Legislature(2003 - 2004)

02/07/2003 01:05 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        February 7, 2003                                                                                        
                           1:05 p.m.                                                                                            
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Hugh Fate, Co-Chair                                                                                              
Representative Beverly Masek, Vice Chair                                                                                        
Representative Carl Gatto                                                                                                       
Representative Cheryll Heinze                                                                                                   
Representative Bob Lynn                                                                                                         
Representative Kelly Wolf                                                                                                       
Representative David Guttenberg                                                                                                 
Representative Beth Kerttula                                                                                                    
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
CONFIRMATION HEARING                                                                                                            
Commissioner, Department of Environmental Conservation                                                                        
     Ernesta Ballard - Juneau                                                                                                   
     - CONFIRMATION(S) ADVANCED                                                                                                 
HOUSE BILL NO. 69                                                                                                               
"An Act  relating to  regulation of  shallow natural  gas leasing                                                               
and  closely  related  energy  projects;  and  providing  for  an                                                               
effective date."                                                                                                                
     - MOVED HB 69 OUT OF COMMITTEE                                                                                             
HOUSE BILL NO. 16                                                                                                               
"An  Act   amending  the  standards  applicable   to  determining                                                               
whether,  for purposes  of the  Alaska  Stranded Gas  Development                                                               
Act, a  proposed new investment constitutes  a qualified project,                                                               
and  repealing  the deadline  for  applications  relating to  the                                                               
development of  contracts for payments  in lieu of taxes  and for                                                               
royalty  adjustments  that  may be  submitted  for  consideration                                                               
under that Act; and providing for an effective date."                                                                           
     - SCHEDULED BUT NOT HEARD                                                                                                  
CONFIRMATION HEARING                                                                                                            
Commissioner, Department of Natural Resources                                                                                 
     TOM IRWIN - Juneau                                                                                                         
     - CONFIRMATION HEARING POSTPONED                                                                                           
PREVIOUS ACTION                                                                                                               
BILL: HB 69                                                                                                                   
SHORT TITLE:REGULATION OF SHALLOW NATURAL GAS                                                                                   
SPONSOR(S): REPRESENTATIVE(S)KOHRING                                                                                            
Jrn-Date   Jrn-Page                     Action                                                                                  
01/29/03     0086       (H)        READ THE FIRST TIME -                                                                        
01/29/03     0086       (H)        O&G, RES                                                                                     
01/31/03     0108       (H)        COSPONSOR(S): HEINZE                                                                         
02/05/03     0135       (H)        COSPONSOR(S): MORGAN                                                                         
02/06/03                (H)        O&G AT 3:15 PM CAPITOL 124                                                                   
02/06/03                (H)        Moved Out of Committee                                                                       
02/06/03                (H)        MINUTE(O&G)                                                                                  
02/07/03     0146       (H)        O&G RPT 6DP 1NR                                                                              
02/07/03     0146       (H)        DP: CHENAULT, MCGUIRE,                                                                       
02/07/03     0146       (H)        CRAWFORD, FATE, KOHRING; NR:                                                                 
02/07/03     0147       (H)        FN1: ZERO(ADM)                                                                               
02/07/03     0155       (H)        COSPONSOR(S): ROKEBERG                                                                       
02/07/03                (H)        RES AT 1:00 PM CAPITOL 124                                                                   
WITNESS REGISTER                                                                                                              
ERNESTA BALLARD, Commissioner                                                                                                   
Department of Environmental Conservation                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as appointed commissioner of the                                                                 
Department of Environmental Conservation.                                                                                       
REPRESENTATIVE VIC KOHRING                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Testified as sponsor of HB 69.                                                                             
JACK EKSTROM, Director                                                                                                          
Government and Public Affairs                                                                                                   
Evergreen Resources, Inc.                                                                                                       
Denver, Colorado                                                                                                                
POSITION STATEMENT:  Provided  information and answered questions                                                               
related to HB 69.                                                                                                               
ACTION NARRATIVE                                                                                                              
TAPE 03-3, SIDE A                                                                                                             
Number 0001                                                                                                                     
CO-CHAIR HUGH FATE called the  House Resources Standing Committee                                                             
meeting to  order at 1:05  p.m.  Representatives  Fate, Chenault,                                                               
Gatto, Heinze, Lynn, Guttenberg, Masek,  and Wolf were present at                                                               
the  call  to order.    Representative  Kerttula arrived  as  the                                                               
meeting was in progress.                                                                                                        
CONFIRMATION HEARING                                                                                                          
Commissioner, Department of Environmental Conservation                                                                        
CO-CHAIR  FATE  announced  the   first  order  of  business,  the                                                               
confirmation  hearing on  the appointment  of Ernesta  Ballard as                                                               
commissioner of the Department of Environmental Conservation.                                                                   
Number 0170                                                                                                                     
ERNESTA  BALLARD,   Commissioner,  Department   of  Environmental                                                               
Conservation  (DEC),  testified,  and  noted that  she  was  very                                                               
pleased that she had the  opportunity to have the [overview] with                                                               
the committee  on February 3, and  the chance to talk  about some                                                               
of her broad views.                                                                                                             
Number 0245                                                                                                                     
REPRESENTATIVE HEINZE  asked Commissioner Ballard if  she has had                                                               
a chance to visit Prudhoe Bay or Valdez.                                                                                        
COMMISSIONER BALLARD,  in response, said  she had not  visited in                                                               
the capacity  of [commissioner]  but had  visited Prudhoe  Bay in                                                               
other capacities.                                                                                                               
REPRESENTATIVE  HEINZE remarked,  "We're looking  forward to  you                                                               
Number 0293                                                                                                                     
REPRESENTATIVE GATTO  told Commissioner Ballard that  he has very                                                               
high expectations  for her and  is very  proud that she  is here.                                                               
He  said he  thought she  was the  right person  for the  job and                                                               
congratulated her.   He told  her [the committee] would  be happy                                                               
to meet with her in the future.                                                                                                 
Number 0348                                                                                                                     
REPRESENTATIVE  MASEK  told  Commissioner Ballard  that  she  was                                                               
fairly  impressed,  and appreciated  the  fact  that DEC  brought                                                               
forward the  information on the removal,  cleanup, and prevention                                                               
of leaking underground storage tanks.                                                                                           
COMMISSIONER BALLARD acknowledged that the  staff at DEC had been                                                               
responsive  to the  [committee],  and had  tried  to turn  around                                                               
requests  quickly.     She  remarked,  "They   really  have  been                                                               
outstanding," and offered  her observation that the  17 days that                                                               
the legislature had  been in session felt to her  like about nine                                                               
months.  She remarked, "If we have  104 more to go, I guess we'll                                                               
all be sort of worn out at the end."                                                                                            
Number 0425                                                                                                                     
REPRESENTATIVE  WOLF thanked  Commissioner Ballard  for going  to                                                               
his  office and  talking to  him and  giving him  the information                                                               
that she  provided.  He  said he  looked forward to  working with                                                               
REPRESENTATIVE GATTO said he was  going home over the weekend and                                                               
would be visiting  a business establishment to talk  to the owner                                                               
and tell him  that his concerns were relayed  to the commissioner                                                               
and   that  the   commissioner  had   already  investigated   and                                                               
responded.  He said he thought  the people in the community would                                                               
be delighted to know that there  is a commissioner in Juneau that                                                               
had "done anything  within a time span that is  considered by any                                                               
microscopic,  almost,  compared  to  the usual  time  pan."    He                                                               
thanked   Commissioner  Ballard   for   getting   back  to   him.                                                               
Representative  Gatto   told  the  committee   that  Commissioner                                                               
Ballard had researched  some of the statutes to see  if the issue                                                               
that he  had brought forward  [during the overview] was  truly an                                                               
issue and or "did it violate  anything" and responded to him.  He                                                               
remarked, "That's  truly the kind  of representation that  we all                                                               
want, desire, and would love to have, so, thank you."                                                                           
Number 0569                                                                                                                     
CO-CHAIR  FATE  said  it  was  a pleasure  to  see  somebody  who                                                               
articulates a  concise and clear objective  and management style.                                                               
He commended her for it.                                                                                                        
Number 0597                                                                                                                     
REPRESENTATIVE MASEK highlighted the  protection status of active                                                               
paints  in Alaska  from 1993  to 2002,  and said  22 percent  met                                                               
paint standards  [in 1993] but  the [figure had increased]  to 86                                                               
percent in  2002.   She said  she was happy  to see  the progress                                                               
that had  been made  and acknowledged that  there was  still some                                                               
work left  to do  with this  issue.   She remarked,  "Overall, it                                                               
looks like the blunt force of  the work has been established, and                                                               
I'm really happy to see that."                                                                                                  
Number 0660                                                                                                                     
Co-CHAIR  FATE  announced  that   the  confirmation  hearing  was                                                               
[No  formal  motion was  made,  but  the appointment  of  Ernesta                                                               
Ballard was treated as advanced from committee.]                                                                                
HB 69-REGULATION OF SHALLOW NATURAL GAS                                                                                       
CO-CHAIR FATE announced that the  next order of business would be                                                               
HOUSE  BILL NO.  69, "An  Act relating  to regulation  of shallow                                                               
natural  gas leasing  and closely  related  energy projects;  and                                                               
providing for an effective date."                                                                                               
Number 0689                                                                                                                     
REPRESENTATIVE  VIC KOHRING,  Alaska State  Legislature, sponsor,                                                               
explained  that  HB 69  would  affect  the natural  gas  drilling                                                               
industry, mainly  coal bed  methane, not  only in  the Matanuska-                                                               
Susitna  [Valley], which  is where  active drilling  is presently                                                               
occurring,  but also  throughout Alaska  where potential  exists.                                                               
He  told  the  committee  that   the  legislation  clarifies  the                                                               
authority  of  the Alaska  Oil  and  Gas Conservation  Commission                                                               
(AOGCC) to  regulate the shallow  gas and  unconventional natural                                                               
gas  resources; it  allows the  AOGCC to  grant variances  to the                                                               
regulatory  requirements   in  certain  cases.     Representative                                                               
Kohring explained that operators of  the shallow gas drillers are                                                               
subject to the same regulations as  operators of oil wells on the                                                               
North Slope,  but the oil wells  are much different in  that they                                                               
are  at  greater depths,  and  are  very expensive  and  complex.                                                               
Operations  involve high-pressure  situations,  and toxic  wastes                                                               
are produced, he  said, and it is not the  same kind of operation                                                               
as the  shallow bed methane-type  wells, which  are, essentially,                                                               
modified water wells at very shallow depths.                                                                                    
REPRESENTATIVE KOHRING, referring to  the issuance of permits for                                                               
the drilling of shallow gas wells,  said AOGCC is required by law                                                               
to  subject those  companies to  the same  rules and  regulations                                                               
that deal with  the other more complex wells that  are drilled on                                                               
the  North Slope.   Therefore,  it  makes the  process much  more                                                               
cumbersome in regard to issuing  permits.  He said the permitting                                                               
process is  very slow and takes  one to two years;  there is also                                                               
more paperwork,  which frequently involves thousands  of pages of                                                               
documents that  are to be  filled out by the  applicants; there's                                                               
more cost involved as a result.                                                                                                 
REPRESENTATIVE KOHRING remarked, "So,  we're trying to change ...                                                               
it,  which will  result in  a much  more fair  process, one  that                                                               
[makes] much  more sense,  and that's  applicable to  the shallow                                                               
gas industry."   He expressed hope  that the net result  would be                                                               
an  increase in  shallow gas  drilling activities  throughout the                                                               
state; contributions to the economy;  and additional royalties to                                                               
the state treasury.   The governor has strongly  been pushing the                                                               
issue of increased oil and gas  exploration of the state as a way                                                               
build  the  economy  and  to  address the  issue  of  the  budget                                                               
deficit, he  said.  He  suggested [HB 69]  was one small  step in                                                               
that direction  and said there  was a long  way to go;  there was                                                               
going  to  be  a  lag-time  between  putting  forth  legislation,                                                               
getting  it  on   the  books,  and  actually   seeing  some  real                                                               
development and the effect to the state treasury.                                                                               
Number 0914                                                                                                                     
REPRESENTATIVE   KOHRING  remarked,   "But  we   have  to   start                                                               
somewhere, and  this is a real  good start; a real  good movement                                                               
in that direction."   He talked about potential of  areas such as                                                               
Cook Inlet, and  said there is an estimated 1.5  trillion tons of                                                               
coal there; in  that volume of coal is estimated  to be about 200                                                               
trillion  feet  of  coal bed  methane.    Representative  Kohring                                                               
referred to  areas in Southcentral  that are starting to  run out                                                               
of  gas, and  said [HB  69] presents  a phenomenal  potential and                                                               
opportunity for that  area's economy.  He  mentioned 200 trillion                                                               
cubic  feet of  natural gas;  it's estimated  there is  enough to                                                               
supply  the  entire   United  States  at  its   current  rate  of                                                               
consumption  for the  next eight  years.   Representative Kohring                                                               
explained  that obtaining  the  permits and  drilling  is a  very                                                               
expensive process and expressed hope  that [HB 69] would pass out                                                               
of committee.   He  explained that the  industry has  worked with                                                               
the agency;  this bill  would result in  a much  more streamlined                                                               
process that would make it much easier for the industry.                                                                        
REPRESENTATIVE  KOHRING reiterated  that the  [intention] of  the                                                               
bill was  to allow the AOGCC  the ability to grant  a variance so                                                               
[these operators] don't  have to adhere strictly  to the drilling                                                               
rules and  requirements for  deep oil wells.   He  suggested that                                                               
[HB 69] would make it easier  and quicker to issue permits to the                                                               
operators  of  the  shallow  gas,  in  particular,  on  coal  bed                                                               
methane-type operations.                                                                                                        
Number 1070                                                                                                                     
REPRESENTATIVE GATTO, referring to  the amount of coal available,                                                               
said it translates  into very large numbers of  trillions of feet                                                               
of natural gas.  He asked  how much gas was available in "shallow                                                               
bed, shallow coal" deposits as opposed  to the major field on the                                                               
North Slope.                                                                                                                    
Number 1118                                                                                                                     
REPRESENTATIVE KOHRING, in response,  said he didn't remember the                                                               
numbers  but guessed  the amount  in  question was  substantially                                                               
less.   He remarked, "We  have just huge  ... reserves up  on the                                                               
North  Slope,   and  I   don't  know   what  the   numbers  are."                                                               
Representative Kohring said the advantage  to coal bed methane is                                                               
that it's  easier to  get at  and is in  locations that  are very                                                               
convenient.  He talked about the  eight wells in Wasilla that had                                                               
been drilled  recently and said  there was potential  around Cook                                                               
Inlet,  particularly, Beluga,  which would  be beneficial  to the                                                               
Kenai Peninsula  because it's  easily accessible  and is  at such                                                               
shallow depths, in some cases, 100 to  200 feet down.  He said it                                                               
would be in close proximity to  where gas could actually be used,                                                               
so there would be less transportation issues.                                                                                   
Number 1182                                                                                                                     
REPRESENTATIVE GATTO  offered his understanding that  in the area                                                               
in question there is 35 trillion  cubic feet [of gas], but in the                                                               
coal bed methane there is 200 trillion cubic feet.                                                                              
REPRESENTATIVE KOHRING,  in response,  said there is  a potential                                                               
for 200  trillion feet in  the proven  coal deposits in  the Cook                                                               
Inlet region,  and 200 trillion  feet is roughly what  the United                                                               
States would  consume over  the next eight  years at  the current                                                               
rate of consumption.                                                                                                            
Number 1220                                                                                                                     
REPRESENTATIVE FATE  clarified that  the 35  trillion feet  is at                                                               
the  wellhead.    The  100  million cubic  feet  is  a  projected                                                               
potential  and  is similar  to  the  projected potential  on  the                                                               
Arctic Slope.   Therefore,  Alaska isn't short  of a  gas supply.                                                               
Furthermore,  shallow well  and nonconventional  gas are  easy to                                                               
access and are inexpensive in  comparison to the deep drilling on                                                               
the North Slope.                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  if  there has  been any  review                                                               
with  regard to  how  other  states do  this  and have  developed                                                               
REPRESENTATIVE KOHRING  answered that  he hasn't  researched that                                                               
issue extensively,  other than to  review [information  from] the                                                               
State of  Colorado.   He informed  the committee  that HB  69 has                                                               
been patterned after Colorado's  legislation, where this approach                                                               
has worked.  Furthermore, Evergreen  Resources, which is involved                                                               
in drilling in Alaska, is from Colorado.                                                                                        
REPRESENTATIVE  LYNN inquired  as to  how much  actual permitting                                                               
time would be saved should HB 69 become law.                                                                                    
REPRESENTATIVE KOHRING responded  that in many cases,  it's up to                                                               
one to two  years to be issued a permit  for these shallow wells.                                                               
This  legislation  would  probably  result  in  the  issuance  of                                                               
permits on such wells occurring in about 30-60 days on average.                                                                 
Number 1418                                                                                                                     
REPRESENTATIVE MASEK pointed  out that HB 69 is  tied to Governor                                                               
Murkowski's State  of the  State speech  with regard  to resource                                                               
development.   She  related her  belief that  it's time  that the                                                               
state develops legislation that  would attract companies and make                                                               
it easier for them to do business.                                                                                              
REPRESENTATIVE HEINZE remarked  that HB 69 is  a wonderful start.                                                               
She noted  that an  article [in  the committee  packet] specifies                                                               
that Evergreen Resources  owns a 100 percent  working interest in                                                               
52,000  acres.   She  asked  if that  would  mean that  Evergreen                                                               
Resources is a royalty owner.                                                                                                   
REPRESENTATIVE   KOHRING  deferred   to  a   representative  from                                                               
Evergreen [Resources, Inc.].                                                                                                    
Number 1536                                                                                                                     
JACK EKSTROM, Director, Government  and Public Affairs, Evergreen                                                               
Resources, Inc., answered:   "We would be the  operator of record                                                               
and  the owner  of  the  production, but  we  are  not a  royalty                                                               
owner."   He  explained that  the  state is  the primary  royalty                                                               
owner, and there  are some other properties in the  unit that are                                                               
owned  by private  individuals, as  well as  some by  the federal                                                               
government.   He  added, "So  they  would be  the royalty  owners                                                               
within this Pioneer Unit."                                                                                                      
Number 1582                                                                                                                     
REPRESENTATIVE HEINZE asked for an  explanation of the tariffs on                                                               
the gas.                                                                                                                        
CO-CHAIR FATE  interjected that the  tariffs are  usually applied                                                               
to  the  transportation  system  and the  pipeline,  but  at  the                                                               
present  time there  is no  transportation system;  it is  in the                                                               
"exploratory mode."                                                                                                             
Number 1627                                                                                                                     
MR.   EKSTROM,   in  response   to   a   follow-up  question   by                                                               
Representative Heinze,  said that  the Enstar (ph)  pipeline runs                                                               
through  the Pioneer  Unit, and  it is  anticipated that  the gas                                                               
would  be  sold  through  the   Enstar  pipeline  system  and  be                                                               
transported  south  to  Anchorage, Alaska.    Because  [Evergreen                                                               
Resources, Inc.]  is an exploration production  company, it sells                                                               
the gas to  the transporter and "the tariffs are  applied at that                                                               
Number 1635                                                                                                                     
CO-CHAIR FATE added his belief  that those tariffs would probably                                                               
be set by the [Regulatory Commission of Alaska (RCA)].                                                                          
Number 1643                                                                                                                     
REPRESENTATIVE  KERTTULA noted  that  she would  inquire about  a                                                               
subject  addressed in  the previous  day's hearing  in the  House                                                               
Special  Committee on  Oil and  Gas.   She pointed  out that  the                                                               
[proposed  legislation] would  change some  of the  public notice                                                               
requirements.   She mentioned variances normally  used for small,                                                               
technical engineering decisions, for  example, where a long delay                                                               
is  not  wanted.    She  asked  if  she  was  correct  that  [the                                                               
legislation]  would not  affect  property rights  or the  broader                                                               
issues where  land owners would be  given notice.  She  said, "So                                                               
there  would still  be public  notice and  people would  still be                                                               
involved,  and ...  this is  just for  the types  of things  that                                                               
variances  are normally  granted  for, where  there  would be  no                                                               
public notice.  Is that right?"                                                                                                 
Number 1652                                                                                                                     
REPRESENTATIVE  KOHRING  told  Representative  Kerttula  she  was                                                               
correct.  He told the  committee that Evergreen [Resources, Inc.]                                                               
has been  outstanding in  regard to  its sensitivity  to property                                                               
owners  in "the  valley," after  assuming ownership  of a  parcel                                                               
where  the  previous  company  had  "ruffled  some  feathers  out                                                               
REPRESENTATIVE KOHRING thanked [the  people involved in Evergreen                                                               
Resources,  Inc.]  for  their interest  in  Alaska  and  optimism                                                               
toward  what they  can contribute  to  its economy,  and for  the                                                               
month  spent  drilling.    He   extended  his  welcome  to  other                                                               
companies, as well.                                                                                                             
Number 1753                                                                                                                     
REPRESENTATIVE GUTTENBERG  noted that "everything in  the bill is                                                               
referring to Article  1, which is the administration  of the Act,                                                               
as  compared with  the ...  regulation of  operation."   He asked                                                               
[Representative  Kohring] if  there  would be  an  effect on  the                                                               
public  process of  permitting -  if it  would be  "shortened, or                                                               
narrowed, or streamlined."                                                                                                      
Number 1798                                                                                                                     
REPRESENTATIVE  KOHRING responded  that he  thinks that  question                                                               
would be  better answered by  one of the commissioners  of AOGCC;                                                               
however,  he stated  that  his expectation  is  that the  process                                                               
would  be   shortened,  which   is  part  of   the  goal   to  be                                                               
accomplished.    He  said  he  believes  "it's  more  to  address                                                               
technical issues."   For example, he said if there  was a problem                                                               
in the course  of drilling a well  in the middle of  the night, a                                                               
decision should be rendered quickly,  without having to shut down                                                               
Number 1831                                                                                                                     
CO-CHAIR  FATE mentioned  deep-hole gas  wells versus  those with                                                               
pressures "not nearly as great as  those that you find at depth."                                                               
He said that the process that  is currently in place is relegated                                                               
to natural gas "at depth," where pressures are very high.                                                                       
Number 1876                                                                                                                     
The committee took an at-ease from 1:30 p.m. to 1:34 p.m.                                                                       
Number 1884                                                                                                                     
REPRESENTATIVE HEINZE  stated her understanding that  eight wells                                                               
would be  dug by  spring [2003].   She asked  if the  results [of                                                               
drilling those  wells] would be available  before the legislature                                                               
adjourns in May.                                                                                                                
Number 1900                                                                                                                     
MR.  EKSTROM answered  that his  expectation is  that preliminary                                                               
results would certainly be available.                                                                                           
REPRESENTATIVE  HEINZE asked  him  to share  those results  [when                                                               
Number 1939                                                                                                                     
REPRESENTATIVE  MASEK moved  to report  HB  69 out  of the  House                                                               
Resources  Standing  Committee  with  individual  recommendations                                                               
[and  the  accompanying  zero  fiscal  note].    There  being  no                                                               
objection, HB 69  was reported from the  House Resources Standing                                                               
Number 1967                                                                                                                     
REPRESENTATIVE  GUTTENBERG shared  a comment  made by  a previous                                                               
director of  [the Division of]  Oil & Gas,  as follows:   "If you                                                               
want to  know where the  oil and gas is  in Alaska, look  for the                                                               
geese and the caribou."                                                                                                         
Number 1982                                                                                                                     
There being no  further business before the  committee, the House                                                               
Resources Standing Committee meeting was adjourned at 1:36 p.m.                                                                 

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