02/24/2004 03:27 PM House O&G
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ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
February 24, 2004
3:27 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Cheryll Heinze
Representative Jim Holm
Representative Norman Rokeberg
Representative Harry Crawford
Representative Beth Kerttula
MEMBERS ABSENT
Representative Lesil McGuire
OTHER LEGISLATORS PRESENT
Representative Carl Gatto
Representative Bill Stoltze
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
PREVIOUS COMMITTEE ACTION
BILL: HB 395
SHORT TITLE: SHALLOW NATURAL GAS
SPONSOR(S): REPRESENTATIVE(S) HARRIS
01/23/04 (H) READ THE FIRST TIME - REFERRALS
01/23/04 (H) O&G, RES, JUD, FIN
02/05/04 (H) O&G AT 1:00 PM CAPITOL 124
02/05/04 (H) Heard & Held
02/05/04 (H) MINUTE(O&G)
02/24/04 (H) O&G AT 3:15 PM CAPITOL 124
WITNESS REGISTER
RICHARD VANDERKOLK, Staff
to Representative John Harris
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Presented HB 395 on behalf of
Representative Harris, sponsor.
ERIC MUSSER, Staff
to Representative Vic Kohring
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Clarified portions of HB 395.
ROBERTA HIGHLAND
Homer, Alaska
POSITION STATEMENT: Testified during the discussion of HB 395.
MARK MYERS, Director
Division of Oil and Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Explained aspects of HB 395.
ROBERT ARCHIBALD
Homer, Alaska
POSITION STATEMENT: Testified during the discussion of HB 395.
MYRL THOMPSON, Spokesman
for Ogan is So Gone
Wasilla, Alaska
POSITION STATEMENT: Testified during the discussion of HB 395.
ACTION NARRATIVE
TAPE 04-5, SIDE A
Number 0001
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 3:27 p.m. Representatives Kohring,
Holm, Rokeberg, Heinze, and Kerttula were present at the call to
order. Representative Crawford arrived shortly thereafter.
HB 395-SHALLOW NATURAL GAS
[Contains discussion of HB 420, which was merged into HB 395,
Version V; contains discussion of SB 312]
Number 0085
CHAIR KOHRING announced that the only 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."
CHAIR KOHRING noted that a proposed committee substitute (CS)
combines HB 420, which deals with water issues, and HB 395. He
explained that the bill would be held over after public
testimony because there are so many other bills in both the
House and the Senate, and because the Department of Natural
Resources (DNR) is still going through a review process that
could result in other additions to the bill. He acknowledged
the arrival of Representative Crawford.
Number 0169
RICHARD VANDERKOLK, Staff to Representative John Harris, Alaska
State Legislature, spoke on behalf of Representative Harris,
sponsor. Agreeing that Version V is an amalgamation of two
bills previously heard, HB 420 and HB 395, he said there have
been no significant changes to the content of the two.
Number 0247
REPRESENTATIVE ROKEBERG moved to adopt the proposed CS for
HB 395, Version 23-LS1314\V, as the working document. There
being no objection, Version V was before the committee.
Number 0300
MR. VANDERKOLK referred to a change in Section 1, paragraph (2),
a permissive statement for the regulation of reinjection of
water through hydraulic fracturing. He said that section is now
a standard practice, or a mandate, for the regulation. He noted
that in Section 5, page 4, lines 17 and 18, notification by
direct mail was added because constituents and sponsors really
wanted to see a greater sense of awareness for the public. On
page 5 [Section 6], lines 13-19, provisions for water well
testing [were added]. He explained that the testing would be
done by the lessee, who is required to test the water and to
present results to the owner. Finally, in Section 7 and
throughout is a standardized reference to what is meant by
shallow and natural gas leasing. The hard cap at a depth of
3,000 feet is still included; now, however, by administrative
discretion, there is a 1,000-foot buffer. He said those were
the only changes created by merging the two bills.
Number 0459
REPRESENTATIVE ROKEBERG asked about the rationale for the water
well testing requirement. He wondered if it was to allow a
baseline by the lessee.
MR. VANDERKOLK explained that [Section 6, paragraph (2)] is
another provision for the lessee to attend to the guarantee of
water quality assurance for all wells before coal bed methane
operations begin. It's a provision just for the lease itself,
he noted.
Number 0530
REPRESENTATIVE ROKEBERG asked if the lessee or operator would
test the property owner's source of water.
MR. VANDERKOLK said he believes that is the case.
REPRESENTATIVE ROKEBERG responded that it sets the baseline data
for water quality standards.
Number 0580
REPRESENTATIVE HEINZE referred to page 3, where it talks about
getting permission from the commissioner to allow for recovery
of gas to 4,000 feet. She asked if that happens when gas has
not been hit or when the seam is bigger than expected. She
asked how it is defined to allow recovery to go the extra 1,000
feet.
MR. VANDERKOLK said he believes administrative discretion comes
into play if shallow natural gas is, in fact, below the
threshold [of 3,000 feet] and it can be proved that the extra
buffer is needed. The sponsor still wanted to maintain a hard
cap, he added, and it was agreed that 4,000 feet was a fair
number.
Number 0655
REPRESENTATIVE HEINZE referred to page 4 and asked who pays for
the ads in the papers, postage, printing, and so forth.
MR. VANDERKOLK replied that the notification by mail and the ads
referred to in lines 26-31 are costs incurred by DNR. He said
there was one fiscal note of approximately $10,000 for all ads
in the original version of HB 395. The real change in this
proposed CS is the requirement for notification by direct mail.
REPRESENTATIVE HEINZE asked if it was $10,000 per well.
MR. VANDERKOLK said he believes it is per area, and that there
would be a legal notice. He noted that the sponsor is still
waiting for fiscal notes from the Department of Revenue (DOR)
and DNR.
Number 0757
REPRESENTATIVE CRAWFORD pointed to page 8, subparagraph (B),
lines 21-24, and noted that there is a limit of 1,500 feet and
that it says "the activities appear to be probable hydrologic
consequences of the lessee's activities on the lease". He asked
why the limit is at 1,500 feet, and inquired, "What if the well
was at 1,550 feet and the activities appeared to have hydrologic
consequences? It would be the same cause and have the same
consequences."
MR. VANDERKOLK said he wasn't certain why 1,500 feet was the
absolute cap. He referred to existing law in AS 38.25.130 and
pointed out that damages are already guaranteed. He said he
thought the idea was to have general locations so it doesn't get
out of hand.
Number 0876
ERIC MUSSER, Staff to Representative Vic Kohring, Alaska State
Legislature, explained that because the restoration fund is
established as a presumed liability, and as a result of those
probable hydrologic consequences, a great deal of discussion
went into distances, existing well locations, and drafting the
provision. It was determined [1,500 feet] was a reasonable
baseline area surrounding an existing property owner's well.
REPRESENTATIVE CRAWFORD, in response to Mr. VanderKolk's earlier
statement about the property owner's being protected if there
are consequences, asked if it "trumps" that protection if it is
1,550 feet.
MR. MUSSER said the potential could exist; that could be the
case as it relates to a well-replacement situation,
specifically.
Number 0999
REPRESENTATIVE KERTTULA asked if the owner has to go out, take
the tests, and maintain them.
MR. MUSSER replied that [the sponsor] tried to address community
and public concerns relative to establishing that baseline
criteria, and consulted with those in the industry. The end
result is that the lessee is now responsible for conducting the
test and providing the department with a copy of the test. He
indicated the requirement was on page 5, line 13.
Number 1058
REPRESENTATIVE KERTTULA said the lessee would do the testing and
get the baseline, and then the owner, according to page 8, would
have to receive and "maintain" the record. She asked whether
"maintain" meant "just keeping them."
MR. MUSSER explained that once the lessee tests the well, if the
lessee is going to be conducting activities within that
parameter, the lessee must provide any owner of the well a copy
of the testing results, which will show the purity, the flow,
and the general condition of the well. The owner has to keep a
copy, which would preclude anybody from walking up at a future
date with no documentation.
Number 1115
REPRESENTATIVE KERTTULA said she has the same exact concern that
Representative Crawford has. She explained:
If it's obviously a hydrologic consequence, then I'm
assuming you intend the person to be paid out of the
fund, and maybe that's the way to restructure this, is
to point out that it's only if it's just a "probable."
It's a lesser degree of proof, I guess. But if
someone could prove that it was a hydrologic
consequence, you'd want the money paid out of the fund
to the landowners.
MR. MUSSER said that is the intent, the presumed liability
component. If it's in all likelihood a result of the drilling
activity, the owner gets a new well.
REPRESENTATIVE KERTTULA remarked:
But only if they're within 1,500 feet, right now.
What if they can prove it's the consequence of the
drilling and they're outside the 1,500 feet? 1,502
feet? They should get recovery, shouldn't they?
Maybe that's the restructuring that needs to happen in
this, is to point out that if they can prove it,
they're going to get it, and it's only if it's down at
this lower degree of probable consequence, you know,
you can't really prove it, but it's probable, ... I
can work with you on that.
Number 1233
REPRESENTATIVE HOLM said he noticed discussion in [paragraph
(2), page 2, lines 13-14] of "hydraulic fracturing of shallow
natural gas wells to assure protection of drinking water
quality". He asked if [hydraulic fracturing] had ever occurred
previously upon development of coal bed methane.
MR. VANDERKOLK replied that he was not aware of the data
suggesting that there is a direct correlation between hydraulic
fracturing and serious contamination of a water table, but what
is done with the water afterwards has been a problem in other
states. Reinjection is the key aspect there, he noted, a
reinjection to a depth separate and much lower than that of
potable water.
REPRESENTATIVE HOLM responded that the purpose of [the wording]
is for reinjection, and not so much that the fracturing is the
problem.
MR. VANDERKOLK replied that hydrologic fracturing is the
standard method for puncturing into the coal bed.
Number 1344
REPRESENTATIVE HOLM referred to page 6 [lines 16-18], which says
in part, "Except when the commissioner exercises discretion to
allow recovery of gas at a depth of not more than 4,000 feet, a
lessee may not recover gas at a depth greater than 3,000 feet".
He requested clarification.
MR. VANDERKOLK explained that it is a reference to the
commissioner's discretion; there is an absolute hard cap of
shallow natural gas leased at 4,000 feet, but general practice
at 3,000 feet. Administrative discretion would allow another
1,000-foot buffer.
REPRESENTATIVE HOLM offered his understanding: "In essence,
what we're saying is that this coal bed methane is all from
3,000 feet up unless the DNR commissioner, or whoever, makes
that decision."
MR. VANDERKOLK mentioned Alaska Oil and Gas Conservation
Commission (AOGCC).
Number 1380
REPRESENTATIVE ROKEBERG referred to page 8 [paragraph (B)] and
the issue of 1,500 feet, and said he agreed with Representatives
Kerttula and Crawford. "We're talking, fundamentally, about 1/4
mile away from the drill site," he remarked. He described that
as delimiting, and said it seems having an arbitrary limitation
of 1,500 feet is not equitable. He said he could appreciate
trying to set limits, but it looks as if there are two
standards: a defined distance, and a standard of causality of
"appears to be probable," which is pretty low. He said there is
a natural corollary between the distance and the level of proof.
REPRESENTATIVE ROKEBERG recommended following Representative
Kerttula's line of thinking to delete a specific distance and
raise the standard a little bit. Typically, constituent
elements that change the water quality by measurement may be
found, but more often turbidity and cloudy water would show up
first. He continued to explain that water aquifers are found,
like oil, in different areas, depths, and widths. He concluded
by saying the level of proof that appears to be probable is
almost a joke. He gave an example of when the aquifer might be
drained by natural causes and the driller blamed by the owner.
Number 1573
REPRESENTATIVE KERTTULA said she has the same concerns. She
remarked that she likes the expanded notice sections [in
Version V], because it is important for people to understand the
leasing that is about to happen, but she had a concern about the
landowners and how they were defined. She suggested, instead of
saying "residents" - because there could be thousands of them -
that "owners" should be used if there are good enough records to
figure out who they may be. She asked Mr. VanderKolk if he'd
considered this change.
MR. VANDERKOLK deferred the "well portion" to Mr. Musser, but
said he was open to the will of the committee.
REPRESENTATIVE KERTTULA reiterated that the broad notice was a
great step forward.
Number 1648
REPRESENTATIVE HEINZE asked for clarification on the bonding
issue and the 1 percent amount. She asked if there is a
$250,000 cap specifically for water reclamation, and then, if
any money is taken out, 1 percent comes back, in effect, keeping
the amount at $250,000.
MR. MUSSER replied that is correct.
CHAIR KOHRING opened the hearing to public testimony.
Number 1694
ROBERTA HIGHLAND, Homer, thanked the sponsor for adding the
public notification [to the bill], although she said she was
somewhat confused about residents versus landowners. She agreed
that direct mailing should be a part [of the bill]. She said
she appreciates changing the water quality testing to the
lessee. She voiced concern about the dense population areas
that have been included in the shallow natural gas leases, and
wondered if something about the mix not working very well could
be included in the bill. She pointed out a problem in Homer
because DNR did not know what kind of land was put on the table
for leasing: the drinking water reservoir, schools, and dense
populations. She opined that in this day of computers [such
information] should not be a surprise to anyone. It is a little
embarrassing for DNR to put out that land and then discover it
was a drinking water reservoir, she suggested. She wondered if
[this bill] was a place for that missing link.
MS. HIGHLAND voiced another concern, that none of the bills
addresses the hundreds of thousands of acres of presently leased
land across the state; she wondered if that could be included in
this bill with retroactive dates. She recalled questioning
Patrick Galvin from [DNR] as to how lands could be leased
without regulations in place. She said she thinks he said it
was a fairly normal process to lease and then do regulations; if
that is true, she said, there would be room to address
regulating those areas, because that issue is causing so much
grief, outrage, and distrust. She requested ideas from the
committee.
Number 1875
CHAIR KOHRING addressed restrictions on dense development,
saying there were no specific provisions in this legislation
regarding that topic, but it could be addressed by the committee
as a future subject. Responding to Ms. Highland's concern about
DNR's leasing lands that have now been determined to be water-
sensitive in terms of water quality and quantity, he maintained
that current regulations in place deal with that matter. He
noted that [Version V] addresses this in terms of a provision
directly related to impacts on water, which was part of HB 420
and is rolled into this legislation. Last, assuming Ms.
Highland was referring to lease buy-backs, he pointed out that
they weren't part of this legislation; however, some bills that
may or may not come before the committee do address the issue.
Number 1948
MS. HIGHLAND explained that land directly under [Homer's]
drinking water reservoir - the lake - was leased, and she is
trying to get a link for DNR, which didn't know the actual
ownership of the land. She said the buy-back is a major issue,
but if something simpler would fix it, her area would love to
see it.
CHAIR KOHRING suggested that Mr. Myers could address the water
issues.
Number 2011
MARK MYERS, Director, Division of Oil and Gas, Department of
Natural Resources, clarified that under the shallow gas leasing
program, DNR does not choose the land to be leased; it is
applicant-driven. The applicant applies for the land, and
anything that is not currently in a statewide leasing program,
or under an exploration license, is eligible. That is the
nature of the program, he said. He continued:
As far as the issue of the surface estate, in general,
basically, we use the stipulations and mitigation
measures. For instance, people have to separate the
actual act of leasing versus any activity that occurs
on the lease. Any activity near an existing or known
reservoir would be heavily regulated. There would
probably be no surface occupancy allowed in [the] near
vicinity. Any drilling in that area would probably be
for conventional gas, directionally drilled at much
deeper depths underneath the lake, so, the drilling
would occur at 1,000- to 3,000-feet depths, and the
aquifer they're using is right on the surface.
So, again, you're hydrologically/geologically
separate. Unless those could be assured, we wouldn't
issue a permit to drill; neither would AOGCC; neither
would DEC [Department of Environmental Conservation]
allow it. There are multiple bites of the apple, but
I think one of the confusions is, people separate out
the regulatory function on activity versus the very
act of leasing. We lease near a river on a regular
basis, ... but we do have setbacks, distances away
from the river that are substantial, to protect the
surface values of the river.
MR. MYERS pointed out that the regulatory tools are in place
when the leases are issued, as well as standard practices and
negotiated terms with the lessee as part of the plan of
operation, which also includes the surface owner. He mentioned
areas in the [Matanuska-Susitna] area where additional
regulatory functions may be looked at for the coal bed methane
process going on there. He reiterated that he thinks people get
confused with the act of leasing versus actual activity. Most
leases never get explored, he added. To put those resources to
developing and examining surface-parcel private leasing is not
practical, nor is it done here or elsewhere, he said. He
indicated that in SB 312, the whole program would change to hold
a best-interest finding; there would be plenty of public output
and comment, and those leases would be chosen by DNR, rather
than an advocate group.
Number 2176
REPRESENTATIVE ROKEBERG asked Mr. Myers for his opinion on the
impacts of any regulations on the existing leases. He said it
was his understanding, under the initial coal bed methane
legislation, that DNR was granted the authority to write
regulations. Whether it did or not seems to be an issue, he
remarked. He repeated his question about retrospective impacts
of any new regulations and/or statutes.
MR. MYERS responded that he thinks there are two issues. One is
the regulation of activity on the leases, and those are an
appropriate place for statutory or regulatory control on coal
bed methane drilling, in general. Specific terms on the leases,
such as depth, however, are lease contract rights, and
restricting the depth requirements on existing leases is not
within the legislature's authority, he opined. He said [the
legislature] does have the ability to change the way coal bed
methane is regulated through statutes or adoption of new
regulations. The original coal bed methane legislation did
restrict DNR's typical authority on regulations, by saying only
those regulations necessary could be applied.
MR. MYERS said one thing DNR did was to carefully develop
stipulations and mitigation measures with the leases, which are
extensive in allowing DNR discretion to determine setbacks,
noise abatement, and water quality issues. He said the tools
are available, but might not be as specific as people would
like, so the recommendations may lead to specifics for each
individual plan of operation.
Number 2290
REPRESENTATIVE ROKEBERG replied, "Then I take it your answer is
yes and no, depending on what it is?"
MR. MYERS said that's correct. It is a mixture of strict
standards that are controlled by regulation and other standards
that are more general by stipulations of mitigation.
REPRESENTATIVE ROKEBERG cited an example of a new fund created
in the bill, and asked if the fund would be applicable to the
current outstanding leases that have been issued by DNR.
MR. MYERS said if it is a tax, he believes [the legislature] is
free to regulate a tax on the industry because it is not a part
of the lease-contract relationship, nor is it required to be.
Number 2350
CHAIR KOHRING asked Mr. Myers when DNR expected to conclude the
workshops that have been going on since November. He said the
committee is interested in looking at recommendations by DNR
that could be parlayed into legislation.
MR. MYERS answered that there have been four workshops, so far,
with the fifth this Saturday. In two weeks a report will
follow, then recommendations will go forward to the
commissioner, and probably by May a final report will be made.
In the interim, DNR has posted an organized list of all of the
public comments on the web site. Finally, the commissioner will
need time to sort through and develop additional guidelines.
Number 2424
CHAIR KOHRING noted it could be a process that would continue
into the next [legislative] session as far as any prospective
legislation.
MR. MYERS agreed that was likely.
CHAIR KOHRING noted that Representatives Gatto and Stoltze were
present and invited them to join the committee [at the table].
The committee took an at-ease. The meeting was called back to
order at 4:17 p.m.
Number 2485
REPRESENTATIVE CRAWFORD questioned Representative Kohring about
the at-ease.
CHAIR KOHRING replied that he'd felt the need to discuss the
timing of moving the legislation.
Number 2519
REPRESENTATIVE KERTTULA thanked Chair Kohring for coming back
into the room and said she was remiss in not objecting because
it shouldn't have happened unless it was executive session.
REPRESENTATIVE ROKEBERG replied that they were not trying to
hide from anybody.
CHAIR KOHRING announced that public testimony would continue.
Number 2560
ROBERT ARCHIBALD, Homer, said this is a step in the right
direction. He said he has been fairly disenchanted with the
coal bed methane gas issue. He mentioned the testing of the
water by the lessee and suggested language that says it be done
by a third party. He also said he believes the 1,500-foot
requirement is lax on the hydrological consequences. He said a
number of people were not present today to testify because they
were not notified of the meeting. He repeated that the bill was
a step in the right direction and thanked the committee.
[Chair Kohring mentioned that Chuck Logsdon from the Department
of Revenue was prepared to answer revenue-related questions via
teleconference.]
Number 2678
MYRL THOMPSON, Spokesman for Ogan is So Gone, Wasilla, said he
represented 2,200 registered voters from District H for the
recall [of Senator Ogan]. He said the bill is a step in the
right direction but does not go far enough in many areas. He
said he has some contention with the 1,500-foot distance because
a lot of the well drillers in his area know that a lot of the
aquifers are huge, some described as underground lakes. If
something were to happen outside of the 1,500-foot range, what
recourse would people have if their wells are polluted or their
aquifer is damaged, he asked.
Number 2737
MR. THOMPSON responded to Mr. Myers' statement about the $10,000
cost of publishing ads for the area. Recalling mention in a
Senate meeting of a $1-per-head cost of sending out notices to
each private property owner affected, he asked if that was in
addition to the $10,000. Following up on Mr. Myers' mention of
SB 312 and best-interest findings, he pointed out that it
doesn't affect the people in the [Matanuska-Susitna area] whose
lands are already leased and the lands that are under
application. He said he was glad public testimony [on the bill]
was opened, but added that notification came very late today.
He said he appreciated the fact that the meeting would be
extended to another date. He suggested that the committee get
information from the ongoing DNR workshops. He made the
correction that there had only been three workshops; the fourth
one would be tomorrow night, and another one will be held in
Willow. He said the information could be obtained on the [DNR]
web site.
Number 2813
MR. THOMPSON responded to the hydraulic fracturing discussion by
saying no one had mentioned that a number of test wells were
tested expressly, after the fact, for residue fracturing fluids,
and 23-62 percent of the fracturing fluids were left in the well
as residue. He suggested there could be a long-term effect if
it got into aquifers. He noted that earthquakes could be a
possible cause of damage.
MR. THOMPSON spoke about a core-drilling appeal that was
overruled, and said they were told it would be very low-impact
and last about 3-5 days. Instead, it has lasted about five
weeks, and they are through one-half of a core hole. He opined
that the company was badly mistaken or given the wrong
information, and if they were wrong about a core hole, they can
certainly be wrong about a lot of other things that could have
detrimental impacts to the community. He stated his support for
the buy-back.
MR. THOMPSON asked about a section of HB 395 that mentioned
compensation for surface owners. In response to Chair Kohring,
he said the original HB 395, Section 5, subsections (f)(2)(A)
and (B), refers to $300 a month for each wellhead and $600 a
month for a compressor [station]. He asked if this was still in
the proposed CS.
MR. MUSSER replied that the proposed CS is a new version of
legislation that supersedes the previous one, and that the fees
referenced by Mr. Thompson have been removed from the bill.
Number 2965
MR. THOMPSON said the people he represents will want to know
that.
CHAIR KOHRING thanked Mr. Thompson for his testimony and said
the 1,500-foot issue, as well as the "frac fluids" issue, would
be reevaluated.
TAPE 04-5, SIDE B
Number 2980
CHAIR KOHRING said the issue of the buy-back could be considered
by subsequent committees. He said meetings are noticed under
the title "Bills Previously Heard" [scheduled in BASIS, when
committee schedules are posted] and that is why this bill is
before the committee today. He said it would possibly come up
again on Thursday, depending on possible proposed CS changes.
MR. THOMPSON said he hoped that meeting would also be open to
the public.
MR. MYERS acknowledged that the speaker was correct that the
fourth DNR meeting hadn't occurred; it is tomorrow night.
Number 2914
CHAIR KOHRING asked if there was any further public testimony;
he then closed the public hearing. He announced that HB 395
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
4:23 p.m.
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