on the                                                               
market,  what  is found,  and  the  competition, but  he  expects                                                               
anywhere  from a  couple of  million dollars  to upwards  of $100                                                               
million.  He  said there were over five  million acres available.                                                               
Because the land is contiguous,  is in a highly prospective area,                                                               
and has  many other positive  values, the  Division of Oil  & Gas                                                               
has a  lot of optimism  about the  prospective sale of  the land.                                                               
He stressed that he wasn't certain, however.                                                                                    
                                                                                                                                
Number 2484                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  observed that  the closure of  this land                                                               
seems  to be  indefinite,  and asked  for  clarification on  that                                                               
issue, since the goal is to increase revenue for the state.                                                                     
                                                                                                                                
MR. MYERS said  he wasn't sure about the process  that would lift                                                               
the closure, but believes it would  be up to the commissioner [of                                                               
DNR].  He said he'd be able  to find that information out for the                                                               
committee.                                                                                                                      
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked for  further clarification  on the                                                               
comment about lifting the moratorium.                                                                                           
                                                                                                                                
MR. MYERS  clarified that he  should have used the  term "mineral                                                               
closing order," since there is no moratorium on state leasing.                                                                  
                                                                                                                                
REPRESENTATIVE  ROKEBERG  surmised  that  because  the  order  in                                                               
question  is uncodified  law,  [the  legislature] is  statutorily                                                               
effectuating the mineral closing  order, rather than putting this                                                               
order into statute and reclassifying the  land.  He asked if this                                                               
was a good analysis of what was happening.                                                                                      
                                                                                                                                
MR. MYERS said  his understanding is that  mineral closing orders                                                               
have  to be  confirmed by  the  legislature or  else they  become                                                               
invalid after a 90-day period.                                                                                                  
                                                                                                                                
Number 2599                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  remarked  that   it  seemed  they  were                                                               
closing this land  indefinitely and that it could  only be opened                                                               
back up by executive action, which  isn't clear at this point, or                                                               
by a repeal by the legislature.                                                                                                 
                                                                                                                                
MR. MYERS said he was sorry  that he didn't have that information                                                               
offhand, but  believed that  Representative Rokeberg  was correct                                                               
in saying that the closure could be lifted by the commissioner.                                                                 
                                                                                                                                
Number 2624                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA asked if the  Division of Oil & Gas would                                                               
be averse to  a letter of intent stating that  it wasn't going to                                                               
allow  offshore  drilling,  but   only  would  allow  directional                                                               
drilling  from  an  onshore  site,  and  referencing  the  recent                                                               
concerns expressed about the fishing areas.                                                                                     
                                                                                                                                
MR. MYERS said he personally had  no problem with that, except if                                                               
it would circumvent the BIF process.   He added that he'd have no                                                               
problem  with such  a  letter  because he  believes  that is  the                                                               
intention of the Division of Oil & Gas.                                                                                         
                                                                                                                                
Number 2694                                                                                                                     
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  if Representative  Kerttula  was                                                               
suggesting  that  the legislature  come  up  with the  letter  of                                                               
intent.                                                                                                                         
                                                                                                                                
REPRESENTATIVE KERTTULA said that was her intention.                                                                            
                                                                                                                                
REPRESENTATIVE  ROKEBERG  related  his concern  that  this  might                                                               
upset the public process, as well  as the BIF process.  He didn't                                                               
think the legislature should be  meddling around when there is no                                                               
information coming in from the people in the region, he added.                                                                  
                                                                                                                                
Number 2722                                                                                                                     
                                                                                                                                
REPRESENTATIVE  KERTTULA,  noting  that  SB  266  had  a  further                                                               
referral  to the  House Resources  Standing Committee,  suggested                                                               
that  public feedback  could be  obtained before  it came  out of                                                               
that committee.                                                                                                                 
                                                                                                                                
CHAIR KOHRING announced  that the House Special  Committee on Oil                                                               
and Gas could hold the  bill until that information was received.                                                               
He  added that  he  didn't have  a lot  of  testimony about  this                                                               
specific bill  and would  like to get  opinions from  the fishing                                                               
community and the local residents.   He agreed that feedback from                                                               
the affected communities would be very helpful.                                                                                 
                                                                                                                                
Number 2778                                                                                                                     
                                                                                                                                
REPRESENTATIVE   ROKEBERG    stated   that   SB    266   tightens                                                               
classification and brings a more  rigorous regulatory scheme into                                                               
play.  He  reminded members that there is a  deadline of April 10                                                               
to get SB 266 passed.                                                                                                           
                                                                                                                                
CHAIR KOHRING  said he understood  those points, but felt  it was                                                               
necessary to get some input from  the affected regions.  He asked                                                               
Mr. Myers why  this is needed in statute and  why the Division of                                                               
Oil &  Gas can't enter  into a  memorandum of agreement  with the                                                               
communities.                                                                                                                    
                                                                                                                                
Number 2849                                                                                                                     
                                                                                                                                
MR. MYERS replied that SB 265 and  SB 266 don't do that; they are                                                               
merely procedural bills  that allow the Division of Oil  & Gas to                                                               
hold the lease sale  in 2005.  He added that  the BIF document is                                                               
developed  from public  input.    He reiterated  that  it is  the                                                               
intent  to only  allow directional  drilling, and  said that  was                                                               
determined after  talking with the  community and  the fishermen.                                                               
He said  he'd have no  problem with a  letter of intent,  but was                                                               
concerned   about  circumventing   the  best   interest  findings                                                               
process; however, he'd discuss it  with the administration to see                                                               
if they  are agreeable to  it.  He also  pointed out that  he has                                                               
letters of  support from many different  groups and organizations                                                               
that  are in  the affected  communities, which  should be  in the                                                               
bill packet.                                                                                                                    
                                                                                                                                
Number 2949                                                                                                                     
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked how time-sensitive the  passage of                                                               
these bills is.                                                                                                                 
                                                                                                                                
MR. MYERS  responded that  the passage  of SB 265  and SB  266 is                                                               
very  time-sensitive.   He reiterated  that  the mineral  closing                                                               
order expires on either  April 10 or April 12, and  if SB 265 and                                                               
SB  266 aren't  in effect  by then,  the land  that has  been set                                                               
aside will come up  for sale and they may lose  some of the money                                                               
from the future sale.                                                                                                           
                                                                                                                                
TAPE 04-07, SIDE B                                                                                                            
Number 2974                                                                                                                     
                                                                                                                                
MR. MYERS  further explained that  passage of  SB 265 and  SB 266                                                               
would  help  to assure  future  buyers  that  the land  would  be                                                               
available no later than 2005.                                                                                                   
                                                                                                                                
REPRESENTATIVE  KERTTULA asked  how long  the federal  moratorium                                                               
had been  in effect.   She predicted  that the recent  lifting of                                                               
that moratorium  and the introduction  of these bills  will cause                                                               
added scrutiny,  which she feels  could be lowered with  a letter                                                               
intent saying there will be no offshore drilling.                                                                               
                                                                                                                                
Number 2923                                                                                                                     
                                                                                                                                
MR.  MYERS responded  that the  Division of  Oil &  Gas does  not                                                               
control the Minerals Management  Service or the federal schedule.                                                               
He added  that the moratorium has  been in place since  1992, and                                                               
that there  is still an executive  order closing the area;  so if                                                               
there was  to be any offshore  drilling, it wouldn't be  for many                                                               
years down the road, if at all.                                                                                                 
                                                                                                                                
Number 2890                                                                                                                     
                                                                                                                                
CHAIR KOHRING  asked whether anyone  else wished to testify.   He                                                               
then closed public testimony.                                                                                                   
                                                                                                                                
Number 2865                                                                                                                     
                                                                                                                                
REPRESENTATIVE  HEINZE asked  if the  letters of  support in  the                                                               
committee packet were in support of both SB 265 and SB 266.                                                                     
                                                                                                                                
MR. MYERS replied that they were  in general support of the sale;                                                               
both SB  265 and  SB 266 are  necessary for that  to happen.   He                                                               
reiterated what each bill covered  and stated that the letters in                                                               
the packet illustrated the strong local support.                                                                                
                                                                                                                                
Number 2777                                                                                                                     
                                                                                                                                
CHAIR  KOHRING  asked  why  the  process  hadn't  been  expedited                                                               
sooner, considering  the impending deadline.   He also  asked how                                                               
the deadline could be extended, if necessary.                                                                                   
                                                                                                                                
MR.  MYERS answered  that the  administration determines  when to                                                               
introduce the  bills, so  he doesn't know  why it  was introduced                                                               
when it was.   He added that the bills took  a little longer than                                                               
anticipated in the Senate, which  increased the sense of urgency.                                                               
He  reiterated that  the  Division of  Oil &  Gas  is limited  by                                                               
statute as to the length of  the mineral closing order, and needs                                                               
the confirmation of the legislature  or else will be in violation                                                               
of the statute; thus there is no  way to extend the deadline.  He                                                               
remarked that  if the  bills don't pass  this year,  the Division                                                               
Oil & Gas will notify the  legislature next January and start the                                                               
two-year clock  at that time.   Mr.  Myers noted that  passage of                                                               
these  bills  will  speed  up  that clock,  and  will  allow  the                                                               
Division of Oil &  Gas to keep the land whole  so that there will                                                               
be a better market value when the land is sold.                                                                                 
                                                                                                                                
Number 2648                                                                                                                     
                                                                                                                                
CHAIR KOHRING told members he'd like  to see the letter of intent                                                               
that  Representative  Kerttula proposed,  as  well  as hear  more                                                               
feedback  on both  sides of  the issue,  and so  would hold  both                                                               
bills until the next meeting.  [SB 266 was held over.]                                                                          
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Special Committee on Oil and Gas meeting was adjourned at                                                                       
4:20 p.m.                                                                                                                       

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