Legislature(1997 - 1998)
05/06/1997 08:40 AM House RES
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JOINT HOUSE RESOURCES STANDING COMMITTEE/
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
May 6, 1997
8:40 a.m.
RESOURCES MEMBERS PRESENT
Representative Scott Ogan, Co-Chairman
Representative Bill Hudson, Co-Chairman
Representative Fred Dyson
Representative Joe Green
Representative Irene Nicholia
RESOURCES MEMBERS ABSENT
Representative Beverly Masek, Vice Chair
Representative Ramona Barnes
Representative William K. ("Bill") Williams
Representative Reggie Joule
OIL & GAS MEMBERS PRESENT
Representative Mark Hodgins, Chairman
(Representative Scott Ogan)
Representative Norman Rokeberg
Representative Joe Ryan
Representative Con Bunde
Representative Tom Brice
OIL & GAS MEMBERS ABSENT
Representative J. Allen Kemplen
COMMITTEE CALENDAR
CONFIRMATION HEARINGS:
Alaska Oil and Gas Conservation Commission
Robert N. Christenson
- CONFIRMATION ADVANCED
PREVIOUS ACTION
No previous action to record
WITNESS REGISTER
ROBERT N. CHRISTENSON, Appointee
to Alaska Oil and Gas Conservation Commission
15800 Southpark Loop
Anchorage, Alaska 99516
Telephone: (907) 264-8124
POSITION STATEMENT: Testified on appointment to Alaska Oil and Gas
Conservation Commission.
ACTION NARRATIVE
TAPE 97-50, SIDE A
Number 0001
CO-CHAIRMAN SCOTT OGAN called the Joint House Resources Standing
Committee/House Special Committee on Oil and Gas meeting to order
at 8:40 a.m. Present at the call to order were Representatives
Ogan, Hudson, Hodgins, Ryan and Bunde. Representatives Green,
Rokeberg, Nicholia, Brice and Dyson joined the meeting at 8:43
a.m., 8:46 a.m., 8:51 a.m., 8:52 a.m. and 9:31 a.m., respectively.
CONFIRMATION HEARING
CO-CHAIRMAN OGAN announced the purpose of the joint meeting was a
confirmation hearing on Robert N. Christenson's appointment to the
Alaska Oil and Gas Conservation Commission (AOGCC).
Alaska Oil and Gas Conservation Commission
Number 0128
ROBERT N. CHRISTENSON, Appointee to the Alaska Oil and Gas
Conservation Commission, said his most recent job is with VECO
Corporation, where he serves as senior vice-president in charge of
strategic planning. An Anchorage resident for two years, he is a
registered professional engineer in Washington state and Alaska.
MR. CHRISTENSON has 40 years' experience in the industrial sector,
the last 20 in oil and gas. He began working in Alaska as a
project engineer in 1978 "in the Prudhoe Bay field on the ARCO
side." He stated, "Since that time, I personally, and later my
company, have worked continually either for BP, then Sohio or ARCO
and ARCO and Alyeska pipeline." His initial experience in oil and
gas in Alaska was in production facilities in Prudhoe Bay.
MR. CHRISTENSON stated that petroleum can be interpreted as a broad
term. It includes the "basic three parts of the development of a
field." First is information required to define the reservoir and
find the oil. Second, drillers confirm that field and do the
drilling program. Third, there must be surface facilities to
produce it, down to a transportation system. "So I have been in
that facility side of the work," he said. To illustrate the close
working relationship and collaborative effort required in these
development projects, he discussed the interim gas lift module his
company did for Sohio.
Number 0464
MR. CHRISTENSON emphasized the importance of this close working
relationship for the future of the North Slope. He said the
marginal fields are difficult to produce because of the reduced
costs necessary to make them profitable; he cited an example
involving Northstar.
MR. CHRISTENSON advised that in 1986, he and seven shareholders
bought the company they worked for, Hallanger Engineers, and
operated it for six years as Christenson Engineering. During that
time, they continued to work on the North Slope and elsewhere. The
organization grew from 30 people to 300. Asked to participate in
the competition for the engineering alliance at British Petroleum,
they elected to join with VECO in a joint venture corporation to
pursue that alliance. He said, "We were successful, and a year
later we were successful in competing for the Alyeska engineering
alliance, and now I have that. So for about four years now, we've
had both of those alliances here in Alaska." He said they have 350
engineers in Alaska and 1,000 total, from all disciplines. He
believes they are Alaska's largest engineering company.
Number 0693
MR. CHRISTENSON stated why he believes he can add to the
commission. He said, "I have a lot of experience in dealing with
the oil companies; I've been dealing with them for 20 years in all
facets of their ups and downs. I understand their business. I
think that would be helpful. I have used and been a part of multi-
disciplinary teams, where it is very important to coordinate and
cooperate to go forward. I have never worked for an oil company,
so I have no allegiance to any oil company. Other than talking
with the Governor twice, when he asked me if I'd accept the
appointment and yesterday when he welcomed me to Juneau, my first
trip, I have not had any dealings with the Governor. I am not
seeking this as a star in my crown to further my career, as I am
toward the end of my career. So I feel that I am very much an
independent in what my decisions will be, which I think is
important for the commission."
MR. CHRISTENSON said it would be presumptuous, on this short
notice, to comment on what the commission should do; he is not yet
familiar with the personnel, although he has met with the chairman.
However, he believes there are important things the commission must
do to safeguard the resource in Alaska and, at the same time,
promote development of the oil. He commented that oil and gas do
no good in the ground. He suggested compromise solutions need to
be worked out to ensure the state is taken care of, in addition to
stimulating the industry to produce the fields.
MR. CHRISTENSON stated that he believes the commission should stay
current on technology and investigate new technologies. He also
believes the commission should have every means possible to
independently assess what the oil companies are doing.
Number 0933
CHAIRMAN MARK HODGINS noted that a couple of issues, extremely
important to Alaska, are coming up. He asked for Mr. Christenson's
views on the Trans-Alaska Gas System (TAGS) project and upcoming
lease sales. He further asked how these lease sales would
interplay with Mr. Christenson's personal philosophy.
MR. CHRISTENSON responded that he had not been involved
specifically with lease sales to date; therefore, his opinions are
based on interaction with the "oil patch." He believes it is
important to have lease sales and to stimulate the environment for
oil companies to come in and develop the resource.
Number 0989
CHAIRMAN HODGINS asked whether Mr. Christenson would, then, be
proactive in establishing lease sales and continuing the lease sale
process.
MR. CHRISTENSON replied, "Absolutely."
Number 0998
CHAIRMAN HODGINS asked for Mr. Christenson's thoughts on the TAGS
project.
MR. CHRISTENSON responded, "There's obviously a lot of gas up there
that needs to get to market, and I think that the issue right now
is: How do you get the gas to market and get it to market at a
competitive price? Because in the long haul, the end result is ...
that you must be competitive in the world market in order to do
that, though I think that it is important that we look at all
economic aspects, because it is a matter of cost and return. And
certainly the gas in Alaska is an important commodity on a
worldwide basis, and we need to do all we can do to make sure that
we can deliver that gas to the market at a competitive price. And
that involves not only the technical side, but it obviously
involves the tax structure and the royalties and all the other
things that need to be done in order to make that a competitive
package for the ... world market."
Number 1098
REPRESENTATIVE CON BUNDE referred to a recent article in the
Anchorage newspaper about liquefaction of gas. He noted the
challenge of making Alaska's gas marketable and stated, "And if
this opportunity would play out, it would reduce, I think, some of
the economic barriers to the sale of our gas." He asked whether
Mr. Christenson had read the article and what his thoughts were on
what Alaska might do to help advance further study of the
liquefaction process.
Number 1135
MR. CHRISTENSON said that was why he mentioned his belief that it
is important for the commission to stay current on technology, as
this is one area that looks highly attractive. Although he had not
read the article in detail, he knows about the process somewhat.
He stated, "Again, as with anything, these processes all turn out
to be: What is the most economic way to do it, and how do you
compete with the market prices? Because unless you have a
subsidized development, such as the heavy oils and the `syncrudes'
and so forth, like they had in Canada, it's not possible to produce
competitive product." He suggested making sure the commission is
well-versed in the technology. He further suggested if there are
opportunities to work with oil companies to stimulate it, that
would be appropriate. He endorsed seeking new ways to do things
and do them safely.
MR. CHRISTENSON explained that in his own programs, safety comes
first. "And I have been brought up in the environment where there
are no accidents," he stated. "All accidents are preventable, and
therefore, you shouldn't have them." He said that applies across
the board.
Number 1278
CO-CHAIRMAN BILL HUDSON advised that he views this commission as
perhaps the most important in Alaska, as it is the watch dog and
the advocacy for the people of Alaska. He said one of the most
important elements would be maintaining autonomy from the industry.
"You have to work with the industry, but you have to be able to
rise above them on issues that they may find economic and you may
find wasteful or whatever it might be," he said. Co-Chairman
Hudson asked, "Will you be working full time with this commission?"
MR. CHRISTENSON said yes.
CO-CHAIRMAN HUDSON asked whether Mr. Christenson sees any potential
conflict with his partners or elements of his company in their
responsibilities and his duties on this commission, and whether he
could segregate the two.
MR. CHRISTENSON replied that he does not have a formula right now
for that, as he has a contract with VECO as a result of his
acquisition. However, he will accomplish whatever is necessary to
ensure there is no conflict of interest.
CO-CHAIRMAN HUDSON stated his belief that ensuring there is no
conflict is an imperative "because of the peculiar nature of this
commission." As he reads it, the AOGCC must maintain a separation
even from the Department of Natural Resources (DNR). He noted that
the commission works on behalf of the people of Alaska.
Number 1436
REPRESENTATIVE NORMAN ROKEBERG said he share's Co-Chairman Hudson's
analysis of the importance of this commission. He stated, "In
fact, the two technical seats on this commission, to me, are the
two most important positions in the entire state government of
Alaska when it comes to husbanding our resources and making sure
that the oil flow, which is the bulk of all of our state revenues,
has been able to continue, and it has been served and husbanded and
allocated in a proper manner." He asked Mr. Christenson what
methods are used generally in the Kuparuk oil field.
MR. CHRISTENSON said he was not current there because he had not
done work for ARCO in awhile. He stated, "But I know that we were
using, at one point, water-alternating-gas methods for enhanced oil
recovery. And that's the only one I'm current on. I know that
there's a new project over there now, but I don't know what methods
they're using."
MR. ROKEBERG asked whether Mr. Christenson knows which of those are
more effective or whether it depends on the structures.
MR. CHRISTENSON replied that in his experience, it depends a lot on
the structure, the gas cap, and where the water is in the field.
He said, "And I know that we have discussed many, many different
types. So I don't think you can say that there is one that is
universally more acceptable than others. It really depends on a
lot of things in the reservoir."
Number 1553
REPRESENTATIVE ROKEBERG referred to the Tarn discovery, part of the
Kuparuk area. He asked whether Mr. Christenson knew about that and
asked him to comment on "transportation of the oil and waters for
a step-out area there and how effective and how costly that could
be to bring your methods to that particular field."
MR. CHRISTENSON said they had not really done a lot with ARCO in
the last few years; therefore, he could not really speak to the
Kuparuk field. He said the closest they had come to that is the
Milne Point field, a "submersible pump field." They were talking
about miscible injection in that field. He stated, "We put in I
think about three or four pads in the Milne Point area since we
started, and I'm trying to remember what the costs for those
particular gathering stations were; I don't remember offhand." He
offered to get that information.
Number 1625
REPRESENTATIVE ROKEBERG referred to Milne Point and said there are
roughly 26 billion barrels of heavy oil on the North Slope. He
briefly discussed the history of Milne Point and asked, "What
methods are you aware of that are used in Arctic engineering to
lift heavy oil?"
MR. CHRISTENSON replied, "We've been involved in the new
development of the Schrader Bluff area for British Petroleum." He
indicated people from his company had been on the facilities team
in that area. He said, "And the methods, as I see the development,
were to minimize the drilling costs because they are shallow wells
and they are slow producers. So the drilling program is the most
essential." He suggested if Representative Rokeberg was "referring
to whether it is in situ or steam lines or whatever, like they do
in the North," he does not believe that is called for in the
Schrader Bluff area.
Number 1717
REPRESENTATIVE ROKEBERG asked whether there was flooding going on
in the fields or difficulties with enhanced oil recovery (EOR)
because of sand.
MR. CHRISTENSON said sand is always a problem. He cited an example
involving sand erosion and commented, "I don't know if that is the
paramount problem or just a problem."
Number 1748
REPRESENTATIVE JOE GREEN mentioned he had talked with Mr.
Christenson the previous day. Although he believes Mr. Christenson
is qualified as far as administrative abilities, personality and so
forth, he has serious concerns about his qualifications to address
the myriad of questions that will arise dealing with reservoir and
downhole equipment, for example. He presented the analogy of a
hospital administrator becoming a surgeon.
REPRESENTATIVE GREEN cited a string of technical terms and issues
that he said are real issues and real problems in Alaska. One
major "test" on the commission would be correlative rights and
prevention of waste. He said, "And in order to understand whether
there could be waste going on, you'll have to exercise your own
abilities in cases. You can't rely on the operators. You can't
even rely on untrained staff in that regard. And so that is where
my problem lies, that do you feel that you would be able to make
the call, against perhaps a hostile operator on a call one way or
the other, on, for example, dry gas injection into a gas cap
overlaying an oil field that has light hydrocarbons in it?"
REPRESENTATIVE GREEN said the commission would look to him for that
expertise. Although he could hire consultants, he would ultimately
make the call. He asked whether Mr. Christenson feels his
background would enable him to do so.
Number 1912
MR. CHRISTENSON stated his belief that it is important that
commission members have, in aggregate, the total scope of technical
talent to evaluate such situations. "So I don't differ from your
viewpoint in that regard," he stated.
MR. CHRISTENSON said in regard to whether he believes he could make
decisions given the information, his analogy would be that for 20
years, he had been making decisions that not only affected clients
but also himself, personally, in terms of "betting the farm." He
feels comfortable in the role of making decisions based on
information available from people he selects as being knowledgeable
in a particular area. He cited the example of process work, saying
he had learned over the years to trust the judgment of the people
he hires, but also to sometimes mitigate it.
Number 2038
REPRESENTATIVE GREEN acknowledged perhaps his hospital/surgeon
analogy was not the best. He mentioned that Mr. Christenson's
dossier indicates he ran a company with 1,000 employees; he
believes from their conversations that Mr. Christenson had a good
idea of what each project entailed. He suggested, however, that
such a position requires far more administrative than technical
skill. The AOGCC has a relatively small staff, and administrative
abilities would have to be replaced by a far more intimate
knowledge of what is going on.
REPRESENTATIVE GREEN said as Alaska increasingly depends on smaller
reservoirs, it is possible there will be one operator or operators
with partners, with a common purpose. They will not be at odds as
in Prudhoe Bay because of the gas cap and oil rim. When that
operator, or the representative of a group of operators, comes to
the commission with proposed field rules, those need to be examined
with a fine-toothed comb. The first objective of oil companies is
to make a profit; all successful companies rely on that, and they
will skew their approach to their advantage, which is to be
expected.
REPRESENTATIVE GREEN asked Mr. Christenson: If companies skew
their approach to a production method that may not ultimately be
the best for the state or the reservoir, will you have the
expertise to take appropriate action? He said in addition to facts
presented, there will be much that is neither said nor presented,
which Mr. Christenson will either have to demand or find. "And
those are the things that I'm concerned about more than your
administrative ability, is the ability, the `intuit' that you're
going to need to be able to determine what is the best way to
establish what are the best field rules to establish," he said.
Citing examples, he stated that there are a wide variety of
reservoir characteristics; in some cases, he believes only
experience can dictate what should be done. He asked for a
response.
Number 2225
MR. CHRISTENSON said that is pretty wide-open. He expressed
surprise at finding that the current major resource and income for
the state was overseen by a group so small. "Because it seems to
me to be really important that there is an independent assessment
of what the resource is and what the best way to produce it is," he
stated. "And I don't know if there's sufficient simulations
software and that kind of stuff to be even able to do that with the
folks that are there. So I guess that's a concern that I share
with you." He acknowledged he cannot instantly become a reservoir
engineer, for example. However, he would rely on his ability,
through consultants or otherwise, for an independent assessment to
make the right decisions.
Number 2301
CO-CHAIRMAN OGAN asked whether Mr. Christenson was aware of the
statutory qualifications for members.
MR. CHRISTENSON affirmed that he had read the statute.
CO-CHAIRMAN OGAN read from AS 31.05.009, which says in part, "one
member shall be a licensed professional engineer with educational
and professional background in the field of petroleum engineering".
He asked Mr. Christenson to characterize his background in
petroleum engineering.
MR. CHRISTENSON replied that if the question is whether he is an
educated petroleum engineer, he is not; he is a mechanical engineer
by education who has worked 20 years in the petroleum field.
Number 2343
CO-CHAIRMAN OGAN read from a portion of AS 31.05.030, which
provides an extensive list of the commission's powers and duties.
TAPE 97-50, SIDE B
Number 0006
CO-CHAIRMAN OGAN continued reading from AS 31.05.030. He said he
believes one of the most important is AS 31.05.030(g), relating to
hazards; he read it in part. He stated that when the legislature
set up the commission, they clearly wanted that expertise. He said
there has been concern in the legislature that the commission has
been operating one commissioner short for nearly a year. He asked
whether Mr. Christenson is qualified to make the decisions outlined
in the statutes or whether he would have to rely on staff for
information to make those decisions.
MR. CHRISTENSON replied, "There is no question that I would rely on
staff to feed me the information. I truthfully find it hard to
believe that there would be a single individual that could sit in
a room without any input other than data from the oil companies who
would be qualified to make a decision such as the ones that
Representative Green had talked about and the ones you read off in
the book. It's a complex subject, and ... I certainly would not be
one that would say that I could singularly, by myself, make all
those decisions."
Number 0224
REPRESENTATIVE ROKEBERG asked whether Mr. Christenson was prepared
to make the commitment to the state to bring the energy and
vitality needed to this small group of people, learning a whole new
discipline.
MR. CHRISTENSON replied that it has taken an enormous amount of
energy and commitment to get to the point where he is. He does not
feel compelled to "hang it up" and otherwise would not consider the
position. He has always been active. He looks forward to
challenge, and this is a very challenging position. He stated, "In
sum, I would say the answer to the question is yes, I am."
Number 0383
REPRESENTATIVE ROKEBERG expressed concern over a "duopoly" in
Alaska with two major operators. He said only three actual
petroleum firms now lift hydrocarbons out of Alaskan soil: UNOCAL,
BP Exploration (Alaska) Incorporated and ARCO Alaska, Incorporated.
Because of operating agreements, there are basically two petroleum
companies, which concerns him. He asked for Mr. Christenson's
opinion on that.
REPRESENTATIVE ROKEBERG further said there are statutory
requirements relating to bonding, for example, that require that to
drill one hole, there must be as much as $1 million in bonding for
potential oil spills; he believes this is an enormous barrier for
smaller exploration companies and a huge burden on development of
potential resources, particularly in "nonfrontier areas" of the
state. He believes the commission has the capability to affect
that. He asked Mr. Christenson's opinion on whether new
exploration by smaller petroleum firms in Alaska should be
encouraged and if so, what he as commissioner would do to foster
that.
Number 0506
MR. CHRISTENSON responded that the point about the independents is
an interesting one. He cited examples of small operators and
stated that the onus is really on the major companies to produce
and operate cheaper than they have been. If they do not, there are
companies "sitting on the fence that are just waiting to get in
there and get those leases and make money producing where the
larger companies can't."
MR. CHRISTENSON stated, "And I think that that deserves a lot of
stimulation, because I think those companies, they have proved that
other places in the world, they can go and they can produce cheaper
than the larger companies. There is some risk in going with the
smaller companies, as you point out from the bonding standpoint,
but certainly they have the talent. I mean, ARCO and BP are not
the only one that has production capability and talent to analyze
reservoirs and go in and do their drilling. And I think it is a
paramount thing that we do encourage others to come into the
field." He cited an example and concluded, "In answer to your
question, yes, I would be in favor of doing that. As to how to
precisely stimulate the participation by smaller companies, smaller
independents, I think I'd have to look at that. I agree that if it
takes a $1 million bond, that's a lot of money for some of these
folks to come up with, but they're able to go out and raise capital
if the potential was there. So I think it's possible."
Number 0671
REPRESENTATIVE ROKEBERG asked, "If you had the opportunity to
advise Secretary Babbitt about the correlative rights of the
potentiality of the Sourdough prospect next to the ANWR prospect,
what advice would you give the Secretary of Interior as to the
allowance of the state of Alaska's lessees to explore areas by
directional drilling into ANWR?"
MR. CHRISTENSON said that is a little out of his domain. However,
his personal opinion is that if reserves are there, he believes we
should develop them, in the Arctic National Wildlife Refuge (ANWR)
or a corollary field where directional drilling could be done. He
stated, "My advice would be that petroleum in the ground does
nobody any good if it's in the ground. And we should be developing
it for the good of the country, as well as the good of the state,
and should not be keeping it as a calving ground for the caribou
necessarily, because the pad sizes and the new technology allow us
to do things a lot smaller even now than things were done in
Prudhoe. So ... there ought to be an option to do that."
Number 0775
REPRESENTATIVE ROKEBERG commented that corollary rights is a major
responsibility of the commission, and the individual in this
position should be able to make recommendations for that.
Number 0808
CO-CHAIRMAN OGAN asked whether there were further questions. He
thanked Mr. Christenson and explained that the committee would not
make recommendations; those would be made individually on the House
floor.
ADJOURNMENT
CO-CHAIRMAN OGAN adjourned the Joint House Resources Standing
Committee/House Special Committee on Oil and Gas meeting at 9:40
a.m.
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