02/05/2004 01:03 PM House O&G
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 5, 2004
1:03 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Cheryll Heinze
Representative Jim Holm
Representative Lesil McGuire
Representative Norman Rokeberg
Representative Beth Kerttula
MEMBERS ABSENT
Representative Harry Crawford
OTHER LEGISLATORS PRESENT
Representative Bill Stoltze
Representative Carl Gatto
Representative Mike Chenault
COMMITTEE CALENDAR
HOUSE BILL NO. 395
"An Act relating to shallow natural gas leasing and the
regulation of shallow natural gas operations."
- HEARD AND HELD
HOUSE BILL NO. 420
"An Act relating to recovery of shallow natural gas; and
providing for an effective date."
- HEARD AND HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 395
SHORT TITLE: SHALLOW NATURAL GAS
SPONSOR(S): REPRESENTATIVE(S) HARRIS
01/23/04 (H) READ THE FIRST TIME - REFERRALS
01/23/04 (H) O&G, RES, JUD, FIN
02/05/04 (H) O&G AT 1:00 PM CAPITOL 124
BILL: HB 420
SHORT TITLE: SHALLOW NATURAL GAS RECOVERY ACTIVITIES
SPONSOR(S): OIL & GAS
02/02/04 (H) READ THE FIRST TIME - REFERRALS
02/02/04 (H) O&G, RES, FIN
02/05/04 (H) O&G AT 1:00 PM CAPITOL 124
WITNESS REGISTER
TOM WRIGHT, Staff
to Representative John Harris
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 395 on behalf of
Representative Harris, sponsor.
RICHARD VANDERKOLK, Staff
to Representative John Harris
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Discussed specific sections of HB 395 and
answered questions.
REPRESENTATIVE PAUL SEATON
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as a cosponsor of HB 395,
explaining it is a corrective action for some unintended
consequences; answered questions.
ERIC MUSSER, Staff
to Representative Vic Kohring
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: During discussion of HB 420, answered
questions.
JACK EKSTROM, Director
Government Affairs
Evergreen Resources, Inc.
Denver, Colorado
POSITION STATEMENT: Provided testimony on HB 420.
CHRIS WHITTINGTON-EVANS
Palmer, Alaska
POSITION STATEMENT: During hearing on HB 420, suggested ways to
improve both HB 420 and HB 395.
ROBIN McLEAN
Sutton, Alaska
POSITION STATEMENT: During hearing on HB 420, provided
testimony on HB 395.
SETH LITTLE, Legislative Coordinator
Alaska Center for the Environment (ACE)
Anchorage, Alaska
POSITION STATEMENT: During hearing on HB 420, provided
suggestions for improving both HB 420 and HB 395.
DOUG STARK, Ph.D.
Homer, Alaska
POSITION STATEMENT: During hearing on HB 420, provided
testimony on HB 395 and HB 420.
JOHN NORMAN, Commissioner
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Testified on HB 420, provided suggestions
for improving the bill.
MIKE McCARTHY
Kachemak Bay Property Owner's Alliance
Homer, Alaska
POSITION STATEMENT: During hearing on HB 420, provided
testimony on HB 395 and HB 420.
JEANNE WALKER
Homer, Alaska
POSITION STATEMENT: During discussion of HB 420, provided
testimony on HB 395 and HB 420.
MARK MYERS, Director
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Provided comments regarding HB 395 during
discussion of HB 420.
MYRL THOMPSON
Wasilla, Alaska
POSITION STATEMENT: During hearing on HB 420, provided
testimony on HB 395
ACTION NARRATIVE
TAPE 04-1, SIDE A
Number 0001
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 1:03 p.m. Representatives Kohring,
Holm, and McGuire were present at the call to order.
Representatives Rokeberg, Heinze, and Kerttula arrived as the
meeting was in progress. Also in attendance were
Representatives Stoltze, Seaton, Gatto, and Chenault.
HB 395-SHALLOW NATURAL GAS
[Contains discussion of HB 69, which became law last year, and
HB 420]
Number 0120
CHAIR KOHRING announced that the first order of business would
be HOUSE BILL NO. 395, "An Act relating to shallow natural gas
leasing and the regulation of shallow natural gas operations."
Number 0171
TOM WRIGHT, Staff to Representative John Harris, Alaska State
Legislature, presented HB 395 on behalf of Representative
Harris, prime sponsor. He noted that during the summer,
meetings were held to discuss coal bed methane; when he'd
attended the first meeting in [the Matanuska-Susitna area], he
was a little skeptical at first, expecting to see people who
didn't want any development in their area, but discovered that
the concerns expressed by the 300-plus participants seemed
valid. Those concerns primarily related to lack of local
government input in discussions involving coal bed methane,
public notice requirements, drinking water contamination, and
private property rights. Later that fall, meetings were held in
the Homer area, where a number of the same concerns were
expressed; he suggested Representative Seaton may want to
discuss those with the committee.
MR. WRIGHT offered the belief that the Department of Natural
Resources (DNR) had instituted a good public policy process, but
said there were limitations under which [DNR] could actually go
forth; although concerns had been expressed about that, he
suggested DNR should be thanked for its efforts in getting
citizens involved in this process.
MR. WRIGHT reported that during the fall, Representatives
Stoltze, Gatto, Seaton, and Harris met to discuss these issues
and try to find solutions. The bill is an effort to discuss
some of those issues and isn't a finished product. He explained
that it doesn't include "buy-back" [of leases], although a
number of people want to see that happen in the Sutton and Homer
areas. Noting that other legislation has been introduced to
address that issue, he said, "I think at this point in time we'd
just as soon see what's going to happen with that legislation
and see where it's going to go before we start instituting buy-
backs into the process that we've developed thus far."
MR. WRIGHT acknowledged Barbara Bitney for involving him in this
process when she worked for Representative Stoltze. He also
introduced Rick VanderKolk, who he said has worked extensively
on this bill along with staff to Representatives Gatto, Seaton,
and Stoltze.
CHAIR KOHRING announced that Representatives Heinze and Kerttula
had joined the meeting. He also recognized the presence of
Representative Chenault.
Number 0520
RICHARD VANDERKOLK, Staff to Representative John Harris, Alaska
State Legislature, began by addressing Section 1, which contains
assurance about water quality and integrity with regard to
hydraulic fracturing. He explained that hydraulic fracturing is
a technique used by the oil and gas industry to improve the
efficiency of production wells, including CBM [coal bed methane]
production wells. The hydraulically created fracture acts as a
conduit in the rock or coal formation, allowing the oil or gas
to travel more freely from the rock pores. To create such a
fracture, a [viscous] water-based fluid is sometimes pumped into
the coal seam under high pressures until a fracture is created.
These fluids consist primarily of water, but in some cases
contain various additives such as diesel fuel.
MR. VANDERKOLK said there are at least three arguments for
establishing Section 1. Reading in part from the sectional
analysis for HB 395, he explained that Section 1 adds to the
authority of the Alaska Oil and Gas Conservation Commission
(AOGCC) the ability to regulate hydraulic fracturing associated
with exploration for and recovery of shallow natural gas to
assure that reinjected water doesn't contaminate supplies of
drinking water or water for agricultural purposes. He pointed
out that there has been a great deal of public concern about the
quality of people's water.
Number 0650
MR. VANDERKOLK addressed a second reason for Section 1: it
conforms to recent case law. Referring to a handout relating to
a 9th Circuit Court of Appeals decision from 2003, he said it
sets the tone of allowing states to regulate CBM operations and
how water is handled. [The handout was a memorandum dated
February 2, 2004, to Mr. VanderKolk from Jack Chenoweth,
Assistant Revisor of Statutes, with an enclosed decision from
Northern Plains Resource Council v. Fidelity Exploration and
Development Company.]
MR. VANDERKOLK read from the above-referenced memorandum, which
states in part:
In that decision, a three-member Circuit Court panel
unanimously concluded that water from a coal bed
methane operation is a pollutant even if unaltered.
The court rejected application of an earlier decision
that the emission of biological wastes involving
farmed shellfish operations is not a discharge of
pollutants as applicable precedent. Instead, the
court declared the water, salty when discharged, was
"an unwanted byproduct" of the coal bed methane
extraction process, that it was "produced water" that
could qualify for a Clean Water Act permit discharge
exemption only if disposed of underground, and that
the water, when discharged, might degrade and restrict
the receiving waters (in the Montana case, of course,
to freshwater rivers and creeks).
MR. VANDERKOLK ended with the words "only if disposed of
underground" and remarked, "So there is our precedent." He
observed that this took place relatively recently; he mentioned
HB 69 and said it's more appropriate now to look at that case.
Number 0774
MR. VANDERKOLK addressed a third element [of Section 1]: it
enshrines a good business practice. Referring to a memorandum
of agreement between the U.S. Environmental Protection Agency
(EPA) and three companies [BJ Services Company, Halliburton
Energy Services, Inc., and Schlumberger Technology Corporation,
dated December 12, 2003], he said it was a voluntary agreement
that they no longer would use diesel fuel and hydraulic
fracturing fluids injected into CBM production wells "for any of
the water tables." Suggesting this is extremely important
because it sets a kind of business-practice precedent and is a
model for others to follow, he added, "They recognize that it's
a sensitive issue and that mountains of litigation are possible.
And so, rather than hashing it out that way, they assumed it was
better to enter a voluntary agreement."
MR. VANDERKOLK said for the past several months there have been
hundreds of residents attending local meetings, voicing concern
about potential impacts. With regard to the case law, he
summarized by saying the discharge of water must be separated
from surrounding water tables - the reinjection - which [the
bill] does. As for public participation, he remarked, "It's a
necessary part to put in that memorandum of agreement."
Number 0886
MR. VANDERKOLK paraphrased the first paragraph of the sectional
analysis for Section 2. It states:
In conjunction with shallow natural gas exploration
and recovery, this section adds a new provision
directing the Alaska Oil and Gas Conservation
Commission to initiate a public forum process to
informally resolve issues of public health, safety,
welfare, and environmental complaints.
MR. VANDERKOLK remarked, "This is where we initiate a public
forum in Sections 2 and 4." He said one long-term complaint
from many residents has been that it's not very lengthy or
thorough, and they'd like an opportunity for a "lecture" from
the company, an explanation, "without trying to delay the
leasing process."
Number 0916
MR. VANDERKOLK addressed Sections 3 and 9, noting that this
applies to Section 6 as well. Saying this standardizes and
defines what is meant by "shallow natural gas lease," he
paraphrased the sectional analysis for Sections 3 and 9. It
states:
The amendments made in each of these sections
eliminate, in the respective definitions of "shallow
natural gas", the reference to recovery of natural gas
from a depth of up to 4,000 feet and replace it with a
reference to 3,000 feet. The amendment standardizes
references to depth of recovery.
[The sectional analysis for Section 6 reads, "Adds language to
clarify that gas recoverable from a depth of more than 3,000
feet may occur only under a conventional lease issued under
AS 38.05.180."]
MR. VANDERKOLK paraphrased the sectional analysis for Section 5.
It states [original punctuation provided]:
Amends AS 38.05.177(f) to add a series of additional
requirements that must be inserted in a shallow
natural gas lease, to include (in paragraph (2))
required payments of fees by a lessee to an owner;
(3) setbacks applicable to compressor stations that
are appropriate to the lease; (4) appropriate noise
mitigation measures; and (5) surface restoration
requirements, if the surface is disturbed by
exploration or development operations.
MR. VANDERKOLK noted that Section 7 provides for reasonable
access. He paraphrased the sectional analysis for Section 7.
That analysis states [original punctuation provided]:
In instances in which an owner and a lessee cannot
reach agreement for the latter's entry on to property
to explore for and develop shallow natural gas and the
lessee seeks to post a bond to permit entry, the
amendment (page 6, lines 9 - 17) adds a further
requirement that the lessee demonstrate "that access
and entry upon the land of the owner is reasonable
necessary or convenient" to secure the lessee's
rights.
MR. VANDERKOLK said basically this will show justification for
the lessee's proposal.
Number 1025
MR. VANDERKOLK paraphrased the first portion of the sectional
analysis for Section 8. It states:
Adds two new subsections.
The language of subsection (p) expands upon the
procedures currently applicable to securing protection
against damages insofar as those procedures relate to
shallow natural gas exploration and development
activities:
[The sectional analysis goes on to discuss subparagraphs (1)(A),
(1)(B), (2)(A), and (2)(B), as well as subsection (q).]
MR. VANDERKOLK paraphrased the sectional analysis for Sections
10 and 11. It states [with Mr. VanderKolk's clarification added
in brackets]:
AS 31.05.125 and AS 38.05.177(n), added in 2003,
authorized the commissioner of natural resources to
approve a waiver of local planning authority approval
and requirements relating to compliance with local
ordinances and regulations if the Department of
Natural Resources clearly demonstrates an overriding
state interest. These provisions are proposed for
repeal [in this bill]. In the same 2003 vehicle that
added these provisions, language adding section 7 to
the bill's legislative findings was inserted. The
amendment made in bill section 10 reverses that
addition.
MR. VANDERKOLK offered to answer questions, noting that there
was a lot more background material as well.
MR. WRIGHT pointed out that Representatives Gatto, Seaton, and
Stoltze were present and could answer questions.
Number 1156
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, cosponsor
of HB 395, told members:
These are corrective actions that we're trying to
take. What has happened is, the shallow natural gas
regulations went forward under one set of ideas, that
is, rural development, shallow in nature, ... with
very streamlined regulations, ... extremely
streamlined. And at the time, the thought was that
these were going to be small wells that were going to
be ... water-drilling kind of rigs that would be in
place for less than a week on a pad.
And what has happened is that this has morphed beyond
what anyone really intended. ... Actually, the
language, as it came out, ... it turned out that DNR
was not able to consider public comments ... that were
offered, by statute. And DNR was not happy about
that, ... and no one else was - ... those unintended
consequences. ...
Also, the reason we are putting back in the 3,000 feet
is because what is happening in the Homer area is that
this is turning into a conventional gas play, not
water well-size rigs, but ... full-blown rigs to full
depth - if anything can be shown to exist about 3,000
feet - and ... these large rigs could be in place for
extended periods of time with directional drilling,
et cetera.
So ... what we're trying to do is get back with these
provisions so that the best interest of the state is
again considered. And ... we're not saying that
anyone intended to make this happen, but it was an
unintended consequence of looking at a rural situation
and trying to develop energy sources, and then having
that applied in [an] urban area. And ... that's been
the frustration that's come forward.
Number 1300
REPRESENTATIVE HEINZE asked where language about the reasonable
justification to cross someone's land is found in the bill.
MR. VANDERKOLK said its Section 7.
REPRESENTATIVE HEINZE asked how "reasonable" is defined.
REPRESENTATIVE SEATON explained:
What we're doing is trying to get some balance back in
the situation here. This is relating to a surety
bond. If there is a lease and a surface holder who is
not the subsurface holder, and ... we've leased the
subsurface rights, there's supposed to be a surface-
use agreement.
The way it works right now is if the surface holder
and the subsurface right holder can't come to an
agreement, the subsurface right holder goes to the
commissioner of DNR, and the DNR's only ability is to
say, "Okay, what absolute damages are [there] going to
be, by drilling in this person's front yard or their
backyard or in the schoolyard, or wherever this
drilling happens to be," and posting a bond for the
physical damage that would occur and the
rehabilitation of that piece of property. What isn't
related here is, is it necessary for the company to
use that person's front yard when there's 15 acres of
undeveloped land sitting right next to it.
REPRESENTATIVE SEATON went on to say that the oil leaseholder
has to just demonstrate to the commissioner of DNR that it's
reasonably necessary or convenient to use that particular piece
of ground to put a drilling rig or compressor station on, and
that there aren't other reasonable sources. Reporting that this
language is taken right out of the current statute, he said it
gives the commissioner some flexibility to weigh and consider
the surface use and the subsurface rights.
REPRESENTATIVE SEATON concluded by saying state law and the
constitution obviously allow for the subsurface right to have
precedence. This brings it back to DNR so [the commissioner]
can balance it and ask whether that particular piece of ground
is needed for "access to the subsurface rights that we've given
you." Noting that those are the criteria of "reasonably
necessary and convenient," he said that's all the mineral right
holder would have to show to the DNR commissioner and then the
surety bond would be (indisc.).
Number 1509
REPRESENTATIVE HEINZE remarked that in the past there have been
DNR commissioners who were "friendly to development" and some
who weren't. She suggested that there is a precarious balance
and that it's a lot of power to put in one person's hands.
REPRESENTATIVE SEATON responded:
We didn't want to bring this out and try to balance
weights. What we did want to do was give some
discretion to the commissioner of DNR to consider
whether it's reasonable and necessary for them to use
that particular piece of property. ... So this just
throws in some consideration, and the commissioner of
DNR, whose responsibility is for developing our
natural resources, is going to do that.
But like I say, ... you might have a piece of ground
and you might have a canyon and acreage on the other
side of that ground that's available. Well, it would
be very inconvenient for the oil company or gas
company to come in and have to cross a canyon to do
that. So I would presume DNR would say, "No, you've
shown me that it's reasonably necessary and convenient
for you to use this person's front yard." But it
could also be the situation in which you have many
vying pieces of property around and for some reason, a
driller - not the ones that we know right now, because
the ones that we know right now are fairly responsible
- could come in and say, "I want to put it in your
front yard ... just because I want to put it there."
And the way the law is written right now, the
commissioner of DNR, ... all he does is say, "Well,
the rehabilitation amount for having that in your
front yard is going to be this, and the surety bond,"
and you have absolute right to put it there without
any consideration to the property owner.
CHAIR HEINZE remarked that it troubles her.
Number 1630
REPRESENTATIVE KERTTULA requested an explanation at some point
of how "reasonably necessary or convenient" is interpreted and
will be applied. Noting that it is broad, she expressed concern
that it doesn't say "and convenient".
Number 1695
CHAIR KOHRING cautioned against having any legislation that
moves out of this committee hinder the industry, but also
highlighted the need to make sure there are adequate protections
for property owners. Offering his belief that a lot was
accomplished last year with HB 69 [which he sponsored] in terms
of streamlining the permitting process to encourage resource
development, he advised members, "As opposed to rolling back
what we did, I'd like to just look at this whole effort here as
a way to add protections."
CHAIR KOHRING announced a tentative plan to roll HB 395 and
HB 420 together in the near future. [HB 395 was held over.]
HB 420-SHALLOW NATURAL GAS RECOVERY ACTIVITIES
[Contains discussion of HB 69, which became law last year, and
HB 395]
CHAIR KOHRING announced that the next order of business would be
HOUSE BILL NO. 420, "An Act relating to recovery of shallow
natural gas; and providing for an effective date."
Number 1821
CHAIR KOHRING presented HB 420 on behalf of the House Special
Committee on Oil and Gas, sponsor. He said this legislation is
in response to concerns that coal bed methane drilling could
have a negative affect on waters such that water sources could
be depleted. However, the industry contends that given the
depths of most coal bed methane drilling, the water quality or
quantity wouldn't be impacted. Due to these concerns, this
legislation establishes a water well fund.
CHAIR KOHRING explained that if any drilling that occurs within
1,500 feet of any water well causes the water well to be
compromised, a claim could be filed by the affected property
owner. As a result, the replacement well could be paid for by
this fund. The fund is [established] through a $0.01 charge per
20 mcf [thousand cubic feet]. The fund is capped at $250,000
per drilling operation. This legislation specifies that the
driller would be afforded a refund once drilling, production,
and reclamation has occurred. Therefore, this legislation
offers protection for the property owners but doesn't discourage
the drillers because of the refund.
Number 1960
ERIC MUSSER, Staff to Representative Vic Kohring, Alaska State
Legislature, noted that an amendment is necessary to clarify how
that exaction fee is calculated using mcf for which the unit of
measure is thousand [cubic feet] rather than million [cubic
feet].
Number 2006
REPRESENTATIVE McGUIRE moved that the committee adopt
Amendment 1 [which would change the reference to "million" on
page 3, line 7, such that it referred to "mcf" because the unit
of measure is thousand cubic feet]. There being no objection,
it was so ordered.
MR. MUSSER explained that the fee in HB 420 would amount to
about $29,000 a year and thus it would take approximately eight
to nine years, assuming that there are approximately 800
producing wells. He noted that the aforementioned is modeled
after the old producer exaction fee of a nickel a barrel that
existed for several years.
REPRESENTATIVE McGUIRE asked if the shallow gas company is
required to post a bond; if so, why would this legislation be
necessary?
Number 2136
MR. MUSSER agreed that a bond is required. However, the public
testimony heard in the Matanuska-Susitna ("Mat-Su")] area
highlighted the biggest concern of residents, that they were
forced to hire legal counsel to go after the bond. Furthermore,
there were concerns with regard to lengthy delays to replace a
well. Therefore, this legislation precludes those obstacles.
He pointed out that there is a presumed liability provision in
HB 420 and thus if a permit is obtained by a company, this
legislation requires the company to give 30 days notice before
entering a premises. When that notice is received, the owner
would have the responsibility of testing the well. Once
[drilling] activities commence and months later the well goes
dry, the legislation allows a direct vehicle provided the well
owner has tested the well.
REPRESENTATIVE McGUIRE inquired as to how one proves that a well
is impacted due to drilling activities.
MR. MUSSER responded that it's presumed drilling activities are
the cause of problems that a well is having after drilling
activities have occurred within 1,500 feet. Under such
circumstances, he said the well would be replaced.
REPRESENTATIVE GATTO remarked that one wouldn't want the driller
to [have to replace a well] because the pump went out. He asked
if the driller would face [responsibility] if a well went bad
after an earthquake. He also asked if the driller would face
[responsibility] if a well went bad because the water seems to
be half the volume is once was. Therefore, Representative Gatto
asked if any consideration has been given to involve an
arbitrator or does the well owner need a well log prior to
[drilling activities commence] in order to determine the depth,
volume, and strata as it went down.
MR. MUSSER answered that certain components of that have been
considered. This legislation speaks to replacement. Certainly,
he said this legislation doesn't govern a situation in which
one's pump goes bad. Furthermore, this legislation doesn't
address the event of a natural catastrophe. This legislation
specifically addresses a well going dry after the start of
drilling activities, but one must have tested the well with
regard to flow, quantity, and quality prior to drilling.
REPRESENTATIVE GATTO surmised, then, that the homeowner should
have a water quality report done that identifies the hardness,
chemicals, and iron of the water. He inquired as to the
arrangements [with regard to testing the well water] before the
well owner is asked to obtain testing.
MR. MUSSER directed attention to page 2, lines 17-19, which
requires that a landowner receive written notice that activities
will take place. It requires that the owner test the well with
regard to purity, form, and flow. In response to Representative
Holm, he explained that Amendment 1 would remove the word
"million" on page 3, line 7, and insert "mcf per day". He
confirmed that the fee would be a penny for every 20 thousand
cubic feet per day.
REPRESENTATIVE HOLM related his understanding that the state
would say [the property owner] doesn't own the subsurface rights
and thus [the property owner] wouldn't be paid but would have to
test the well. Therefore, if there is a change after drilling,
there would be substantive proof that something has changed. He
inquired as to why the drilling company isn't being required to
pay for water quality tests of any wells owned by those within
1,500 feet of the drilling.
Number 2559
MR. MUSSER answered that [such a requirement] would be left to
the will of the committee. However, he related his
understanding that the majority of well owners test them
periodically anyway.
CHAIR KOHRING noted that Representative Holm's suggestion is
something to consider.
REPRESENTATIVE HOLM said that since the state has taken away the
subsurface rights from the people of Alaska, then it seems that
a positive approach would be taken.
CHAIR KOHRING clarified that taking away the subsurface rights
from the people of Alaska was the result of the state's
constitution upon Alaska's statehood. Therefore, the state is
bound by that, although it has created some problems. Chair
Kohring related his personal opinion that he would like for
subsurface rights to be granted [to the individual].
Number 2661
REPRESENTATIVE SEATON surmised that this legislation will mean
every well owner [within 1,500 feet of a drilling operation]
would have to obtain special testing within 30 days of the
notification. Representative Seaton remarked that testing for
purity and flow and maintaining testing records isn't a normal
well log that a residential well owner would perform.
REPRESENTATIVE SEATON related his understanding that with coal
bed methane, it would probably result in four wells per square
mile, and 1,500 feet would be merely a third of a mile.
Therefore, he said, leasing in the Mat-Su Valley under the
spacing suggested by the companies, every single person in the
Mat-Su Valley leasing area of the development would have to test
his or her well. The aforementioned places a significant amount
of cost on the surface owner so that the surface owner could be
able to claim damages. He agreed with Representative Holm about
possibly looking at that.
Number 2763
REPRESENTATIVE HEINZE said merely suggesting that a base line be
formed creates the fear that [the drilling companies] are going
to come in and cause problems for wells. Therefore, care must
be taken in crafting a message that balances the people of
Alaska and the [drilling] companies.
REPRESENTATIVE KERTTULA turned to page 2, line 23, which
specifies that the standard is that "the activities appear to be
probable". She commented that she'd never seen [such a
standard] and expressed the need to see how that would be
interpreted.
MR. MUSSER pointed out that the [standard] language was taken
from existing statute relating to surface mining activities in
Title 27. In response to Representative Kerttula, Mr. Musser
acknowledged that the aforementioned statute is old.
CHAIR KOHRING related that the legislation is sort of an outline
of a concept and the meeting has generated some good points,
which he indicated would be incorporated to improve the
legislation without [discouraging] development. Chair Kohring
noted the presence of former lieutenant governor Red Boucher.
REPRESENTATIVE HOLM asked if lateral drilling can be done for
coal bed methane.
Number 2979
JACK EKSTROM, Director, Government Affairs, Evergreen Resources,
Inc. ("Evergreen"), explained that the practice of horizontal
drilling is gaining in its economic viability. It is not
something that Evergreen has done in the Raton Basin [in
Colorado] where its base of operations is. He said the
technology continues to improve, and it may become economically
viable in Alaska in the coming years. He added that coal bed
methane technology has evolved so rapidly, it's very difficult
to say "it would or wouldn't."
MR. EKSTROM explained that 10 years ago, Evergreen had zero
reserves in coal bed methane and there was very little
production in the United States, although now it accounts for
8 percent of all natural gas produced in the country. It came
on very rapidly, and a lot of mistakes were made in the
beginning that were corrected over time. Mr. Ekstrom said
horizontal drilling technology and [the practice of] drilling
multiple wells from one pad is being done in western Colorado,
where Evergreen is beginning operations.
TAPE 04-1, SIDE B
MR. EKSTROM said horizontal drilling is kind of a cutting-edge
thing that's being refined as time goes on. He said he is very
hopeful, but it is difficult to say if it would apply in Alaska
until some kind of commerciality is developed. Suggesting
Evergreen would be using conventional technology and
unconventional gas, he remarked, "I think that's from the
outset, but I have high hopes for that technology."
REPRESENTATIVE HOLM said he'd mentioned horizontal drilling
because it has to do with water quality.
CHAIR KOHRING said he thought directional drilling would
alleviate any concerns about drilling occurring in people's
backyards, which he doesn't think is ever going to happen. He
said he didn't think DNR would ever issue a permit that would
allow [drilling in people's backyards] or on school grounds, and
he remarked, "That has been overblown a lot in this whole
argument."
MR. EKSTROM stated that Evergreen has never done that, and never
would.
CHAIR KOHRING said Evergreen has been very responsible, which he
appreciates, and has been a model company. He said he thought
directional drilling would greatly minimize that prospect.
Number 2907
REPRESENTATIVE GATTO asked Mr. Ekstrom if Evergreen has a
competitor that uses directional drilling or if he knew of
anyone who is directional drilling for [coal bed methane].
MR. EKSTROM responded that Evergreen doesn't have a competitor
that does directional drilling in the Raton Basin, where it
operates. He said Evergreen views all natural gas producers,
ultimately, as competitors. He remarked, "Friendly competitors
in most cases, people with whom we join in common interest on
many issues." Mr. Ekstrom said it's a different kind of
geologic or surface scenario that allows for that kind of
technology, the particular geology where Evergreen Resources
operates is not conducive to the present horizontal drilling
technology. It is less economic because Evergreen doesn't have
surface use problems in the Raton Basin; it drills the wells
fairly quickly and fairly cheaply.
MR. EKSTROM said the wells are drilled in about a day. He said
there isn't any compelling reason for Evergreen to do that, and
in ecologically sensitive areas he could see how [horizontal
drilling] would be desirable, but Evergreen has had no problems
in the Raton Basin. Furthermore, Evergreen's economics are very
strong in the way it is doing it and it doesn't have a
compelling reason to move to that technology. He commented that
it would pretty much be a financial consideration rather than
any other kind of consideration.
Number 2829
REPRESENTATIVE SEATON said he appreciates the idea of improving
[legislation] relating to water wells, although who is
responsible for doing the testing might be questionable. In
addition to testing, he said [homeowners] need to have water
rights. Furthermore, he said [homeowners] have to file for
water rights on water wells, because even if the water is
tested, if the [homeowner] hasn't filed for water rights, there
is no compensation. This is a definite improvement because it
is not requiring [homeowners] to have filed for water rights for
personal wells, he remarked.
CHAIR KOHRING thanked Mr. Ekstrom for Evergreen's continued
faith in Alaska and for its desire to want to stay in the state.
There have been companies that have intended to invest in
Alaska, including in the Mat-Su Valley, that were literally
driven out because those companies didn't want to deal with the
criticism and the uproar that occurred, he explained.
Number 2736
CHRIS WHITTINGTON-EVANS testified. He asked if the committee
would consider taking further public testimony for both bills
when other committee members are present.
CHAIR KOHRING answered yes. He said these bills are in the
initial stages and there will be some changes. It is likely
that the two bills will be combined, and at that point, the
committee will allow additional testimony, he noted.
MR. WHITTINGTON-EVANS explained that he lives on Lazy Mountain,
adjacent to a shallow gas lease. He characterized himself as a
small-business owner in Palmer who has served on the board of
Lazy Mountain's community council, and is currently serving as
the board president to Friends of Mat-Su (FoMS), a local
nonprofit organization citizens' group that promotes land-use
planning and responsible development. It currently has 300
members. He said FoMS has been very active in the coal bed
methane equal lease issue over the last six months, educating
themselves and the community about potential costs and benefits
of these programs.
MR. WHITTINGTON-EVANS said it was brought to his attention last
week that there are 12,396 parcels in the Matanuska-Susitna
Valley with coal bed methane leases on them. About 96 percent
of those are privately held parcels that represent a value of
approximately $815 million in taxable value. He said people
care about this issue a great deal and about the legislation
before the committee, which attempts to fix some of the
egregious problems with the current gas-leasing program.
MR. WHITTINGTON-EVANS said two resolutions passed in his
community council encourage both the buying-back of existing
leases and the creation of an exclusion zone around the
community to keep shallow gas [leases] from occurring there in
the future. He noted that he had recently attended one of five
public work sessions that DNR is sponsoring to help create
recommendations for new rules governing coal bed methane.
Number 2565
MR. WHITTINGTON-EVANS said there were about 200 people at the
work session who spent about four hours grappling with the
inherent conflicts resulting from this program that is offering
gas leases under private homes, neighborhoods, schools, and
watersheds. He turned attention to HB 420, and he said it is
felt that this legislation in its current form is doing little
to protect property owners. The notification requirement called
for is already in policy within DNR, and greater notification
measures are going to be necessary from the public's standpoint,
he suggested. Proper notice would include actual written
notification to property owners prior to leasing being done, he
said not prior to [the land] being entered and drilled upon.
Suggesting the exaction provision is inadequate and encourages
litigation, he said several aspects of the bill are undefined
and incomplete. For instance, the testing of wells must take
place in a reasonable timeframe after notice is given, and at
the public's own cost.
MR. WHITTINGTON-EVANS suggested the costs would probably be in
excess of $5 million for the 11,000 people who have private
parcels and wells on those parcels in the Mat-Su Valley that are
currently being leased. Other adjacent owners meanwhile would
go unnoticed under this legislation and would be unable to know
if they needed to test their wells and therefore wouldn't have a
claim. Furthermore, collecting for damages still falls on the
property owner to prove, and is a huge burden for individual
citizens to employ the expertise and to argue such a case. He
said that few litigants in other developed basins have been
successful with doing this, and he recognized that the
commissioner would make that determination, but the language
"may" should be mandatory and not left up to interpretation.
Mr. Whittington-Evans said this bill is currently inadequate in
covering damages, is unnecessarily litigious, and does little to
provide any new notice to affected property owners. He stated
that FoMS does not support this bill in its current form.
Number 2467
MR. WHITTINGTON-EVANS, turning attention to HB 395, said the
bill represents a good first step, and is something that can be
"put on the table" and discussed. He said there are several
provisions within the bill that deserve mention. With regard to
Sections 5, 7, and 8, he said HB 395 needs to grant DNR the
capacity to regulate coal bed methane development and ensure
that surface use agreements and maturity bonds are negotiated
before a lease is granted to protect the owners negotiating
position. He explained that HB 395 should also contain
provisions to give surface owners adequate opportunity to seeks
and receive court damages without risking litigation costs.
Bringing attention to Section 1, he said HB 395 takes a step
toward protecting [drinking water] by allowing the state to
regulate the reinjection of wastewater. However, he said this
bill should require, not merely allow, the state to regulate the
injection of water below the known subsurface drinking and
agricultural supplies.
MR. WHITTINGTON-EVANS said the bill should also go further and
ban the use of toxic hydraulic fracturing fluids in Alaska.
Turning attention to Sections 2 and 4, he said HB 395 does add
limited public process requirements on leasing and development
by extending the newspaper requirements and local government
notice. However, he said in the work sessions being conducted
in the valley, the public is overwhelmingly asking that the
state notify individual landowners by mail, so that there aren't
communication conflicts and gaps, because if a property owner
does not get a newspaper or look in the right place in the
newspaper, that person would miss notification that his or her
land could be leased. A more formal process with safeguards to
address public concerns and provide for public hearing should be
a part of that, he said.
MR. WHITTINGTON-EVANS, turning attention to Sections 10 and 11,
he said HB 395 repeals some of the more controversial provisions
of HB 69, which FoMS and the local government would appreciate
and support. However, he said the bill could be improved by
giving local municipalities the full authority to provide
neighborhood setbacks, health and safety safeguards, noise
abatement, and help with some of the safety and health issues
that have been brought up. It really should be in the hands of
the municipalities to do that, he stated. Mr. Whittington-Evans
suggested that other states are looking at this issue (indisc.)
litigated with industry, and have found that local government
ought to have that jurisdiction to be able to take control of
those issues. Referencing Sections 3 and 6, he said this would
grant rental fees to surface owners for companies siting wells
or compresses on their land. Without a best interest finding
preceding it, he said this approach pits neighbors against one
another granting rent to those landowners willing to sacrifice
the use of their land without protecting adjacent landowners.
MR. WHITTINGTON-EVANS said for example, if a landowner who
didn't have a home or a substantial investment in the land he or
she owns were to find the rent an interesting idea and want to
receive rent for that, this would open up the possibility that
landowner would be able to take rent and help pay for that land.
However, adjacent landowners wouldn't necessarily be receiving
anything for their damages or for the noise of a compressor, for
instance, that would bothersome because his or her home is
nearby. Noting that he is skeptical about the compensation in
the bill, he said he thinks that needs to be thought out a
little bit further. There are obviously some loopholes closed
within narrowing the definition of coal bed methane and the
depth at which it is done, he said. Especially for those tracks
in Homer where conventional gas is being looked at and for
elsewhere in Alaska where this would probably be done. He said
this provision is excellent and well thought out.
MR. WHITTINGTON-EVANS said Mat-Su citizens are concerned about a
few issues that are not addressed in HB 395, for example, a buy-
back of existing leases to ensure equal application of this new
legislation coming forward for all areas of the state. Also,
the application of traditional oil and gas development standards
to coal bed methane development including a best interest
finding. Another concern, he said is for a requirement that the
Mat-Su borough has asked for in resolution for baseline studies
to be conducted and paid for by the state with respect to water
quality, which would address some of the issues brought up in HB
420, and for methane seepage as well, with the eye on public
health and safety.
Number 2159
ROBIN McLEAN testified. She said she is a resident of Sutton
and a member of the Sutton community council, which has been
working closely with the Buffalo Mine community council located
in Representative Harris's district. She thanked Representative
Harris for his concern and for helping his constituents in the
area. Calling attention to HB 395, she said [the community
council] is very happy to see this bill and the work that is
being done. Noting that there are a lot of good provisions in
the bill, she said the hope is that some things can be added
that will satisfy some of the citizens concerns, and she urged
the committee to act on the bill sooner than later. Indicating
that residents are very happy to see that the reinjection of
water may be required, she recommended that be a mandatory
requirement since it was learned from the USDS [United States
Department of State] that the water recharge for wells in the
Mat-Su area is 25 years.
MS. McLEAN said in ensuring the safety of water over time, after
the drilling operations are over and after the bonds are gone,
it is felt that reinjection is the safest way to deal with the
water and put people's minds at ease. Additionally, she said
the [community council] agrees that since it is known that
Evergreen and other companies can do fracturing with nontoxic
materials, its hope is that the state would ask that only
nontoxic fracturing fluids be used in neighborhoods.
MS. McLEAN said the community council is in support of and has
passed resolutions asking for hydrological, geological methane
(indisc.) studies prior to any drilling in neighborhoods and in
areas where residents live, have investments, and have property.
The hope is that the committee will consider a buy-back of the
leases or a buy-back mechanism once these studies are done, she
said. Ms. McLean mentioned that [the community council] had
been told through borough assembly work sessions with AOGCC and
with geologists, that there are some areas that are simply
geologically unsound for coal bed methane development.
Number 1980
MS. MCLEAN said given those facts and studies, the hope is that
some areas can be determined to be not suitable and then bought
back through the reasonable assessment of science on a case-by-
case basis. Furthermore, she said [the community council]
supports the notion of increasing public notice for leases prior
to leasing. The overwhelming consensus of property owners is
that individual property owners must be notified in person of
the leasing, she explained. In thanking the committee, she said
the public forum is appreciated and is thought to be a step in
the right direction. Furthermore, she said the feeling is that
the reversal of the local control override from HB 69 is a very
positive step that the community will support strongly. The
various property rights provisions having to do with noise are
thought to be very good, but need to be more specific in the
legislation, she said. Ms. McLean said the hope is that good
things will come out of this process.
CHAIR KOHRING provided the public with his contact information.
Number 1851
SETH LITTLE, Legislative Coordinator, Alaska Center for the
Environment (ACE), testified. Mr. Little said ACE is Alaska's
largest homegrown conservation organization with over 8,000 due
paying members statewide and it is glad to hear that this is an
open and honest debate on how fast to act to fix the problem
with a system that is presently broken. The oil and gas
committee is the correct place to make these changes and have
this open debate, he said. Mr. Little suggested that HB 395 is
an appropriate vehicle for members of this committee to begin to
resolve the coal bed methane mess that resulted after last
year's ill-conceived coal bed methane legislation - HB 69.
Alaskan's across the state need this committee to act to provide
relief, he stated.
MR. LITTLE urged the committee to review the bill provisions
carefully and amend it as suggested by the public. Suggesting
HB 420 isn't a productive piece of legislation in its present
form, he said it doesn't provide for previous notification to
landowners and puts the burden of proof on landowners to protect
themselves, should they be negatively impacted by development.
While ACE recognizes the need to develop the states resources
for the benefit of all Alaskans, he said it also understands the
need to do it responsibly, which means that it must not impair
the environment, and should pay its own way and have local
support. Mr. Little said the state's economy and its residents
depend on the health of the its unique environment. Coal bed
methane in Alaska is a statewide issue, he said; it's not an
urban or a rural issue.
MR. LITTLE said leases have been issued in the Mat-Su Valley,
the Homer area, and other areas of the state including the
Holitna Basin, Healy, and Kateel Meridian, which including the
Red Dog Mine have been identified as future coal bed methane
"hot spots." In actuality, he said, most of the state's
subsurface rights for coal bed methane are open for lease
applications on a first come, first served basis. What is being
seen is a fragment approach to dealing with a broken system, he
said. He suggested that the state should have a statewide buy-
back, start from the beginning, and do it right, which he said
would require AOGCC to regulate the industry properly and
require DNR to develop regulations for development, not just
guidelines. Coal bed methane development is much more than a
drilling pad and a pump station, he said, development turns into
production, and the completed infrastructure will take a toll
with compounding effects on Alaska's unique resources.
MR. LITTLE said wildlife habitat will be fragmented from roads
and pipelines crisscrossing the landscape to access well sites,
pump stations, compressor facilities, and power stations.
Furthermore, fish streams could be damaged by crossings and
siltation from road construction. Dust will impair air quality
from increased traffic and off-road vehicle access on new roads
and pipeline easements will then keep increased pressures on the
state's fish and wildlife habitat, he said.
Number 1662
MR. LITTLE said with the elimination of the best interest
finding requirements, it is expected that there will be no
analysis of the adverse environmental and social impacts from
coal bed methane development. He encouraged the committee to
have the best interest finding as a requirement, and he said
while most of the attention so far is focused on impact to
private property, as most of the leases have been issued
underneath private property, public lands are also at risk.
Those who recreate on state public lands could be affected by
the infrastructure that the production of coal bed methane will
bring, he said, and there are already leases in the Mat-Su
Valley area, below Hatcher pass, which is a very popular
recreational site for most valley and Anchorage residents. He
thanked the committee for the opportunity to comment on this
legislation, and he urged the committee to take a good look at
these two bills in its attempt to combine them. He noted he was
glad to hear that the committee would be keeping public
testimony open for further comment.
Number 1586
REPRESENTATIVE ROKEBERG said he didn't quite understand why the
committee should require a best interest finding for shallow gas
when [the legislature only requires] an updated existing best
interest finding for conventional or deeper gas in Cook Inlet,
based on the area wide leasing concept. He asked Mr. Little to
justify why the committee should have a best interest finding
for shallow gas as opposed to conventional gas.
MR. LITTLE offered to look into the question further and provide
Representative Rokeberg with a response.
REPRESENTATIVE ROKEBERG said he wasn't sure people really
understand the scope of what a best interest finding is. It
sounds good, but the work product and what has to be invested to
create a best interest finding that meets the standards are
really quite substantial, he said. Explaining that is one of
the reasons that was not part of the initial shallow gas
concept, he said it was felt that it would be an enormous
barrier economically on a regulatory basis, but it's not to say
there shouldn't be some sideboards. He said when using the term
"best interest finding," people should understand what it means.
Number 1494
CHAIR KOHRING asked Mr. Little to recognize the good things that
HB 420 represents and that the bill is not forcing anything on
property owners. It is establishing a fund that dollars can be
drawn from to replace a well, which is the main "thrust" of this
legislation, he said. The committee is here to work through any
minor flaws that might exist in the legislation. Chair Kohring
said the concept is to create a fund that would replace water
wells that would potentially, albeit unlikely, go bad in the
future.
MR. LITTLE, turning attention to HB 420, said it is his
understanding that the burden is on the landowner to get his or
her water tested prior to drilling commencing - after the
landowner has been given a 30-day notice. He said he realizes
that the bill is a beginning attempt to look at how to address
this, and he understands that, but it is a reality that
landowners will then be incurring that cost. He said
Representative Holm suggested that maybe companies that are
going to be drilling near homes should be paying for those
studies.
Number 1347
DOUG STARK, Ph.D., testified. He said he thinks HB 395 is a
good bill and he is favor of it. With regard to HB 420, he said
he is interested in the well quantity and quality, and it is
unreasonable to have the homeowner come up with those data. A
reasonable way is to use any data that the homeowner has from
the time the well was drilled to establish the quantity and
quality of the water, he suggested
Number 1275
JOHN NORMAN, Commissioner, Alaska Oil and Gas Conservation
Commission, testified. Noting that he would submit written
testimony on HB 395 and HB 420, he remarked:
I had just a few quick thoughts on [HB 420]. There's
a reference to the fund to be established, and it
references 43.57, which is the old oil conservation
fund. ... There may be some historic artifacts out
there in legislative history that by reusing this
would create some confusion, and so it might be better
to fix [AS 43.57.020], but that's really a matter of
how legislative drafting wants to codify it.
The ... statute talks about "the commissioner may
pay", and that implies discretion, and perhaps ...
that might answer the question about who determines
this. If that were changed to "shall", then it would
make it a little more mandatory. Before the section
where it says shall pay the "owner for the costs", it
may be advisable to put in ... "reasonable costs" to
put some objective standards as opposed to whatever an
actual cost might be that might (indisc.) landowners.
Continuing on the next page, there is a line that
begins: "well, and the activities appear to be
probable hydrologic". And I think activities might be
clearer if it picked up the ... introductory wording
of "contamination or alteration", so that it would
read "and the contamination or alteration appears to
be probable hydrologic consequences of the lessee's
activities". ...
We had some other questions concerning the fund
itself. It appears that it's to be built up to a
total of one quarter of a million dollars, but then it
does provide for refunds, apparently, on a lease-by-
lease basis. ... What we were going to do is ... run
out some numbers and then we'll alter those to you in
our commentary, and certainly the other speakers have
pointed out the 20 thousand mcf. ...
Finally, ... a question about the concept of a
refunding policy versus just creation of a fund: It
clearly would declare more adjudication to track a
fund and then refund the money paid into it, as
opposed to just having a surcharge, but the commission
will think this through more than I have had time to
do now, and then we'll try to offer you a considered
opinion concerning how that might work.
Number 0960
MIKE McCARTHY, Kachemak Bay Property Owner's Alliance
("Alliance"), testified, saying he is representing over 800
members of the Alliance and is a constituent of Representative
Seaton. Noting that he is a retired, registered hard-rock
exploration geologist, he said he has practiced in Montana,
Nevada, Arizona, Idaho, and Oregon. He mentioned that he has
been a resident of Homer since 1997. He remarked:
When I attended the DNR hearings, I was, as well as a
number of the audience members, extremely upset at the
fact that I became a second-class citizen by virtue of
the fact that I was denied due process of
notification. ... I would like to direct your
attention to the aspect of the bill that sets a lower
standard for the State of Alaska than the federal
government has.
Namely, the federal government Minerals Management
Service (MMS) has to notify, in writing, all persons
affected by potential areawide leases. The state
should have the very same standard, that being written
notification by mail to all property owners of record.
I think that should be [the] number one priority.
Secondly, ... I've got a little bit of broken thought
here because of the fact that I wasn't necessarily
planning on addressing [HB 420], but I'll incorporate
that and I'll also follow this up with more detailed
written comments.
Number 0827
MR. McCarthy continued by saying:
... As a ... retired geologist I dealt with mineral
leases. I was really shocked to learn that the State
of Alaska ... leased 22,000 acres for the trifling sum
of $28,000. That's $1 per acre. Outside states have
chastised their legislators for leasing land at $2 an
acre, so I don't know how this price was arrived at,
but it doesn't seem reasonable to me in view of the
funding problems the state is having. The resource is
worth more than $1 per acre.
The other thing is that $1 per acre doesn't come
anywhere near the cost of potential harm to individual
property owners in case of restitution. Going back to
the Homer DNR meeting, there was absolutely no mention
of methane hazards such as methane seeps that are
extremely prevalent in the winter. We have natural
methane seeps right now, but if you take and examine
your bill here, both [HB 395 and HB 420], you will see
there's no mention of pressures involved with
hydraulic fracturing.
It took me almost two months to find the figures; they
vary between 1 thousand and 10 thousand pounds per
square inch, and there is ... hardly any ground in
this area of the state that will tolerate those kind
of pressures without methane seeping through fractures
that are naturally incurring or induced by the
hydraulic fracturing pressure.
Number 0684
MR. McCarthy continued by saying:
... That is a very serious (indisc.) concern for the
folks here. To give you an example, just out of name
of the person that was burned yesterday. Talking to
one of the managers of Spenard Builder's Supply, his
mother is a personal friend of this person that was a
victim.
In about the late 50s, this individual was working on
maintenance in the hospital well, and he went in, and
they don't know if he flipped a switch or what it was,
but at any rate, he and the door blew out of the well
house. He received severe burns on his face and
hands. His ring had to be cut off.
That is a very real hazard, and people's basements and
crawlspaces are subject to the same sort of methane,
especially when it's subjected to hydraulic fracturing
pressures. Another point, regulation should be
statewide, and right now, the way DNR is approaching
the [Mat-Su Valley] is inappropriate.
We have statewide laws in effect for driver's
licenses, for water quality, [and] for air quality.
There should be standard safety considerations that
DNR develops across the state. The bond requirement
is insufficient to protect private property and
community drinking water; $500,000 will not cover the
loss of property or potential hazard costs for
landslides, mudslides, fires, et cetera.
Alabama has a statute regarding nontoxic fracturing
fluids, Alaska would be well advised to adopt that
standard. The pending bills do not help the private
property owner. They don't provide adequate notice
before property is leased. They don't require the
standards for regulating noise, setbacks, surface
restoration, or other qualities that would protect
water resources quality of life and the environment of
property owners.
Number 0489
MR. McCarthy continued by saying:
The money that is collected for this bond needs to be
increased substantially, because a five-year period is
a reasonable period that ... [HB 420] is dealing with,
but the money needs to be readily available over a
long period of time. ... As long as there's
production going on, a hydraulic fracturing process
can create well problems miles away, far more than
1,500 feet away from any given well.
Finally, ... as a final test for this legislation, I
would ... strongly suggest that the (indisc.) with
this test be what is best for Alaska. Public health
and safety concerns and quality of life should all
supercede corporate profits.
Number 0285
JEANNE WALKER testified. She said she owns property that's
leased, and she was very pleased to see HB 395 and HB 420 under
consideration. She said she didn't believe that these bills go
far enough in terms of adequate notification. One of the
reasons she has come to this conclusion is because of what
happened to her related to these leases, she said. Noting that
she and her husband bought a home in the Homer area last July,
she said the property had been leased in June for shallow gas
development and neither her nor her husband, the seller, or the
realtor knew the property had been leased. She said she
believes this happened because no notification appeared in the
local Homer paper, and because DNR is not required to record the
leases.
MS. WALKER suggested that the bill should go further by having
individual surface owners notified in writing before the land is
leased, and she said this could be done in a timely fashion, so
that the landowner could also participate in a comment period.
In real estate transactions, she said at least the surface owner
would know that the subsurface had been leased and then the
rules of full disclosure could apply. She said she thought the
bill should also require that DNR develop the regulations and
standards to review and possibly reject leases if the community
situation, the geologic or environmental concerns, or public
comments would warrant it. She noted she was disappointed that
HB 395 didn't include a buy-back of the Homer area leases.
Number 0050
REPRESENTATIVE GATTO asked Ms. Walker if she got a title report
when she bought her property.
MS. WALKER replied absolutely. She said she and her husband
understood that they didn't own the subsurface property and the
state did, but they didn't know the property had been leased for
shallow gas development. Furthermore, she said, they would not
have bought the property knowing it had been leased. Ms. Walker
said she and her husband aren't the only people in this
situation; she knew of at least two other property owners that
this happened to.
TAPE 04-2, SIDE A
Number 0001
MS. WALKER continued, saying, "Real estate transactions are not
occurring because people aren't willing to buy property, at
least at this time, until they have a better idea what these
leases will mean."
REPRESENTATIVE GATTO said he was just curious about whether the
realtor was aware of it and [whether] there were some disclosure
requirements. He went on to say he was fairly sure the surface
rights and the subsurface rights were separate, but just wanted
to know if the title company actually knew that and should have
reported it.
MS. WALKER replied that the title company didn't know that these
leases existed because DNR isn't required to record them. So
when normal title searches are done, title companies won't find
these leases. Additionally, since the community was not aware
that these leases existed, there wasn't another way for the
title company to know it either.
REPRESENTATIVE SEATON remarked:
The DNR recording these leases, I think, is a very
good suggestion; however, I just ... want to point out
... that DNR receives so little money from these
shallow natural gas leases that they ... didn't even
print maps. The only maps that have been printed are
ones that my office got the parcel numbers [for], and
the borough GIS [Geographic Information Systems]
department printed the maps so people could find out
... whose land was leased, because there's ... so
little value, there's no competitive bid in these
leases. ...
So I think it's a very good suggestion; I think that
we'll need to talk with DNR to figure out how [these
leases] should be recorded, but at least, then, people
would have the opportunity of investigating and
knowing ....
CHAIR KOHRING ascertained that the representative from Union Oil
Company of California (Unocal) was available for questions and
might speak on the bill at a future hearing.
Number 0284
MARK MYERS, Director, Division of Oil & Gas, Department of
Natural Resources, referred to HB 395, Section 1, [paragraph]
(3), regarding hydraulic fracturing. Noting that there is
regulation by [AOGCC], he said, "I just recommend that you do
talk to them about what they currently regulate and how they do
it." He also remarked, however, that that section potentially
needs further clarification as to intent, specifically regarding
the reinjection requirements related to hydraulic fracturing.
He added, "[I'd] maybe suggest that those be separate sections
in your bill, if you go that way. But, again, I encourage you
to look at the regulatory authority the [AOGCC] currently [has],
and work starting from there."
MR. MYERS turned attention to Section 3 [of HB 395], and said he
has concerns about limiting the depth to 3,000 feet. From the
standpoint of a geological, conservation, or physical weight
issue, or from the standpoint of maximum economic development,
limiting the depth to 3,000 feet doesn't make a whole lot of
sense, he opined. He said in general that both HB 395 and
HB 420 deal with a lot of different issues such as coal bed
methane development and shallow gas leasing, but these two are
not the same.
MR. MYERS explained that CBM is a specific method of producing
unconventional gas, and occurs on state leases and conventional
leases, and could occur in "exploration license areas," shallow
gas leases, and on private or federal lessees' property. Again,
he remarked, "this bill" links a lot of issues to the shallow
gas leasing program, but then attempts to deal with issues that
are specific to CBM regardless of the type of lease. Therefore,
clarification regarding when one is referring to the shallow gas
leasing program is important, he opined, because depth is not
really an issue when referring to CBM, nor does a depth
limitation make sense from a geological or reservoir or
production standpoint.
Number 0501
MR. MYERS turned attention to Section 4 [of HB 395], and
indicated that [DNR] is not opposed to providing additional
notice. He relayed that one of his concerns, however, is that
in some areas of the state, there are not "two newspapers of
general circulation in the vicinity" as is specified in the
bill; thus, in some rural parts of the state, it might be
difficult to comply with the bill's notification requirement.
He added: "You saw that when we put it in the Clarion ..., for
example, it wasn't enough ...; folks wanted it to noticed in the
Homer news. ... In retrospect, we'd put it in the Homer
newspaper; we were just trying to be efficient." Therefore, he
opined, the newspapers-of-general-circulation issue needs to be
"fixed." And with regard to notifying community councils, he
said that such notification is not a problem, but pointed out
that there is no standard for what constitutes a community
council nor is there a list of community councils; therefore,
that issue needs to be clarified. With regard to remedies for
noncompliance of the notification requirement, he asked whether
noncompliance would invalidate a lease or require re-
notification; although DNR supports the [concept] of providing
public notice, the bill is not yet clear about what happens to
the lease if a community council is not notified, for example,
because it is not defined.
MR. MYERS turned attention to Section 5 [of HB 395] and
reiterated that CBM activity can occur on "non shallow gas
leases." Therefore, he said by regulating under proposed AS
38.05.177(f), "you're just looking at a certain type of lease."
He went on to say:
When I look at [paragraph] (3) involving ...
appropriate setbacks: the "peaceful enjoyment"
standard is a difficult one. ... We believe that needs
to be clarified ... [because] one person's standard
for peaceful enjoyment is very different than
another's. The whole concept of agreeing and doing
reasonable measures to mitigate compressors at all
well sites, I think, is a valid point, [though] it may
be more appropriate to look at actual standards.
Most of these standards that you [see] in here are
standards already in the lease requirements
[stipulated in mitigation] measures, but you might
look at ... things like specific noise level standards
- certain decibels, et cetera - [and] certain specific
setbacks. A lot of that is being accomplished in our
process in "the valley," just from that experience.
We think maybe more specific, and then a better
definition of peaceful enjoyment or a standard that's
maybe more legally accepted.
MR. MYERS noted that the language in subsection (f)(5) of
Section 5 is similar to what is already in the [DNR's] leases,
but only applies to [AS 38.05.177] shallow gas leases. He
added, "It's in our conventional leases as well [as] in our
shallow gas leases." He noted that this is an issue also in
[areas] of the valley where 60 percent of the acreage is "non-
state." He reiterated, "You're applying a standard which ... is
basically a duplication of what already exists in the leasing
standard." That's fine, he opined, but it isn't getting at the
majority of the acreage in the valley.
Number 0784
MR. MYERS turned attention to Section 7 [of HB 395], and said
[DNR] doesn't have problems with "the bonding standard
generally," but the language in proposed subsection (k)(3)
details standards that [DNR] currently deals with in the plan of
operations, which occurs prior to the bond. He added, "In other
words, we're going to bond toward the activity. ... We have to
know what activity is there to set the bonding, so those
standards are set prior to the bond hearing, in the 'plan of
operations' permitting process." He noted that the standards
set forth in that process are higher than those proposed in
[HB 395]; hence his suggestion is to have the standards proposed
in subsection (k)(3) moved to the "actual committee process
rather than the bonding process," so that the landowner would
have more certainty "prior to the bond."
MR. MYERS said the definition of shallow gas leasing in
Section 9 is 3,000 feet, which he didn't think makes a lot of
sense from a geological standpoint. He said the [result] would
be physical or economic waste.
MR. MYERS turned attention to HB 420, Section 1, paragraph (3),
which reads:
(3) shall require the lessee to provide written
advance notice to the owner of initial entry onto the
property of the owner at least 30 days before initial
entry.
MR. MYERS said [the department] is fine with it, but there are
questions such as what constitutes notice. Does it have to be a
certified letter? He suggested it should be tightened up. If
there are multiple owners, is it the owner according to the tax
record? Is it the recorded owner? Is it unrecorded ownership?
He said that term definitely has to be cleared up as to who is
getting notified. Mr. Myers also asked what "initial entry"
means. Does it mean the first time [someone from the
exploration company] walks on [the land] or the first time an
operation is performed on the land? Does it occur every time
the property is entered, or only at one time?
Number 0959
MR. MYERS turned attention to Section 2, subparagraph (B), and
recommended that a few hydrogeologists look at it to determine
what appropriate distances are. He said he thought that
standard needs to be "tightened up" or legally strengthened. He
said a period of five years would be part of the technical
analysis, whether that would be accurate or not. Turning
attention to testing standards, he said he thought testing
should be for a specific standard. He said it's not really
listed as a standard. "That's pretty crucial as to what you're
testing for and what water (indisc.) it affects, in terms of the
water supply," he remarked.
Number 1035
REPRESENTATIVE SEATON turned attention to HB 420, Section 3,
paragraph (14), and said AS 38.05.177(a),(c), and (j) as well as
[AS 46.03.100](f)(3) and several other statutes refer to shallow
natural gas leasing at the 3,000-foot depth. He said under the
bill, that's the standard on what is being leased.
Representative Seaton said AS 31.05.170(14) and AS 46.04.900(25)
refer to the drilling depth not being more than 4,000 feet. He
said that's in current statute, but there seems to be some
conflict. Representative Seaton said the [committee] had been
talking about a conflict between a noncompetitive shallow
natural gas lease and a competitive bid for conventional gas.
He remarked:
If you went forward and there was a reservoir that you
could identify at ... 6,000 feet, and you wanted to go
forward with a application for an areawide lease sale,
and ... going after that gas ... - if someone else had
a shallow natural gas lease in the 3,000-foot range.
Is that going to give you conflict or do you think the
person that has the noncompetitive 3,000-foot lease
should just automatically be able to go after the
conventional deep gas as well without [a] competitive
bid.
Number 1196
MR. MYERS responded that fundamentally, because of the potential
conflict in (indisc.) rights between the owners, [the
department] will not competitively lease underneath or will not
[issue] an exploration license underneath a shallow gas lease.
He said there is a huge amount of potential for conflict between
the mineral rights, and there's no easy way to do it. He
remarked:
The gas below it is pretty much stranded or (indisc.)
unusable. If they were to produce it - and that's the
problem with it too - as you go out away from the well
bore, and the surface of the land changes in height,
the ... geology of the reservoir underneath doesn't
change laterally the same way the surface does. The
surface in the underlying rock (indisc.) are not in
parallel necessarily.
... What happens is that you go in and out of the same
reservoir and you could physically be draining part of
the reservoir below 3,000 feet, just because laterally
you move over, and compared to surface depth, true
vertical depth, you're now deeper. ... It's a huge
problem that we have. ... Since we haven't any
production of this program, it hasn't been a problem
but it leaves a huge management problem, and we really
don't have a good answer.
... I think for the sense of regulating the activity
3,000 or 4,000 or even 5,000 feet makes no real
difference technically. You should (indisc. - paper
shuffling) protection of the groundwater system for
coal bed methane activities regardless of that depth
requirement and the same way with conventional gas.
So this really is a production technique we're looking
at, not the depth that gets at what you're trying ...
to fix here.
The same way a surface owner - I don't think we could
see much difference in the effects of a well drilled
at 5,000 feet adjoining his land versus one drilled at
3,000 feet. You still have the wellhead. You still
have the same ... type of equipment there.
There are differences in equipment between coal bed
methane wells ... regardless of their depth and
conventional wells, and that can be taken into account
in the regulatory scheme but fundamentally the depth
... - I understand we have a conflict in mineral
rights - but the depth in terms of regulating the
activity really isn't the issue.
Number 1335
REPRESENTATIVE SEATON remarked:
With the conflict in the reservoir and ... actually
going deeper - being able to drain deeper. Would it
be your sense that we really ought to get back to
saying that when you're leasing gas in an area, you're
really going for ... a regular gas lease, ... instead
of this artificial shallow natural gas lease, and that
we should really be operating under a ... conventional
gas lease program. ... If somebody is exploring
shallow natural gas or coal bed methane, that's going
to be covered within that lease?
MR. MYERS said that would be his personal recommendation. The
intent of the legislature was different with the original
program but the intent of the original shallow gas program was
for just around rural areas, not large-scale commercial
production. He said it is his opinion that the assumptions made
and the development or exploration activities that are occurring
in the [Mat-Su] valley and down south are more parallel to what
should be done on a conventional lease. Mr. Myers said those
correlative rights problems would be much less and the program
would be smoother and would be easier to regulate. He remarked,
"Then you would look at regulating coal bed methane activities
versus shallow gas leases."
Number 1460
MYRL THOMPSON testified. Noting that he is a property owner
from the Wasilla area, he continued by saying he thought HB 395
is a good starting place, but it definitely needed to be "beefed
up and not watered down" in any sense. Mr. Thompson suggested
that the bill should require hydraulic fracturing fluids to be
of the nontoxic variety, and he said there are a large number of
different kinds of hydraulic fracturing fluids including eco-
friendly fracturing fluids. He suggested that nontoxic
fracturing fluids should be used because in a few wells and
casings that were tested after fracturing, the residue left over
within the test specimens was found to be 28-64 percent of the
chemicals in the fracturing fluids. He said he realized only a
few [wells] were tested, but that was the result. He remarked:
So if you have these proprietary chemicals in your
fracturing fluid, ... we won't even know what it is
for two years. We're not going to know how to address
it, as far as HAZMAT [hazardous materials] and stuff
like that ... in the valley, for one thing. ... The
fact that they're staying down in these wells is not a
good thing.
The casings on the wells are supposed to protect the
aquifers. There's a cement casing in there, but
there's no regulations or stipulations saying that
these things need to be ... protected for possible
leaks in the cementing itself, which, ... from what I
understand from various drillers, is that a large
percentage of the concrete casings do not actually
seal off and protect the ... aquifers. ...
They ... need to be sealed through this process that
sometimes has to run over three or four or five times
to get it adequately sealed. ... There's nothing
saying that these things need to be considered even,
so we definitely need something that protects those
areas of the aquifer, and just saying if we dump
concrete in and seal it; it isn't enough; it has to be
sealed.
Number 1622
MR. THOMPSON continued:
Another case that just came out of the court systems
this year was ... in the Kentucky gas fields, which is
part of the ... Appalachian basin. There was a
particular problem. It had a gas well next to it, and
the gas seeped over from that well into his well and
collected in his well house. And the guy switched his
switch on, and it blew him up and burned him up pretty
bad. ...
That was adjudicated ... and he won an award of ...
about $3.5 million against the company, but that
didn't stop the industry from arguing that it was
literally impossible for the gas that was beside his
house to seep sideways, which the courts agreed that
that was indeed what happened. ...
This instance in China where this whole gas field went
up because of human error: ... some of it was some of
the 174 people that were killed or injured due to the
explosion and fire, and some of the people were
injured due to poisoning from the fractured wellheads
and stuff and released gas into the community, which
had to be evacuated. ...
That's an example of what happens when you have no
regulations whatsoever. ... I think we need to have
baseline studies in hydrology and geology, and not
only that, into the wildlife and critical habitat
areas that have been leased such as the Deception
Creek management area and the Bench Lake area, and
there's a number of other ones.
If we're not going to look at ... what the other
resources are in that area, how could we compare them
to oil and gas. ... We need a third party ... when
disputes do arise over these various things, and we
also need a way to formally complain separately to
DNR, DEC [Department of Environmental Conservation],
and the AOGCC. ...
We need to find a way where AOGCC isn't so
politicized. ... They should have an independent job
to do and not ... be the views of one political party
over another.
Number 1759
REPRESENTATIVE STOLTZE offered his understanding that the
committee was trying to address the issue of prohibiting the
toxins. He suggested it is covered by the way the bill is
drafted, but if not, is something he is very attendant to.
Number 1824
CHAIR KOHRING, upon determining no one else wished to testify,
closed public comment. He announced that 420 would be held
over.
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at
3:04 p.m.
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