01/31/2006 06:00 PM House OIL & GAS
| Audio | Topic |
|---|---|
| Start | |
| HB294 | |
| Overview from Alaska Oil and Gas Association | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| += | TELECONFERENCED | ||
| = | HB 294 | ||
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
January 31, 2006
6:03 p.m.
MEMBERS PRESENT
Representative Vic Kohring, Chair
Representative Norman Rokeberg
Representative Ralph Samuels
Representative Nancy Dahlstrom
MEMBERS ABSENT
Representative Lesil McGuire
Representative Berta Gardner
Representative David Guttenberg
COMMITTEE CALENDAR
HOUSE BILL NO. 294
"An Act amending and extending the exploration and development
incentive tax credit under the Alaska Net Income Tax Act for
operators and working interest owners directly engaged in the
exploration for and development of gas for delivery and sale
from a lease or property in the state; providing for an
effective date by amending the effective date for sec. 2, ch.
61, SLA 2003; and providing for an effective date."
- MOVED CSHB 294(O&G) OUT OF COMMITTEE
OVERVIEW FROM ALASKA OIL AND GAS ASSOCIATION
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 294
SHORT TITLE: GAS EXPLORATION\DEVELOPMENT TAX CREDIT
SPONSOR(s): REPRESENTATIVE(s) CHENAULT
04/30/05 (H) READ THE FIRST TIME - REFERRALS
04/30/05 (H) O&G, RES, FIN
01/26/06 (H) O&G AT 5:00 PM CAPITOL 124
01/26/06 (H) Heard & Held
01/26/06 (H) MINUTE(O&G)
01/31/06 (H) O&G AT 6:00 PM CAPITOL 124
WITNESS REGISTER
JOHN BARNES, Manager
Alaska Production Region
Marathon Oil Company
Anchorage, Alaska
POSITION STATEMENT: Answered questions regarding HB 294.
JUDY BRADY, Executive Director
Alaska Oil and Gas Association
Anchorage, Alaska
POSITION STATEMENT: Provided an overview of the oil and gas
development process in Alaska.
RANDAL BUCKENDORF, Senior Attorney
BP Exploration (Alaska) Inc.
Anchorage, Alaska
POSITION STATEMENT: Discussed the oil and gas permitting
process in Alaska from a legal perspective as well as BP
Exploration (Alaska) Inc.'s Liberty Project and answered
questions regarding it.
MARK MAJOR, Senior Environmental Coordinator
ConocoPhillips Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Discussed ConocoPhillips Alaska, Inc.'s
Alpine Satellite Development Project and answered questions
regarding it.
PAT FOLEY, Manager
Land, Commercial and Regulatory Affairs
Pioneer Natural Resources, Alaska, Inc.
Anchorage, Alaska
POSITION STATEMENT: Discussed Pioneer Natural Resources,
Alaska, Inc.'s Oooguruk Project and answered questions regarding
it.
ACTION NARRATIVE
CHAIR VIC KOHRING called the House Special Committee on Oil and
Gas meeting to order at 6:03:26 PM. Representatives Kohring,
Rokeberg, Samuels, and Dahlstrom were present at the call to
order.
HB 294-GAS EXPLORATION\DEVELOPMENT TAX CREDIT
6:03:49 PM
CHAIR KOHRING announced that the first order of business would
be HOUSE BILL NO. 294, "An Act amending and extending the
exploration and development incentive tax credit under the
Alaska Net Income Tax Act for operators and working interest
owners directly engaged in the exploration for and development
of gas for delivery and sale from a lease or property in the
state; providing for an effective date by amending the effective
date for sec. 2, ch. 61, SLA 2003; and providing for an
effective date."
6:04:52 PM
CHAIR KOHRING inquired as to how the changed percentages [in HB
294] were derived. He asked, "Was there a reason that justified
those particular numbers, or were they just hypothetically
chosen?"
6:05:29 PM
JOHN BARNES, Manager, Alaska Production Region, Marathon Oil
Company, informed the committee that [the changed percentages]
were designed to be a starting point for discussion. He
recognized that the Department of Revenue (DOR) will need to
complete [economic] modeling in order to provide the Alaska
State Legislature with information which would assist it in
adjusting the percentages fittingly.
6:06:02 PM
CHAIR KOHRING commented that even though the State of Alaska
would be giving up a "pretty good chunk of money," the net
return over time would be "pretty substantial." He added that
at a 4:1 ratio, for $1 that [the State of Alaska] would be
giving up in extra taxes, granted in the form of credits, [the
State of Alaska] would be generating $3 in revenue.
6:07:01 PM
CHAIR KOHRING reminded the committee that [HB 294] was referred
to additional committees, which allows for time to adjust the
[percentages], if necessary. He expressed his comfort with the
[percentages].
6:07:55 PM
REPRESENTATIVE ROKEBERG, in regard to the applicability of the
credit to projects south of 68 degrees north latitude, announced
his conceptual amendment prohibiting the delivery of Alaska
North Slope (ANS) gas south of 68 degrees North latitude.
CHAIR KOHRING noted that he shared Representative Rokeberg's
concern.
REPRESENTATIVE ROKEBERG opined that in light of "everything
else" that's going on in [the 2006] legislative session, his
conceptual amendment would help expedite [HB 294] as well as
prevent it from becoming "co-mingled" with other legislation.
6:09:09 PM
REPRESENTATIVE ROKEBERG asked Mr. Barnes if he would have an
objection to an amendment [to HB 294] that would prohibit the
use of the credit [south of 68 degrees North latitude] for ANS
gas.
MR. BARNES responded that he believed that the amendment would
be consistent with the original intent of [HB 294].
6:09:46 PM
CHAIR KOHRING clarified that with the amendment, everything
south of the Brooks Range would be included in [HB 294], while
everything north of the Brooks Range would not be included.
MR. BARNES confirmed that Chair Kohring was correct.
CHAIR KOHRING surmised that Representative Rokeberg's concern is
in regard to what will happen if a gas line is built because he
wants to ensure that [HB 294] doesn't apply [to a new gas line].
6:10:10 PM
REPRESENTATIVE ROKEBERG [moved that the committee adopt]
Conceptual Amendment 1, which would insert AS 43.20.043(f) with
the underlined and bolded text such that it would read as
follows:
A taxpayer is not entitled to a credit under this
section for expenditures that are made or incurred for
the qualified capital investment or for qualified
services made for exploration and development of gas
that occur in the area of Alaska lying north of 68
degrees North latitude or that are made or incurred to
transport gas from reserves located in the area of
Alaska lying north of 68 degrees North latitude or for
the delivery of Alaska North Slope natural gas to
tidewater below 68 degrees North latitude.
6:11:10 PM
There being no objection, Conceptual Amendment 1 was adopted.
6:11:32 PM
REPRESENTATIVE ROKEBERG moved to report HB 294 as amended out of
committee with individual recommendations and the accompanying
fiscal notes. There being no objection, CSHB 294(O&G) was
reported out of the House Special Committee on Oil and Gas.
^OVERVIEW FROM ALASKA OIL AND GAS ASSOCIATION
6:12:03 PM
CHAIR KOHRING announced that the final order of business would
be an overview from the Alaska Oil and Gas Association.
6:14:55 PM
JUDY BRADY, Executive Director, Alaska Oil and Gas Association
(AOGA), informed the committee that the question AOGA is always
asked is "Can oil and gas development coexist with effective
protection of sensitive environments?" The answer to the
question is affirmative and she added that permitting is
essentially mitigation. She noted that the Central Arctic
caribou herd went from 5,000 to over 35,000 during the 40 years
of oil and gas [development] there.
6:15:35 PM
MS. BRADY stated that all of the oil and gas produced in Alaska
is produced in sensitive environments. Furthermore, AOGA has
developed a toolbox for oil and gas development in sensitive
areas in Arctic Alaska. She emphasized the importance of a good
environmental reputation and opined that the [oil and gas]
industry in Alaska has an "excellent" environmental reputation.
For example, even under a national democratic administration,
National Petroleum Reserve-Alaska (NPR-A) was re-opened, due to
the reputations of the companies on the North Slope.
6:16:46 PM
MS. BRADY informed the committee that Arctic Alaska is the most
studied Arctic area in the world and added that there are 40
years worth of studies on water quality and volume, fish,
habitat mapping, caribou, subsistence, and vegetation.
Vegetation studies are indicators of air quality, she mentioned.
She explained habitat mapping, which is conducted prior to the
start of a project [to inform] the [oil and gas] companies of
the locations of all of the nesting colonies of the various
species, whether they are endangered or not. Therefore, the
[oil and gas companies] build roads and gravel pads around the
nesting areas.
6:17:33 PM
MS. BRADY exemplified "putting the toolbox to work" through a
picture of ConocoPhillips Alaska, Inc. ("ConocoPhillips")'s
pipeline through the Colville River. She explained winter
seismic operations in which there is currently a zero tolerance
for seismic marks on the tundra, in contrast to the five to
seven years allowed in the past. She also explained ice road
access, which entails about a million gallons of water per mile
and costs about $1 million per mile. In regard to footprint
reduction, she informed the committee that the pipe on the
[North Slope] is raised five to seven or eight feet and
sometimes fourteen feet [from the ground].
6:19:03 PM
MS. BRADY, in regard to oil and gas permitting on Alaska's North
Slope, reiterated that it's an Arctic environment and stated
that most of the North Slope consists of wetlands, which require
federal permits. All onshore oil and gas development is inside
the North Slope Borough and the majority of oil development has
been on state land, although onshore development has recently
moved to federal land/NPR-A. She stated that some leases are on
Arctic Slope Native Corporation land. Offshore development
involves both state and federal land, she noted.
6:19:34 PM
MS. BRADY listed AOGA's "key approvals": environmental
assessment (EA) or environmental impact statement (EIS),
Wetlands Section 404, North Slope Borough land management
regulations, Alaska Coastal Management Program (ACMP)
consistency determination, Department of Natural Resources
(DNR), and Department of Environmental Conservation (DEC)'s
air/contingency plan (C-Plan). She noted that both North Slope
Borough land management regulations and ACMP consistency
determination for the North Slope Borough are currently being
re-worked.
MS. BRADY listed the questions to which oil companies new to
Alaska want to know the answer as follows: how long does it
take to permit a project?, how much does it cost?, is there a
transparent permitting system?, how complicated is the
permitting system?, how subjective is the permitting system?,
what are the major issues driving permit approvals?, who should
I talk to?, and what permits do I need?
6:20:58 PM
RANDAL BUCKENDORF, Senior Attorney, BP Exploration (Alaska) Inc.
("BP"), explained the complexity of the permitting process in
Alaska. In regard to the complexity of the Alaska regulatory
regime, he informed the committee that the complexity is mostly
due to multiple agency jurisdictions - federal, state, and
local. In addition, there are many permits and federal
environmental laws and regulations, which are generally
prescriptive rather than performance driven. He noted that some
of the more recent EIS' in NPR-A have attempted to be
performance driven. He mentioned that differing levels of
information are required for different permits. There are
multiple public comment requirements and AOGA attempts to
prevent the overlap of public comment periods.
6:22:36 PM
MR. BUCKENDORF discussed recent State of Alaska permitting
reforms. The ACMP was reformed by House Bill 191, which was
passed by the legislature in 2003. When a project is being
developed in a coastal zone, ACMP mandates the process.
Previous to 2003, DEC required permits that didn't work well
within the [ACMP] process. House Bill 191 "carved out" the DEC
permits and as a result, ACMP is [currently] working "very
well."
6:23:26 PM
MR. BUCKENDORF informed the committee that coastal districts are
only able to draft enforceable policies that reflect matters of
local concern and that do not duplicate matters regulated by
federal and state laws and regulations. He noted that the State
of Alaska recently received final federal approval of the
statutory and regulatory changes. In the next six to nine
months, [ACMP] will be approving all of the local district
programs statewide.
6:24:00 PM
MR. BUCKENDORF discussed two additional programs that the
legislature has worked to improve in the previous year on state
primacy - the National Pollutant Discharge Elimination System
(NPDES) and the Underground Injection Control (UIC). In fact,
SB 110 directed DEC to seek primacy over the NPDES program. In
regard to UIC wells, the state has primacy over the oil and gas
wells. He added that SB 103 directed the AOGCC to work with the
Environmental Protection Agency (EPA) to attempt to assume
primacy over the UIC program.
6:24:43 PM
MS. BRADY added that a concern of AOGA is how the coastal
enforcement policies are actually going to work.
6:25:35 PM
REPRESENTATIVE ROKEBERG inquired as to the status of obtaining
primacy over the NPDES program.
MR. BUCKENDORF, in regard to the NPDES program, responded that
DEC is currently in the process of drafting its program review
and regulations. In regard to the UIC program, Commissioner
[John] Norman [of the AOGCC] has been conducting meetings with
EPA in an attempt to overcome some of the legal hurdles that the
federal government requires for handing primacy of a portion [of
the UIC program] to the [State of Alaska].
6:26:38 PM
MARK MAJOR, Senior Environmental Coordinator, ConocoPhillips
Alaska, Inc. Alaska, Inc. ("ConocoPhillips"), in response to
Representative Samuels, clarified that the North Slope Borough
Assembly will be voting on its coastal management program on
February 7, 2006, which will then be turned into the DNR.
MR. BUCKENDORF, in further response to Representative Samuels,
informed the committee that DNR has a statutory deadline for
approval. He added that DNR will review the [ACMP] policy-by-
policy.
6:27:27 PM
MR. BUCKENDORF discussed two types of legal requirements -
procedural and substantive. The procedural legal requirement
mandates a process. For example, the National Environmental
Policy Act (NEPA) is only federal and typically requires an EA
or an EIS. An additional example of a procedural legal
requirement is the Coastal Zone Management Act (CZMA). The
substantive legal requirement consists of typical permits - air,
water discharges, and water use.
6:28:28 PM
MR. BUCKENDORF referred to the major federal programs to
exemplify the number of authorizations one needs for most of
AOGA's projects. In regard to the federally-delegated/approved
programs, the State of Alaska is able to assume primacy, or is
sometimes directed to assume primacy. Examples of federally-
delegated/approved programs are the Air Permitting Program, UIC,
CZMA/ACMP, and the Alaska Water Quality Standards, which have to
be approved by EPA. He noted that CZMA is federally dictated;
the state isn't required to have a program, but if developed,
the federal government is required to approve it.
6:29:35 PM
MR. BUCKENDORF, in regard to ACMP, reiterated that House Bill
191 has helped [the oil and gas industry] because it's a
mechanism to develop in a coastal zone. Every known oil and gas
resource in the state is considered to be in the coastal zone,
she noted. Therefore, ACMP is very important to the oil and gas
industry. It's also used to provide state input to Outer
Continental Shelf (OCS) activities. He added that the state has
developed an "ABC List" that allows an applicant to streamline
the [permitting] process and House Bill 191 mandated an
expansion of those lists.
6:30:52 PM
MR. BUCKENDORF informed the committee that the ABC List consists
of federal and state permits. Without [the ABC List], one would
have to go through the ACMP process each time. The A List is
categorically consistent. If one receives a permit, he/she is
predetermined consistent with CZMA. The B List is a general
concurrence determination and allows one to go through [the
process] once and develop a standard list of stipulations that
apply at that time and at any time in the future.
MR. BUCKENDORF provided A and B List examples. He also remarked
that that the [B List] has allowed [AOGA] to "cut days and weeks
off of" the permitting process.
6:32:46 PM
MS. BRADY added that areawide permitting pertains to the B List.
The "big piece" that's missing from the B List is a winter
exploration well, which AOGA has "done hundreds and hundreds" of
such wells. A few years ago, when the State of Alaska attempted
to update the B List, all of the agencies went into "deadlock."
A winter well has to go through a consistency determination
every time, she mentioned.
6:33:23 PM
MR. BUCKENDORF discussed AOGA's local programs. Most of the
local areas throughout the state have Title 29 planning and
zoning authority, which allows for the development of their own
code that dictates planning and zoning ordinances. He stated
that there are two primary ways that both the Kenai Peninsula
Borough and the North Slope Borough direct oil and gas
development, through Title 29 authority as well as CZMA. In the
North Slope Borough, for example, both of the [Title 29
authority and CZMA] processes are currently under review. Along
with new coastal zone management policies, [local areas] are
also developing new planning and zoning regulations, which will
also be approved in the next month.
6:34:22 PM
MR. BUCKENDORF explained another example of AOGA's [permitting]
process. Most of the North Slope Borough is zoned conservation;
although AOGA is given a state or federal lease that allows it
to explore for and potentially develop oil and gas, it has to go
to the North Slope Borough with a master plan and request that
area be rezoned for oil and gas development, instead of
conservation. This occurs in every major development.
MS. BRADY added, "Even though it's state land."
MR. MAJOR added, "State land, federal land, private land, we
still go through the [North Slope Borough]."
6:35:11 PM
MR. BUCKENDORF, in regard to permitting new resource development
projects, remarked that identification of permits are required.
Currently, BP is developing a permitting plan for its "Liberty
Project." Mr. Buckendorf put together a 50-page memo to analyze
the state permits, which is very detailed because of the
overlapping jurisdiction.
CHAIR KOHRING requested that Mr. Buckendorf provide [his memo]
for the committee.
6:35:58 PM
CHAIR KOHRING inquired as to whether any of the authorizations
are duplicative, redundant, or unnecessary. He expressed his
desire to help streamline the [permitting] process by
eliminating the number of permits that are required as long as
it's not compromising the environment and/or contradicting
federal law.
6:36:40 PM
MR. BUCKENDORF discussed examples of permitting time frames, and
offered that permitting for small projects takes two to four
weeks, for medium projects three to six months, and for large
projects three months to more than three years. He noted that
the Kensington Mine was a 12-year project. Furthermore,
[projects] can take a long time if there are multiple agencies
and overlapping jurisdictions.
6:37:33 PM
PAT FOLEY, Manager, Land, Commercial and Regulatory Affairs,
Pioneer Natural Resources, Alaska, Inc. ("Pioneer"), informed
the committee that Pioneer is a relative newcomer to Alaska
since it has been conducting business in Alaska for only about
three years. Currently, it has about 26 employees in Alaska and
began exploration drilling in 2003. Oooguruk is a development
project that's a result of that successful exploration program
in 2003.
6:38:06 PM
MR. FOLEY explained that Oooguruk is a single, offshore drill
site, which is just off of the Colville Delta. Oooguruk lies in
about 4.5 feet of water and involves a single offshore island.
There is no processing on the island; instead, there is a sub-
sea buried flowline that connects back to existing
infrastructure in the Kuparuk River Unit. Pioneer is near the
end of negotiations with Kuparuk River Unit to utilize its
facilities for Pioneer's processing. Pioneer's development is
about 15,000 to 20,000 barrels per day, at peak. Oooguruk is
fairly small and similar [in size] to another drill site within
the Kuparuk River Unit. He noted that the facility, after the
construction and drilling phase, will be unmanned; it will be
remotely operated, with the ability to control wells and contain
problems immediately through instrumentation.
6:39:10 PM
MR. FOLEY informed the committee that Oooguruk has three
distinct construction phases. At this point, Pioneer is on the
cusp of receiving all of its federal, state, and North Slope
Borough authorizations and thus the project should commence
within the next few days. This winter, Pioneer will install an
offshore gravel island, about 500,000 cubic yards of gravel and
six acres in size. Next winter, Pioneer will install a sub-sea
buried pipeline bundle, which would be followed by a drilling
phase of approximately three years.
6:39:51 PM
MR. FOLEY reiterated that there is no processing on the island
as it is just a drill site with wells, manifold, storage, and a
sub-sea buried pipeline bundle. He noted that there's a very
small gravel expansion next to an existing drill site, Kuparuk
River Unit 3H, where Pioneer would have some other facilities.
6:40:39 PM
CHAIR KOHRING related his assumption that the reason Pioneer is
putting in the pipeline bundle before drilling is because it's
aware that there's already a reservoir there.
MR. FOLEY agreed and added that Oooguruk is a discovered
resource. The first wells were drilled in the 1970s by ARCO
Alaska, Inc., Texaco, and the Amerada Hess Corporation. Pioneer
found this same reservoir in its 2003 drilling program and
[current] oil prices allow for a project like Oooguruk to be
economic.
6:41:15 PM
MR. FOLEY described the configuration of the flowline bundle,
which is buried underneath the sea floor. The key to the
flowline bundle is that there's a production flowline. The
flowline bundle is a pipe-and-pipe construction, so three phases
- oil, gas, and water - are all shipped from the drill site to
existing Kuparuk River Unit infrastructure. It's a 12-inch,
steel pipeline, with space in between - an annulus - such that
it's enclosed in another pipeline. Therefore, there are two
levels of containment. In the space in between the annulus,
there's a very slight vacuum, which is the leak detection system
that allows Pioneer to know immediately if [the flowline bundle]
has any kind of a leak from the inside to the outside or from
the sea into the outer surface. Therefore, Pioneer has the
ability to shutdown wells, protection, and shipping nearly
immediately.
6:42:26 PM
REPRESENTATIVE ROKEBERG asked, "Is that produced gas going out?"
MR. FOLEY confirmed that Representative Rokeberg was correct.
He added that there's gas that would come out of existing
Kuparuk River Unit infrastructure. The gas is used for fuel,
gas injection, and reservoir pressure maintenance. In further
response to Representative Rokeberg, he explained that all three
phases come off of Pioneer's island, so they're exported into
Kuparuk River Unit infrastructure. He added that water, gas,
and power will all be imported - shipped back to Pioneer's
location.
6:43:04 PM
CHAIR KOHRING clarified that the whole bundle is not encased in
any way, it just has the bundle straps holding it together.
MR. FOLEY confirmed that Chair Kohring was correct. He added
that early in the design stage, conceptually, Pioneer considered
enclosing all of it in a super conductor. However,
operationally it wasn't feasible; the weight and the difficulty
of installation makes it impractical in [an Alaska] environment.
6:43:32 PM
MR. FOLEY remarked that another unique aspect of Pioneer's
offshore development is that all of the wells are drilled in
well-containment modules. He likened them to steel boxes that
are 13-feet high, 40-feet wide, and 40-feet long. [The well-
containment modules] are partially for spill containment, he
noted. There is a sump in the bottom of the facility so that
any escaping fluid would be contained within the box and could
be pumped into storage tanks, injected back into the reservoir,
or injected into Pioneer's offshore export line. The idea, he
clarified, is that no production and/or leak would ever enter
the Beaufort Sea.
6:44:21 PM
MR. FOLEY opined that Pioneer is a responsible developer. He
referred to a list of 27 evaluation studies and reports. The
evaluation studies and reports represent things that were
considered in order to ensure Pioneer designed a project that
was safe, responsible, and that mitigated all of the impacts.
Since November 2004, Pioneer has incurred nearly $2 million in
costs associated with the regulatory process and the evaluation
studies and reports. He added that the evaluation studies and
reports are the right thing to do in order to design a safe and
proper project.
6:45:38 PM
MR. MAJOR discussed ConocoPhillips' Alpine Satellite Development
Project. He explained that satellites are small oil fields that
are adjacent to another oil field where the oil is going to be
produced into an existing infrastructure. He informed the
committee that Alpine is the first on-shore, roadless
development for commercial production on the North Slope.
Alpine is located in the Colville River Delta about 35 miles
from the Deadhorse/Prudhoe Bay area and is less than 100 acres.
He noted that the existing facilities are producing about
115,000 barrels per day and the annual average, with the winter
peak, is about 130,000 barrels per day. ConocoPhillips is
adding satellites on to [the existing facilities], he related.
He explained that there were a number of changes made to
ConocoPhillips' proposal for satellites. For example, the
bridge lengths were altered. He noted that there is state land
as well as private land. Therefore, Alpine already has some
Native corporation involvement.
6:48:42 PM
CHAIR KOHRING related his understanding that the gravel that has
been extracted for the use of building the pads is coming from
Nuiqsut and that local people are being employed to mine and
deliver the gravel.
MR. MAJOR replied yes, and added that ConocoPhillips did most of
the gravel work [in 2005].
6:49:03 PM
MR. MAJOR described a map of what was approved in the EIS
process. For example, the bridge across the Nigalick channel
was lengthened from 1,200 feet to 1,650 feet. The route to the
satellites was moved from inside a buffer zone to outside a
buffer zone. The drill site was kept in the buffer [zone], but
the road access changed dramatically. Also, some of the other
smaller bridges were changed. The original proposal had power
line poles, which were taken out. ConocoPhillips has to run the
power lines on cable trays along the vertical support members
(VSM).
6:49:59 PM
MR. MAJOR, in regard to the Colville Delta (CD) 3, which is
north of the existing Alpine facilities, stated that it will be
a roadless development. He clarified that roadless doesn't mean
that there aren't connector roads, like there is from CD 1 to CD
2. The CD 3 will have its own airstrip and a development area
with a pipeline connecting to the Alpine main facilities. The
pipelines have to be a minimum of seven feet high. He added
that ConocoPhillips will have spill response equipment staged at
various channels along the way.
6:50:54 PM
MR. MAJOR, in regard to CD 4, which is connected to the Alpine
facilities by a road, remarked that there is 3.6 miles of road
connecting to CD 1. He added that there are seven-foot high
pipelines and a 10-acre pad, which has about 20-25 wells on it.
ConocoPhillips is going to spend about $.5 billion developing CD
3 and CD 4, which will give it about an extra 20,000 to 25,000
barrels a day of oil production.
6:51:41 PM
MR. MAJOR discussed the proposed CD 5, CD 6, and CD 7 [drill
sites]. Currently, ConocoPhillips has sanctioned, which means
funded, CD 3 and CD 4. However, CD 5, CD 6, and CD 7 have not
been sanctioned or permitted, but have been through the EIS
process. Currently, ConocoPhillips is in the process of
permitting CD 5. For CD 3 and CD 4, there were seven federal
permits, twenty state permits, and three local permits, plus the
rezone process; he noted that the permitting process is after
one has gone through the EIS [process]. He noted that CD 5, CD
6, and CD 7 will be about nine to ten acres in size, have seven-
foot high pipelines, and all of the fluids will go back to
Alpine.
6:52:57 PM
REPRESENTATIVE ROKEBERG inquired as to whether there would be a
gravel road "all the way out" to CD 7.
MR. MAJOR replied yes.
6:53:21 PM
MR. BUCKENDORF discussed BP's newest development project, which
is the Liberty Project. The Liberty Project is an offshore
development project and has 100-150 million barrel recoverable
reserves on federal leases on the Outercontinental Shelf. The
Liberty Project went through the EIS process from 1998-2002.
Several months prior to receiving the final EIS and draft
permits, BP decided to hold off on the project. At that point
in time, the Northstar project was just being challenged; there
were 20 pieces of litigation filed against Northstar, so BP
decided to complete the litigation for one project before
starting another offshore project.
MR. BUCKENDORF informed the committee that since that time, BP
has completely redesigned the Liberty project. For two years,
BP looked at developing something similar in design with an
offshore island without processing, but having the three phases
return to either Endicott or Badami. Just in the last year,
because of developments worldwide with extended-reach drilling
or long-reach directional drilling offshore in both the United
Kingdom and the North Slope, BP Exploration rethought the
process for the last nine months, which will now be an onshore
single drill pad that will access the offshore leases. It will
be the first of it's kind on the North Slope, and probably in
the United States.
6:55:29 PM
MR. BUCKENDORF remarked that the National Marine Fisheries
Service's (NMFS) regulations really weren't written to allow one
to drill five to seven miles [offshore] to access [oil and gas];
therefore, BP is currently working through some jurisdictional
issues with NMFS. Tomorrow morning, BP will sign a memorandum
of understanding and it anticipates the State of Alaska will
sign on to [the memorandum] within the next month. To
supplement the original EIS, BP is going to evaluate two
different drill sites, one of which is closer to Endicott.
There isn't a road to Badami or Endicott and the Endicott
causeway, so BP is looking at a drill site closer to Badami and
one closer to Endicott.
6:56:33 PM
MR. BUCKENDORF informed the committee that BP's base case has it
developing a Point Brauer well site, drilling 5.4 miles.
Several of the wells will be 8 miles, with the production
returning to BP's 100-percent-owned Badami field, which is
currently operating.
MR. BUCKENDORF, in response to Representative Samuels, answered
that Endicott is largely owned by ExxonMobil and BP.
6:57:23 PM
MR. BUCKENDORF stated that the Liberty Project well appraisal
was in 1998, the same year in which ARCO was conducting the
final permitting of Alpine. The original concept [of the
Liberty Project] was a twin to Northstar.
MR. BUCKENDORF commented that the status of the Liberty Project
is that BP is going to spend 2006 going through the "select"
phase, which is the "definitive final conceptual level of
engineering." Also, BP is going through an extensive pre-
application process. In late December, BP will send its draft
development plan to the Minerals Management Service (MMS) and
the Corps of Engineers. In the second quarter of 2007, BP will
begin the supplemental EIS process.
6:58:31 PM
MR. BUCKENDORF explained that the Liberty Project base case
consists of 10-15 production and injection wells back to Badami,
with a three-phase [pipe]line. He noted that BP is evaluating
the Liberty Project as roadless, but the base case has a road as
a result of the extensive drilling program. He opined that the
Liberty Project is a world-class, extended-reach drilling
program and added that BP believes that a road to the facility
is necessary. He stated that BP will have both producing and
injecting wells going 8 miles out into the Liberty reservoir,
which is well beyond the current envelope of technology.
7:00:08 PM
MR. BUCKENDORF acknowledged that federal, state, and local
issues have to be addressed anywhere in the state of Alaska
because of the wetlands permitting, which contributes to the
lengthy permitting process. Although states have the ability to
assume primacy over wetlands permitting from the Corps of
Engineers, only four to five states have such because it's a
difficult process. As a result of the extensive jurisdiction of
the Corps of Engineers in Alaska, any time one wants to develop
in a wetlands, [the Corps of Engineers requires an] EIS or EAP.
If laying gravel is considered, the EIS process [is required].
He remarked that there are a number of petitions, almost yearly,
to try and list more species found in the state or the North
Slope as endangered or threatened, or to petition the federal
government to set aside critical habitat [areas]. He noted that
BP is constantly monitoring those lawsuits by national and
worldwide environmental groups to make the process even more
difficult. He added that currently there's a NMFS lawsuit to
review polar bear habitat for fuel storage.
7:02:15 PM
MR. BUCKENDORF explained that BP has been conducting studies for
years and is going through [the EIS process] right now for the
Liberty Project. In fact, there will be more studies over the
next year to tighten the Liberty Project design. The critical
part [of the process] is to conduct the studies up-front, so
that in the design work one builds correctly and in an
environmentally friendly manner. He opined that BP works in an
environmentally friendly manner in Alaska and the North Slope.
7:02:53 PM
MR. BUCKENDORF reiterated that as a result of the Title 19 land
management regulation through the North Slope Borough, every
local borough or city in the state has the authority to try and
assume Title 19 or to draft coastal management policies. The
next six to nine months will be very busy in DNR, he opined,
because it is reviewing every set of local policies.
MR. MAJOR added that it was part of the mandate from House Bill
191 enacted in 2003 to have all coastal districts resubmit new
plans to conform to regulatory requirements.
7:04:20 PM
MR. MAJOR, in answering the question, "How long does it take to
permit a project?", explained that a lot depends on the location
of the project. Generally, for any kind of major project,
there's a three- to four-year time frame. If one has to do an
EIS, one can plan on a two-year process. The quickest EIS
that's been done for oil and gas development was the Alpine
satellite EIS, which was an 18-month process.
7:05:19 PM
MR. BUCKENDORF related that the Northstar Unit EIS took about
four years. If controversy arises during the planning and one
doesn't address it, it just extends the EIS process. That's one
reason why BP began evaluating Liberty from onshore. The
Liberty Project is fairly close to Cross Island, which is a
major whaling area for the North Slope Borough. He noted that
BP involves the North Slope Borough residents in the decision-
making and evaluation, thus gaining their support.
7:06:02 PM
MS. BRADY added that the movement of "habitat" out of the Alaska
Department of Fish & Game (ADF&G) into DNR, makes a big
difference because there used to be people in [ADF&G] who would
deadlock agency work on projects, which is still the case in
some of the federal agencies.
7:06:29 PM
MR. MAJOR reminded the committee to keep in mind that one has to
do his/her EIS before he/she can apply for permits. In
answering the question, "How much does it cost?", he explained
that considering all of the variables, one has to collect base
line data. If [a project] is complicated or controversial, one
might have to conduct two or three years worth of base line
studies before the EIS process is even started, which he added
is fairly expensive.
7:07:04 PM
MR. FOLEY remarked that for projects to be economic, one of the
"big drivers" is cycle time. Typically, a North Slope
development project, from discovery to production, would take
seven to ten years. He informed the committee that when an
independent [company] from the Lower 48 considers coming to
Alaska, it is appalled by the time frame. He added that these
are companies that are accustomed to finding something and
having it sold down a pipeline in six months. In response to
how long it takes to permit a project, he answered, "Longer than
you could possibly imagine." In response to whether the
permitting system is transparent, he answered, "Yes, but it will
take many, many months to figure out what it is."
7:08:40 PM
CHAIR KOHRING reiterated that he is open to any recommendations
as to how the [permitting] process can be streamlined, as long
as it's not compromising safety and the environment.
MR. FOLEY responded that in general, Alaska has a world-class
petroleum system. The people who do business [in Alaska] are
world-class operators, and "by far, it is environmentally, the
most responsible development anywhere on the planet." He added,
to accomplish this it takes time, people, and money.
7:09:33 PM
REPRESENTATIVE ROKEBERG suggested that the committee think about
an ombudsman for the permitting process. Returning to the
creation of the areawide leasing concept, he discussed the idea
of having base line data available in the best interest finding
and extending the life of the best interest finding. In regard
to the idea of waiting until one gets the EIS to gather base
line data, he said, "Is there not a repository? Or is it
proprietary where you can't reuse or have existing data?" He
opined that the North Slope area has to be one of the most
studied areas in the world, and therefore he said he doesn't
understand why some of the data can't be shared.
7:10:55 PM
MR. FOLEY responded that when Pioneer began [work on Oooguruk],
it conversed with other companies and it was at that time that
it realized that a project like Oooguruk would probably require
an EIS. Pioneer took exception to that because there had been a
number of EIS' conducted in this area. The same questions have
been asked, the same decisions were ultimately made and
documented. Therefore, Pioneer relied upon the [existing] body
of knowledge. As a result, Oooguruk will be approved in the
next week by an EAP. He noted that when one gets outside of the
Colville Canyon, right in the "backyard" of oil development,
it's different.
MR. BUCKENDORF added that there is a large volume of data that
is out there and [the oil and gas industry] is constantly
building upon it.
7:11:58 PM
MR. MAJOR added that there is a lot of data in certain areas,
but as one moves into a new area, he/she has to have focused
studies on that area such that the location of the birds' nests
in that area are known as well as the species in the area, and
which lakes have fish. To the degree that [operators] are able
to, they share data with other operators. [The data] is
available through agencies such as the U.S. Fish and Wildlife
Service (USFWS), ADF&G, and DNR.
7:13:49 PM
MR. MAJOR, in response to the subjectivity of the permitting
system, explained that the roles are laid out - one is aware of
what his/her path has to be. The subjectivity sometimes comes
into play when there might not be enough information to make a
decision. In further response to questions, he specified that
time is a major force in driving permit approvals. There is a
limited operating season and generally it's better to operate
and do major construction in the winter than in the summer. For
projects like the Alpine satellite, Oooguruk, and the Liberty
Project gravel placement, all of the work has to be done in the
winter. There is a limited window and one always faces getting
approval in enough time to get work done during the winter.
Otherwise, one loses a year.
7:15:21 PM
CHAIR KOHRING, in regard to the [limited window of time],
questioned whether it's [expanding] in light of the weather
changes such as permafrost melting.
MR. MAJOR responded that there have been some real strides in
that area. The process that was [previously] used for winter
tundra travel on the North Slope was an "on and off switch."
The industry is moving toward a system that reflects the
equipment being used as well as the time frame. The equipment
that was used by the State of Alaska to determine when tundra
travel was suitable was a slide hammer - a cone penetrometer
that is used for highways. Currently, there is more of a
scientific methodology, using ground temperatures. On federal
land, the Bureau of Land Management (BLM) has always worked with
[the oil and gas] industry and used cone penetrometers on the
back of rolagons for measuring. [The oil and gas industry] has
also used weather stations to determine frost depths and
temperatures. He noted that last winter there was a little
longer tundra travel season than before.
7:17:18 PM
MR. BUCKENDORF remarked that from his perspective, having worked
in the mining, timber, and oil and gas industries for four
different companies, [the permitting process] is complex.
Alaska is a big state with a lot of federal land and the federal
and environmental legal structure is extremely complex. Federal
air permitting, which dictates the State of Alaska permitting,
is the most complex in the world. The regulations are now
numbered and there are tens of thousands of pages. He added
that the [State of Alaska] part of the triangle is working
pretty well, and compared to five years ago, it's working very
well. He added that although the changes from House Bill 191
have been effective thus far, [the oil and gas industry] still
has some work to do because there aren't local policies in place
yet.
7:19:05 PM
MR. FOLEY returned to Oooguruk and opined that the [State of
Alaska]'s process works relatively well. For example, on
Oooguruk, Pioneer started all of its North Slope, state, and
federal permits at the same time. All of the state
authorizations under ACMP, nearly everything Pioneer needed from
DNR, DEC, and the Land and Water Group in Fairbanks, it had by
October 2005. The North Slope Borough lagged four months
behind, and Pioneer is still waiting for its federal permits.
7:19:49 PM
MR. MAJOR related that ConocoPhillips found [during a major
project that required a lot of state involvement] that it was
beneficial to have a state coordinator designated for [that
specific] project. The coordinator kept things moving along so
there wasn't last minute deadlock and provided some consistency
in the process. He remarked that the federal [permitting]
process is the one that's lagging [behind]. He concluded that
the state process isn't perfect, but works "pretty good."
7:22:29 PM
ADJOURNMENT
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 7:22
p.m.
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