Legislature(2007 - 2008)CAPITOL 120

04/12/2007 03:00 PM OIL & GAS

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03:15:39 PM Start
03:15:54 PM Alaska Oil and Gas Conservation Commission
03:31:02 PM HJR13
04:09:06 PM HB183
04:51:08 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
-- Please Note Location Change --
Moved CSHB 183(O&G) Out of Committee
Heard & Held
+ Confirmation Hearing: TELECONFERENCED
Alaska Oil & Gas Conservation Commission
+ Bills Previously Heard/Scheduled TELECONFERENCED
                    ALASKA STATE LEGISLATURE                                                                                  
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                                                                           
                         April 12, 2007                                                                                         
                           3:15 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Vic Kohring, Chair                                                                                               
Representative Kurt Olson, Vice Chair                                                                                           
Representative Jay Ramras                                                                                                       
Representative Mike Doogan                                                                                                      
Representative Scott Kawasaki                                                                                                   
MEMBERS ABSENT                                                                                                                
Representative Nancy Dahlstrom                                                                                                  
Representative Ralph Samuels                                                                                                    
OTHER LEGISLATORS PRESENT                                                                                                     
Representative Berta Gardner                                                                                                    
COMMITTEE CALENDAR                                                                                                            
CONFIRMATION HEARING:                                                                                                           
ALASKA OIL AND GAS CONSERVATION COMMISSION                                                                                    
     Cathy Foerster - Anchorage                                                                                                 
     - CONFIRMATION ADVANCED                                                                                                    
HOUSE JOINT RESOLUTION NO. 13                                                                                                   
Urging the attorney general, the  producers of natural gas in the                                                               
Cook Inlet  region, and  the Regulatory  Commission of  Alaska to                                                               
work to secure  long-term and affordable supplies  of natural gas                                                               
for the people and businesses of the state.                                                                                     
     - HEARD AND HELD                                                                                                           
HOUSE BILL NO. 183                                                                                                              
"An Act  relating to  the regulation  and permitting  of drilling                                                               
and  other operations  by  the Alaska  Oil  and Gas  Conservation                                                               
Commission,  to civil  penalties assessed  by the  commission, to                                                               
reconsideration  and appeal  of decisions  and the  allocation of                                                               
costs in  investigations and hearings before  the commission, and                                                               
to information filed with and fees of the commission; and                                                                       
providing for an effective date."                                                                                               
     -MOVED CSHB 183(O&G) OUT OF COMMITTEE                                                                                      
PREVIOUS COMMITTEE ACTION                                                                                                     
BILL: HJR 13                                                                                                                  
SHORT TITLE: NATURAL GAS FOR STATE RESIDENTS                                                                                    
SPONSOR(s): REPRESENTATIVE(s) GARDNER                                                                                           
03/12/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/12/07       (H)       O&G, L&C                                                                                               
04/12/07       (H)       O&G AT 3:00 PM CAPITOL 120                                                                             
BILL: HB 183                                                                                                                  
SHORT TITLE: OIL & GAS CONSERVATION COMMISSION                                                                                  
SPONSOR(s): RULES BY REQUEST OF LEG BUDGET & AUDIT BY REQUEST                                                                   
03/07/07       (H)       READ THE FIRST TIME - REFERRALS                                                                        
03/07/07       (H)       O&G, RES, JUD                                                                                          
04/12/07       (H)       O&G AT 3:00 PM CAPITOL 120                                                                             
WITNESS REGISTER                                                                                                              
CATHY FOERSTER, Commissioner                                                                                                    
Alaska Oil and Gas Conservation Commission (AOGCC)                                                                              
Department of Administration                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified as an appointee to the Alaska Oil                                                                
and Gas Conservation Commission and testified in support of HB                                                                  
REPRESENTATIVE BERTA GARDNER                                                                                                    
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as the sponsor of HJR 13.                                                                        
JOHN K. NORMAN, Chair                                                                                                           
Alaska Oil & Gas Conservation Commission (AOGCC),                                                                               
Department of Administration                                                                                                    
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   Answered a question during the hearing on                                                                 
HJR 13 and testified during the hearing on HB 183.                                                                              
MARIE DARLIN, Volunteer Coordinator                                                                                             
Capital City Task Force                                                                                                         
American Association of Retired Persons                                                                                         
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified in support of HJR 13.                                                                            
KEVIN BANKS, Acting Director                                                                                                    
Central Office                                                                                                                  
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified during the hearing on HJR 13.                                                                    
CHERYL SUTTON, Staff                                                                                                            
to Representative Ralph Samuels                                                                                                 
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT: Presented  HB  183 on  behalf  of the  House                                                               
Rules Committee, sponsor by request  of the Legislative and Audit                                                               
Committee, which Representative Ralph Samuels chairs.                                                                           
JUDY BRADY, Executive Director                                                                                                  
Alaska Oil and Gas Association (AOGA)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of CSHB 183.                                                                          
MARK WORCESTER, Senior Counsel                                                                                                  
Anchorage Legal Department                                                                                                      
ConocoPhillips Alaska, Inc.                                                                                                     
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in support of HB 183.                                                                            
ACTION NARRATIVE                                                                                                              
CHAIR VIC KOHRING  called the House Special Committee  on Oil and                                                             
Gas  meeting to  order at  3:15:39 PM.   Representatives  Ramras,                                                             
Doogan, Kawasaki, Olson, and Kohring  were present at the call to                                                               
^CONFIRMATION HEARING                                                                                                         
^Alaska Oil and Gas Conservation Commission                                                                                   
3:15:54 PM                                                                                                                    
CHAIR KOHRING  announced that the  first order of  business would                                                               
be the  re-confirmation hearing of  Cathy Foerster to  the Alaska                                                               
Oil and Gas Conservation Commission.                                                                                            
3:16:49 PM                                                                                                                    
CATHY  FOERSTER, Commissioner,  Alaska Oil  and Gas  Conservation                                                               
Commission  (AOGCC), informed  the  committee that  she has  been                                                               
serving on the  AOGCC since her appointment in 2005.   She stated                                                               
that she  wished to be  reappointed for three reasons.   Firstly,                                                               
she said she  has a personal interest to stay  in Alaska with her                                                               
family and  to work  for the  good of the  state.   Secondly, the                                                               
AOGCC  is  involved in  several  important  and highly  technical                                                               
engineering projects, is updating  the regulations regarding well                                                               
safety,  and is  reviewing processes  regarding gas  disposition.                                                               
Ms. Foerster  said that  the state has  invested time  to develop                                                               
her knowledge of these complex  issues, and it would be difficult                                                               
to educate a  new commissioner in a timely manner.   Thirdly, she                                                               
enjoys her  work as an engineer  and her term with  the AOGCC has                                                               
been enlightening  and interesting.   In addition,  she expressed                                                               
her belief  that the AOGCC  is an ethical and  worthy commission.                                                               
Ms. Foerster informed  the committee that, to  correct a previous                                                               
statement,  ExxonMobil  Corporation  has put  the  Point  Thomson                                                               
study on hold and it is not progressing at this time.                                                                           
3:20:51 PM                                                                                                                    
CHAIR  KOHRING  observed  that commissioners  to  the  AOGCC  are                                                               
appointed for six years.                                                                                                        
3:21:39 PM                                                                                                                    
MS.  FOERSTER explained  that the  terms are  staggered, and  the                                                               
issues  before the  committee are  very  complex, technical,  and                                                               
lengthy in resolution.                                                                                                          
CHAIR KOHRING asked for the amount of commissioners' salaries.                                                                  
MS. FOERSTER answered that her salary  is $130,000 per year.  She                                                               
added that commissioner's responsibilities  are; prevent waste of                                                               
hydrocarbons,  protect  correlative  rights, and  ensure  greater                                                               
ultimate  recovery.     In  addition,  the   three  commissioners                                                               
adjudicate    on   drilling    application   permits,    evaluate                                                               
conservation issues,  ensure public safety, protect  ground water                                                               
during oil  and gas operations,  and mediate  conflicts regarding                                                               
access to facilities.                                                                                                           
3:24:50 PM                                                                                                                    
CHAIR  KOHRING asked  Ms. Foerster  to highlight  achievements of                                                               
her past service.                                                                                                               
3:25:10 PM                                                                                                                    
MS. FOERSTER  responded that the  AOGCC has revised  the blow-out                                                               
preventer  regulations  to  reflect  the  latest  technology  and                                                               
operating practices.   In addition, the Prudhoe  Bay gas off-take                                                               
study  was  completed  to  prepare  for  the  off-take  allowable                                                               
report.   Also,  the commission  has developed  a computer  based                                                               
data storage  and retrieval information  system that  will enable                                                               
new operators  to evaluate existing  oil wells and to  appraise a                                                               
new prospect.                                                                                                                   
3:27:05 PM                                                                                                                    
CHAIR KOHRING requested Ms. Foerster's opinion of HB 183.                                                                       
MS.  FOERSTER  opined  that  HB 183  will  clarify  the  statutes                                                               
regarding the authority  of the AOGCC and said  that she supports                                                               
the bill.                                                                                                                       
3:28:31 PM                                                                                                                    
REPRESENTATIVE  DOOGAN made  a motion  to advance  from committee                                                               
the  nomination  of  Cathy  Foerster  to the  Alaska  Oil  &  Gas                                                               
Conservation Commission and asked for unanimous consent.                                                                        
3:28:48 PM                                                                                                                    
CHAIR  KOHRING  announced  that there  being  no  objection,  the                                                               
confirmation  was advanced  from the  House Special  Committee on                                                               
Oil and Gas.                                                                                                                    
The committee took an at-ease from 3:28 p.m. to 3:30 p.m.                                                                       
HJR 13-NATURAL GAS FOR STATE RESIDENTS                                                                                        
3:31:02 PM                                                                                                                    
REPRESENTATIVE BERTA GARDNER,  Alaska State Legislature, sponsor,                                                               
explained that  HJR 13  is designed to  ensure that  any decision                                                               
regarding  the  exportation  of  Cook  Inlet  gas  is  made  with                                                               
appropriate consideration  of the all  interests.  She  said that                                                               
the  state has  an  interest  in its  citizen's  welfare, in  the                                                               
development of natural resources,  in economic development and in                                                               
revenue.   Representative  Gardner pointed  out that  since 2002,                                                               
gas prices in  Southcentral Alaska have increased  by 97 percent.                                                               
Citizens, especially  those on fixed  incomes, are  struggling to                                                               
pay heating and  fuel bills.  ENSTAR Natural  Gas Company reports                                                               
that  the problem  is increasing  costs due  to the  depletion of                                                               
known reserves.  Alaska's isolation  creates an effective natural                                                               
gas  monopoly  although  there are  three  major  oil  companies,                                                               
ConocoPhillips  Alaska,  Inc.,   Marathon  Oil  Corporation,  and                                                               
Chevron Oil  Company, operating  in the region.   There  are also                                                               
problems with deliverability issues;  storage problems and a wide                                                               
variation  in   supply  and   demand.     Representative  Gardner                                                               
emphasized that the  supply of natural gas in this  region is not                                                               
by a  free market system;  in fact, regulation by  the Regulatory                                                               
Commission of Alaska (RCA) is required.                                                                                         
3:33:18 PM                                                                                                                    
REPRESENTATIVE  GARDNER  further  explained  that  ConocoPhillips                                                               
Alaska,  Inc.  and Marathon  Oil  Company,  owners of  the  Kenai                                                               
Liquefied  Natural  Gas  plant,   have  applied  for  a  two-year                                                               
extension of their  license to export natural gas to  Japan.  The                                                               
extension request  states that there  are sufficient  reserves to                                                               
support local  and export needs.   However, local  utilities have                                                               
unmet gas  needs.   She said that  Alaska consumers  realize that                                                               
gas  is sold  on  the world  market and  high  export prices  and                                                               
profits  will support  the facility  and its  employees, but  the                                                               
possibility of exporting one-third  of Alaska's natural gas needs                                                               
to be  considered by a  "holistic" view.   Representative Gardner                                                               
informed the  committee that  since HJR 13  was filed,  the state                                                               
has opposed the  extension of the export  license, unless certain                                                               
conditions are  met.   Those conditions are:   local  utility gas                                                               
needs are guaranteed for two  years, maintenance of an eight year                                                               
reserve ratio, and open access to  the natural gas plant by third                                                               
party buyers.   In spite  of the state's intervention,  she urged                                                               
the  committee  to adopt  HJR  13  to  assure citizens  that  the                                                               
legislature approves  of the state's  policy to protect  the best                                                               
interests of all of Alaska.                                                                                                     
3:36:47 PM                                                                                                                    
REPRESENTATIVE  OLSON  observed  that  the U.  S.  Department  of                                                               
Energy,  Office  of Fossil  Energy,  deadline  for testimony  has                                                               
passed and the resolution will have no effect on its decision.                                                                  
3:37:10 PM                                                                                                                    
CHAIR  KOHRING  asked  for justification  to  continue  with  the                                                               
3:37:26 PM                                                                                                                    
REPRESENTATIVE GARDNER  responded that  HJR 13 also  requests the                                                               
RCA to  expedite any review  of utility contracts  and encourages                                                               
natural  gas producers  in the  Cook  Inlet region  to ensure  an                                                               
adequate  and  affordable long-term  supply  of  natural gas  for                                                               
3:38:06 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked why  the  resolution  calls on  the                                                               
attorney general to evaluate the extension request application.                                                                 
3:38:19 PM                                                                                                                    
REPRESENTATIVE  GARDNER answered  that the  attorney general  can                                                               
represent  the  interests of  all  Alaskans  regarding a  federal                                                               
application extension request.                                                                                                  
3:38:41 PM                                                                                                                    
REPRESENTATIVE DOOGAN further asked  whether the attorney general                                                               
is the appropriate arm of the state government to intervene.                                                                    
REPRESENTATIVE GARDNER said yes.                                                                                                
3:38:54 PM                                                                                                                    
CHAIR KOHRING  referred to  HJR 13,  page 2,  line 12,  and asked                                                               
what measures the state will  take to "ensure the availability of                                                               
affordable natural gas".                                                                                                        
3:39:23 PM                                                                                                                    
REPRESENTATIVE GARDNER  responded that it would  be irresponsible                                                               
of the  state to contemplate  exporting one-third of  the natural                                                               
gas  reserves if  Alaskans do  not have  access to  fuel to  heat                                                               
their homes.   She noted that  a careful decision should  be made                                                               
considering the profitability  of the plant and  the local access                                                               
to gas issue.                                                                                                                   
3:40:15 PM                                                                                                                    
CHAIR KOHRING assumed that the  facts presented in the resolution                                                               
have come from reliable sources.                                                                                                
REPRESENTATIVE GARDNER  assured the committee that  the facts are                                                               
3:41:17 PM                                                                                                                    
REPRESENTATIVE  OLSON  observed that  the  contract  has been  in                                                               
place for forty years and  that previous extensions have been for                                                               
periods of six to nine years.                                                                                                   
3:41:36 PM                                                                                                                    
JOHN K. NORMAN,  Chair, Alaska Oil &  Gas Conservation Commission                                                               
(AOGCC),  Department  of   Administration,  confirmed  that  this                                                               
extension request is for a period of two years.                                                                                 
3:41:51 PM                                                                                                                    
REPRESENTATIVE  KOHRING questioned  whether the  sponsors of  the                                                               
resolution had  considered approaching  the industry  for support                                                               
for individuals who  are impacted by high natural  gas prices for                                                               
home heating fuel.                                                                                                              
3:42:35 PM                                                                                                                    
REPRESENTATIVE GARDNER  replied that  she had  not.   She pointed                                                               
out  that  Alaska  is  a  northern  state,  but  also  an  energy                                                               
producing state.  When contacted  by constituents about high home                                                               
heating  costs,   her  legislative  office  will   often  suggest                                                               
programs to assist home owners with conserving energy.                                                                          
CHAIR  KOHRING  said  that  he was  not  enthusiastic  about  the                                                               
3:43:35 PM                                                                                                                    
REPRESENTATIVE  GARDNER  replied   that,  although  the  attorney                                                               
general is  acting on this  issue, she  said that she  decided to                                                               
pursue the  passage of  HJR 13  to demonstrate  the legislature's                                                               
3:44:55 PM                                                                                                                    
REPRESENTATIVE OLSON  requested that ConocoPhillips  Alaska, Inc.                                                               
and Marathon  Oil Corporation have  an opportunity to  respond to                                                               
the legislation before moving HJR 13 out of committee.                                                                          
3:45:14 PM                                                                                                                    
REPRESENTATIVE RAMRAS  said that he  also wants to hear  from the                                                               
industry,  due to  the precedent  the  legislature may  set.   He                                                               
noted  that he  agreed with  the concept  and that  Fairbanks has                                                               
also seen increases  in the cost of natural  gas.  Representative                                                               
Ramras expressed his concern that  passage of the resolution will                                                               
render Cook Inlet gas less valuable.                                                                                            
3:46:54 PM                                                                                                                    
REPRESENTATIVE  GARDNER reiterated  that natural  gas exportation                                                               
should not be banned; however,  all impacts of the export license                                                               
extension should be considered.                                                                                                 
3:47:20 PM                                                                                                                    
REPRESENTATIVE OLSON  expressed his  concern that  the resolution                                                               
may  send  mixed  signals  to  the  industry.    This  resolution                                                               
potentially nationalizes a production  facility in the Cook Inlet                                                               
at the same time the state  is debating passage of the Alaska Gas                                                               
Inducement Act (AGIA).                                                                                                          
3:48:11 PM                                                                                                                    
REPRESENTATIVE GARDNER  informed the committee that  the sponsors                                                               
spoke with the industry prior to filing HJR 13.                                                                                 
3:48:33 PM                                                                                                                    
MARIE  DARLIN, volunteer  coordinator for  the Capital  City Task                                                               
Force  of the  American  Association of  Retired Persons  (AARP),                                                               
expressed  her organization's  support for  the resolution.   She                                                               
said that  AARP's hope is  that this resolution will  afford some                                                               
stabilization  of utility  costs for  members who  want to  spend                                                               
their retirement in Alaska on a limited income.                                                                                 
3:50:56 PM                                                                                                                    
REPRESENTATIVE RAMRAS expressed  his belief that the  days of low                                                               
gas prices  are over.   He explained  that Alaska gas  prices are                                                               
now  tied to  the  Henry  Hub Natural  Gas  Index and  prevailing                                                               
national  gas prices.   Representative  Ramras  pointed out  that                                                               
Fairbanks has  a refinery 12 miles  away and should have  low gas                                                               
available; however,  Alaska royalty  oil is  priced on  the world                                                               
market.  Representative Ramras opined  that even North Slope gas,                                                               
when it becomes  available, will be more  expensive for Anchorage                                                               
consumers due to transportation costs.   When gas prices are low,                                                               
the  cost   of  transportation   makes  the  production   of  gas                                                               
uneconomic.   Even  gas priced  at $7.95  must be  discounted for                                                               
transportation.    In Fairbanks,  he  added,  utilities buy  gas,                                                               
liquefy it, transport  it, and regassify it, resulting  in a cost                                                               
of over  $20.  He concluded  that, as contracts have  expired and                                                               
markets for  higher priced gas  are available, higher  gas prices                                                               
are to be expected for everyone.                                                                                                
3:57:23 PM                                                                                                                    
MS.  DARLIN expressed  her understanding  of  the situation,  and                                                               
repeated  that  any  assistance  in  the  cost  of  utilities  is                                                               
3:57:52 PM                                                                                                                    
REPRESENTATIVE  OLSON  shared  his  concerns about  the  cost  of                                                               
gasoline in  his district,  where 80 percent  of the  gasoline in                                                               
the state  is produced.   He informed  the committee  that Tesoro                                                               
Alaska Petroleum Co. provided  pricing information that indicated                                                               
that a percentage of its gas  is purchased on the spot market and                                                               
imported,  and a  percentage is  local or  from the  North Slope.                                                               
Representative Olson stated that  gasoline refined in Soldotna is                                                               
25 cents per gallon less to buy in Anchorage, than in Soldotna.                                                                 
3:59:58 PM                                                                                                                    
MS. DARLIN  added that Southeast  pays the highest prices  due to                                                               
the cost of transportation.                                                                                                     
4:00:12 PM                                                                                                                    
KEVIN  BANKS, Acting  Director, Central  Office, Division  of Oil                                                               
and Gas,  Department of Natural  Resources, expressed  his belief                                                               
that HJR  13 will demonstrate the  efforts of the state  to serve                                                               
the  residents of  Southcentral Alaska.   He  indicated that  the                                                               
administration   supports  the   conditioned   approval  of   the                                                               
extension for the liquefied natural  gas (LNG) plant and that the                                                               
plant itself  is central  to the market  dynamics in  the region.                                                               
Mr. Banks stated  that the committee has an  understanding of the                                                               
reasons behind  the increase in prices  and his hope is  that the                                                               
exhaustion  of  the   Cook  Inlet  supply  of   natural  gas  and                                                               
subsequent   importation   of   gas  will   be   forestalled   by                                                               
construction of a gas pipeline from the North Slope.                                                                            
4:04:23 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  expressed   his  understanding  that  the                                                               
consumer  demand  for Cook  Inlet  gas  is insufficient  to  make                                                               
exploration  worthwhile, unless  influenced  by  demand from  the                                                               
Agrium plant.                                                                                                                   
4:05:08 PM                                                                                                                    
MR. BANKS explained that the  domestic demand for gas for heating                                                               
and electricity  is about 50  billion cubic feet (Bcf)  per year.                                                               
The  LNG plant  requires 60  to 70  Bcf per  year and  Agrium, at                                                               
capacity,  could require  50  to  55 Bcf  per  year.   The  large                                                               
consumers will draw  gas supplies all year around.   He continued                                                               
to explain that  Cook Inlet gas field prospects vary  in size and                                                               
a  lower demand  will mean  that  smaller prospects  will not  be                                                               
4:07:15 PM                                                                                                                    
CHAIR KOHRING announced his intention  to hold the resolution for                                                               
additional testimony.                                                                                                           
4:08:22 PM                                                                                                                    
REPRESENTATIVE GARDNER said  there are amendments to  HJR 13 that                                                               
will  conform to  the senate  companion  bill, and  that will  be                                                               
offered at the next meeting.                                                                                                    
4:08:34 PM                                                                                                                    
CHAIR KOHRING  announced that HJR  13 was held in  committee with                                                               
public testimony closed.                                                                                                        
4:08:57 PM                                                                                                                    
HB 183-OIL & GAS CONSERVATION COMMISSION                                                                                      
4:09:06 PM                                                                                                                    
CHAIR KOHRING announced that the  next of business would be HOUSE                                                               
BILL NO. 183,  "An Act relating to the  regulation and permitting                                                               
of  drilling and  other  operations  by the  Alaska  Oil and  Gas                                                               
Conservation  Commission,  to  civil penalties  assessed  by  the                                                               
commission, to  reconsideration and  appeal of decisions  and the                                                               
allocation  of costs  in investigations  and hearings  before the                                                               
commission,  and  to  information  filed with  and  fees  of  the                                                               
commission; and providing for an effective date."                                                                               
4:09:14 PM                                                                                                                    
CHERYL  SUTTON, Staff  to  Representative  Ralph Samuels,  Alaska                                                               
State  Legislature,  informed  the  committee  that  HB  183  was                                                               
introduced through  House Rules Committee  at the request  of the                                                               
Legislative Budget  and Audit  Committee and  the Alaska  Oil and                                                               
Gas Conservation  Commission (AOGCC).  She  offered the Committee                                                               
Substitute (CS) and  noted that it reflects changes  that are the                                                               
result of interactions between the  AOGCC, the Alaska Oil and Gas                                                               
Association (AOGA), and other industry members.                                                                                 
4:11:07 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  moved  to  adopt CSHB  183,  Version  25-                                                               
LS0586\O,  Bullock,  4/11/07, as  the  working  document.   There                                                               
being no objection, Version O was before the committee.                                                                         
4:11:39 PM                                                                                                                    
JOHN K. NORMAN,  Chair, Alaska Oil &  Gas Conservation Commission                                                               
(AOGCC),  Department of  Administration,  informed the  committee                                                               
that  VERSION O  addresses  updates  to the  Alaska  Oil and  Gas                                                               
Conservation Act.   The original  act was enacted as  Chapter 40,                                                               
SLA 1955,  by the territorial  legislature.  He noted  that [CSHB                                                               
183] was  proposed by the  AOGCC in  order to update  and clarify                                                               
the  statutes  governing  the  AOGCC.    The  bill  contains  the                                                               
authority for  the AOGCC to  require permits for  the underground                                                               
storage of gas, and specific  statutory authority to regulate for                                                               
the  public  safety  and health  as  recommended  by  Legislative                                                               
Budget and Audit.   Mr. Norman stated that the  AOGCC was already                                                               
active in this  field, and that even with the  change in statute,                                                               
AOGCC will  not interfere with  regulations already put  in place                                                               
by  the   Department  of  Labor   (DOL)  or  the   Department  of                                                               
Environmental  Conservation (DEC).   In  addition, CSHB  183 will                                                               
modify AOGCC authority regarding water  well testing for coal bed                                                               
methane.   Mr. Norman pointed  out that the  appellate provisions                                                               
of the original  act have been subject to  the AOGCC's consistent                                                               
interpretation, and that interpretation  was upheld by the Alaska                                                               
Supreme  Court,  cite Allen  et  al  versus  Alaska Oil  and  Gas                                                               
Conservation  Commission, Pacific  Reporter, 147  P.3d, page  664                                                               
(Alaska 2006).  He said that  the result is that appeals from the                                                               
AOGCC will be handled in the same manner as any other agency.                                                                   
4:18:53 PM                                                                                                                    
MR. NORMAN turned  to the subject of permitting fees.   This bill                                                               
will remove the  $100 permitting fee charged for  a drill permit.                                                               
Mr. Norman  said that  this fee generates  a nominal  amount that                                                               
does not cover  the cost of processing the permits  and, in fact,                                                               
creates  extra bookkeeping.   The  AOGCC recommended  eliminating                                                               
the fee  because the bulk  of the regulatory  fees are paid  in a                                                               
different  manner and  future  electronic  filing will  supersede                                                               
paper check  refunds.   Another provision of  the bill  will move                                                               
more information into  the public domain at an earlier  time.  He                                                               
noted that  information on applications  for permits to  drill is                                                               
held  confidential  for  24  months.   Using  models  from  other                                                               
states,  the  AOGCC recommended  determining  the  length of  the                                                               
confidentiality  period on  an individual  basis and  writing new                                                               
regulations regarding proprietary information.                                                                                  
4:23:04 PM                                                                                                                    
MR. NORMAN told the committee  that another provision of CSHB 183                                                               
will  specify  that information,  provided  to  the AOGCC  by  an                                                               
operator on a  voluntary basis, will not be  held confidential in                                                               
the event of  the subsequent filing for a hearing  or a petition.                                                               
Mr.  Norman said  that a  change  in the  penalty provision  will                                                               
increase  the penalty  to the  maximum of  $100,000 for  a single                                                               
violation and  up to $10,000  per day for a  continued violation.                                                               
The additional  penalty allows the  AOGCC to assess  penalties on                                                               
violations  of  a  short,  but  serious,  nature.    The  penalty                                                               
provision  also  grants  the  AOGCC the  ability  to  assess  the                                                               
penalty of  two-times the  market value for  the wasting  of gas.                                                               
Finally, the change in statute  includes the addition of criteria                                                               
that  will   be  applied  by  the   commission  when  determining                                                               
4:28:24 PM                                                                                                                    
REPRESENTATIVE  DOOGAN  asked  what  violation  qualifies  for  a                                                               
$100,000 fine from the AOGCC.                                                                                                   
4:28:44 PM                                                                                                                    
MR. NORMAN  responded that an  example would be a  penalty levied                                                               
for falsification of test results or reports.                                                                                   
4:30:00 PM                                                                                                                    
REPRESENTATIVE OLSON  asked about the provisions  for the pigging                                                               
of feeder lines.                                                                                                                
4:30:18 PM                                                                                                                    
MR.  NORMAN answered  that the  pigging  of feeder  lines is  not                                                               
within the jurisdiction of the  AOGCC.  The commission's focus is                                                               
on the operations  and drilling that take place  under the earth.                                                               
As operations  move upstream, the  jurisdiction transfers  to the                                                               
Department of Environmental Conservation  or the U. S. Department                                                               
of Transportation.                                                                                                              
4:31:28 PM                                                                                                                    
REPRESENTATIVE  DOOGAN   asked  whether  there   are  substantive                                                               
changes to the bill by the committee substitute (CS).                                                                           
4:31:43 PM                                                                                                                    
MS.  SUTTON directed  the committee's  attention  to the  updated                                                               
sectional analysis for the CS.                                                                                                  
MR.  NORMAN informed  the committee  that the  industry indicated                                                               
its concern about the penalty  provision.  In response, the AOGCC                                                               
made subtle changes  to Sec. 7, the confidentiality  statute.  In                                                               
addition,  in  Sec. 8,  there  are  wording changes  intended  to                                                               
address the industry's concern that  it would retain its right to                                                               
object  to  the public  disclosure  of  information, despite  the                                                               
wording  in the  statute.   Mr.  Norman said  that Sec.  14 is  a                                                               
consolidation of several provisions in the original bill.                                                                       
4:35:41 PM                                                                                                                    
REPRESENTATIVE KAWASAKI asked  whether the bill is  the result of                                                               
an audit or recommendations by the AOGCC commissioners.                                                                         
4:36:24 PM                                                                                                                    
MR. NORMAN  replied that the  commissioners initiated all  of the                                                               
changes; however,  a legislative  auditor advised that  the AOGCC                                                               
should be concerned about environmental  and worker safety issues                                                               
and  that its  authority over  these issues  should be  stated in                                                               
statute,  or by  an  agreement  with other  state  agencies.   He                                                               
explained  that  the AOGCC  is  involved  with environmental  and                                                               
worker safety  and, in  fact, references to  safety are  found in                                                               
its statutes  and in  regulations.   However, the  AOGCC recently                                                               
concluded a large enforcement action  that emphasized the lack of                                                               
its  specific  authority for  the  regulation  of safety  issues.                                                               
This lack  of authority contributed to  the commissioner's desire                                                               
for the changes in the statute.                                                                                                 
4:38:38 PM                                                                                                                    
CHAIR KOHRING opened the hearing to public testimony.                                                                           
4:39:00 PM                                                                                                                    
JUDY BRADY,  Executive Director,  Alaska Oil and  Gas Association                                                               
(AOGA),  informed  the committee  that  her  organization has  no                                                               
major objections to the bill and supports CSHB 183.                                                                             
4:41:14 PM                                                                                                                    
MARK  WORCESTER,  Senior  Counsel,  Anchorage  Legal  Department,                                                               
ConocoPhillips Alaska,  Inc., told the committee  that Mr. Norman                                                               
and  his  staff   have  taken  a  step  forward   to  update  the                                                               
regulations,  and  are willing  to  work  with  the oil  and  gas                                                               
industry.  He said that  ConocoPhillips Alaska, Inc. supports the                                                               
bill and encourages its passage.                                                                                                
4:44:14 PM                                                                                                                    
CHAIR KOHRING closed public testimony.   He then asked Mr. Norman                                                               
whether the  changes in the  statute will loosen  restrictions or                                                               
pose additional restrictions on the coal bed methane industry.                                                                  
4:46:00 PM                                                                                                                    
MR.  NORMAN  expressed  his  belief that  the  coal  bed  methane                                                               
industry will  not be affected  by the bill.   He said  that this                                                               
provision is  a technical course  correction and  that, normally,                                                               
production   testing   poses   no    threat   to   fresh   water.                                                               
Strengthening the bill  gives the AOGCC the  authority to oversee                                                               
development and address legitimate  concerns, but does not target                                                               
non-conventional gas.                                                                                                           
4:47:07 PM                                                                                                                    
REPRESENTATIVE  KAWASAKI  requested  further explanation  on  the                                                               
change  in Sec.  5 regarding  coal bed  methane.   He noted  that                                                               
"regular" was added and "production testing" was deleted.                                                                       
4:47:38 PM                                                                                                                    
MR.  NORMAN  explained  that "regular"  production  refers  to  a                                                               
discovery that  leads to commercial  production.  Removal  of the                                                               
requirement  of  a  water  well test  program  and  gathering  of                                                               
baseline  information   applies  to   the  early  phase   of  the                                                               
discovery, and  poses no  threat to water  supplies.   The change                                                               
clearly states that,  at the time of the  commencement of regular                                                               
production, the testing requirements will be implemented.                                                                       
4:49:45 PM                                                                                                                    
REPRESENTATIVE   KAWASAKI  questioned   whether  the   change  is                                                               
contrary to the voter approved initiative.                                                                                      
4:50:03 PM                                                                                                                    
MR. NORMAN expressed  his belief that the change  is not contrary                                                               
to any initiative of which he is familiar.                                                                                      
4:50:12 PM                                                                                                                    
REPRESENTATIVE  OLSON  moved  to  report CSHB  183,  Version  25-                                                               
LS0586\O,  Bullock, 4/11/07,  out  of  committee with  individual                                                               
recommendations and  the accompanying fiscal notes.   There being                                                               
no objection  CSHB 183(O&G) was  reported from the  House Special                                                               
Committee on Oil and Gas.                                                                                                       
4:51:08 PM                                                                                                                    
There being no  further business before the  committee, the House                                                               
Special Committee  on Oil and  Gas meeting was adjourned  at 4:51                                                               

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