Legislature(2003 - 2004)

04/23/2004 02:15 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                         April 23, 2004                                                                                         
                           2:15 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Beverly Masek, Co-Chair                                                                                          
Representative Cheryll Heinze, Vice Chair                                                                                       
Representative Carl Gatto                                                                                                       
Representative Bob Lynn                                                                                                         
Representative Nick Stepovich                                                                                                   
Representative Kelly Wolf                                                                                                       
Representative Beth Kerttula                                                                                                    
Representative David Guttenberg                                                                                                 
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Nancy Dahlstrom, Co-Chair                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SPONSOR SUBSTITUTE FOR HOUSE BILL NO. 364                                                                                       
"An  Act  establishing a  moratorium  on  the issuance  of  state                                                               
shallow natural gas  leases in the vicinity of  Kachemak Bay, and                                                               
precluding the  commissioner of natural resources  from reissuing                                                               
or otherwise extending  leases within the moratorium  area if the                                                               
leases fail to produce gas  in paying quantities within the terms                                                               
of the lease  or if there is  a breach of a term  or condition of                                                               
the lease; and providing for an effective date."                                                                                
                                                                                                                                
     - MOVED CSSSHB 364(O&G) OUT OF COMMITTEE                                                                                   
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: HB 364                                                                                                                  
SHORT TITLE: NATURAL GAS LEASES NEAR KACHEMAK BAY                                                                               
SPONSOR(S): REPRESENTATIVE(S) SEATON                                                                                            
                                                                                                                                
01/12/04       (H)       PREFILE RELEASED (1/2/04)                                                                              
01/12/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
01/12/04       (H)       O&G, RES, FIN                                                                                          
02/19/04       (H)       SPONSOR SUBSTITUTE INTRODUCED                                                                          
02/19/04       (H)       READ THE FIRST TIME - REFERRALS                                                                        
02/19/04       (H)       O&G, RES, FIN                                                                                          
03/09/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
03/09/04       (H)       Heard & Held                                                                                           
03/09/04       (H)       MINUTE(O&G)                                                                                            
04/01/04       (H)       O&G AT 3:15 PM CAPITOL 124                                                                             
04/01/04       (H)       Moved CSSSHB 364(O&G) Out of Committee                                                                 
04/01/04       (H)       MINUTE(O&G)                                                                                            
04/05/04       (H)       O&G RPT CS(O&G) NT 2DP 1NR 3AM                                                                         
04/05/04       (H)       DP: KERTTULA, CRAWFORD; NR: MCGUIRE;                                                                   
04/05/04       (H)       AM: HOLM, ROKEBERG, KOHRING                                                                            
04/14/04       (H)       FIN REFERRAL REMOVED                                                                                   
04/19/04       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
04/19/04       (H)       Scheduled But Not Heard                                                                                
04/23/04       (H)       RES AT 1:00 PM CAPITOL 124                                                                             
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
REPRESENTATIVE PAUL SEATON                                                                                                      
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Spoke as the sponsor of SSHB 364.                                                                          
                                                                                                                                
SEAN PARNELL, Deputy Director                                                                                                   
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:   During discussion  of  SSHB 364,  answered                                                               
questions.                                                                                                                      
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-25, SIDE A                                                                                                            
Number 0001                                                                                                                     
                                                                                                                                
CO-CHAIR  BEVERLY  MASEK  called  the  House  Resources  Standing                                                             
Committee meeting to  order at 2:15 p.m.   Representatives Masek,                                                               
Gatto, Lynn,  Stepovich, Wolf, and  Kerttula were present  at the                                                               
call to order.  Representatives  Heinze and Guttenberg arrived as                                                               
the meeting was in progress.                                                                                                    
                                                                                                                                
HB 364-NATURAL GAS LEASES NEAR KACHEMAK BAY                                                                                   
                                                                                                                                
[Contains discussion of HB 531 and HB 312.]                                                                                     
                                                                                                                                
CO-CHAIR MASEK  announced that the  only order of  business would                                                               
be  SPONSOR   SUBSTITUTE  FOR  HOUSE   BILL  NO.  364,   "An  Act                                                               
establishing  a  moratorium  on the  issuance  of  state  shallow                                                               
natural  gas  leases  in  the   vicinity  of  Kachemak  Bay,  and                                                               
precluding the  commissioner of natural resources  from reissuing                                                               
or otherwise extending  leases within the moratorium  area if the                                                               
leases fail to produce gas  in paying quantities within the terms                                                               
of the lease  or if there is  a breach of a term  or condition of                                                               
the lease; and providing for an effective date."                                                                                
                                                                                                                                
Number 0123                                                                                                                     
                                                                                                                                
REPRESENTATIVE PAUL  SEATON, Alaska  State Legislature,  spoke as                                                               
the sponsor  of SSHB 364.   Representative Seaton  explained that                                                               
originally HB  364 was buy-back  legislation.  However,  SSHB 364                                                               
is a moratorium  on reissuance of the shallow  natural gas leases                                                               
in the Homer area if those  are forfeited or aren't renewed.  The                                                               
current version,  CSSSHB 364(O&G), removed the  findings from the                                                               
legislation  and added  criteria  by which  the  director of  the                                                               
Division  of  Oil   &  Gas  can  reissue  oil   and  gas  leases.                                                               
Representative   Seaton    informed   the   committee    of   the                                                               
circumstances that  created the legislation.   In 1976  the state                                                               
bought back the  offshore oil and gas leases in  the Kachemak Bay                                                               
area and placed a moratorium on  any future offshore leases.  The                                                               
valuable renewable  resources of the  area were cited as  part of                                                               
the reasoning.   In  1996 the state  created the  shallow natural                                                               
gas  program, which  provides  low-cost, over-the-counter  leases                                                               
for  shallow natural  gas  at less  than 3,000  feet.   The  main                                                               
benefit  to  the aforementioned  is  the  low  cost lease.    The                                                               
program was created to stimulate  shallow natural gas [leases] in                                                               
rural  areas.   However, in  1999 the  Cook Inlet  areawide lease                                                               
sale area  was created, which allowed  for oil and gas  leases to                                                               
be  offered every  year.   The [Kachemak  Bay area]  was excluded                                                               
from  the areawide  lease  sale,  although it  has  the same  gas                                                               
potential as the  rest of [the Cook Inlet].   He noted that there                                                               
was  no best  interest  finding specifying  why  it was  excluded                                                               
because the area was excluded  for political reasons.  Therefore,                                                               
the  reason [the  Kachemak  Bay area]  is  available for  shallow                                                               
natural  gas  leasing  while  nothing   else  in  Cook  Inlet  is                                                               
available  is   because  of  its  original   exclusion  from  the                                                               
aforementioned oil and gas leasing program.                                                                                     
                                                                                                                                
Number 0455                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON  informed the committee that  June 1, 2003,                                                               
the  state  issued  the  shallow   natural  gas  leases  for  the                                                               
subsurface rights in  the land just north of  Kachemak Bay within                                                               
the same region that was  excluded from the areawide lease sales.                                                               
He specified  that it  includes areas  underneath the  Paul Banks                                                               
school, the hospital,  the watershed and reservoir  for the Homer                                                               
area.   Representative  Seaton related  that the  shallow natural                                                               
gas leases  are noncompetitive leases  granted at a cost  of $500                                                               
per nine  square miles  and there was  no specific  best interest                                                               
finding for [the Kachemak Bay area].   However, in 1996 there was                                                               
a general best  interest finding, which specified that  it was in                                                               
the best  interest of  the state to  develop shallow  natural gas                                                               
wherever it is  found.  He noted that no  consideration was given                                                               
to local comments.  One of  the problems with the shallow natural                                                               
gas program is that it specifies  that if there is any benefit of                                                               
shallow natural gas  to the local area, then the  director of the                                                               
Division of  Oil & Gas has  to issue the leases.   Therefore, all                                                               
the comments received with regard  to impacts can't be considered                                                               
under the  shallow natural gas  program.  Furthermore,  there was                                                               
no effective notification  in the Homer area  nor any operational                                                               
guidelines or regulations in place.                                                                                             
                                                                                                                                
REPRESENTATIVE SEATON specified  that the goal of SSHB  364 is to                                                               
ensure that the current leases  in the Homer area aren't extended                                                               
or reissued and  to exclude the lands and waters  of Kachemak Bay                                                               
from future leases under the shallow  natural gas program.  In no                                                               
way does this legislation complicate  future leasing in this area                                                               
under other  programs.  In  fact, the inability for  an extension                                                               
or reissuance simplifies things  because with shallow natural gas                                                               
there is the  ability to recover the gas above  3,000 feet and if                                                               
part  of the  field  occurs above  3,000  feet, conventional  gas                                                               
could  be  [recovered]  below  3,000 feet.    Under  the  shallow                                                               
natural gas program, one must  demonstrate that part of the field                                                               
is contiguous  with the  upper shallow  natural gas  field, which                                                               
isn't necessarily the  case.  In fact the greatest  value for the                                                               
state could  lay in the  deeper areas, although the  state policy                                                               
is to  not offer that area  for conventional gas leases  if there                                                               
is shallow  natural gas  above it.   The  reasoning has  been the                                                               
notion  that there  would be  a lawsuit  regarding who  owns what                                                               
gas.   Therefore, this legislation simplifies  the possibility of                                                               
future conventional  gas in  the Cook Inlet  area, which  is more                                                               
profitable to the state.                                                                                                        
                                                                                                                                
Number 0805                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON reviewed  the  sectional  analysis of  the                                                               
legislation, which is included in  the committee packet.  Section                                                               
1 excludes  certain lands  in the vicinity  of Kachemak  Bay from                                                               
leasing under  the shallow  natural gas  program.   Anything that                                                               
could've  been   leased  is  excluded  from   the  moratorium  on                                                               
reissuance  of  leases.     Section  2  amends   the  statute  by                                                               
establishing  the discretionary  guidelines for  the director  of                                                               
the  Davison  of Oil  &  Gas  when  making a  decision  regarding                                                               
whether  to reissue  the leases.   The  leases have  a three-year                                                               
term and  are renewable for  an additional  three years.   One of                                                               
the problems  has been that  the statute doesn't specify  on what                                                               
basis  the  director  is  to  reissue  the  leases.    Therefore,                                                               
currently if the  director decides not to reissue  the leases, it                                                               
could be  seen arbitrary  and result in  a takings  claim against                                                               
the state.  By incorporating  the discretionary guidelines in the                                                               
statute, the state  is no longer liable for such  a claim so long                                                               
as  the  director [follows  those  guidelines].   Section  3,  he                                                               
related, amends the uncodified law  to prohibit the reissuance of                                                               
these  shallow natural  gas leases  issued  before the  effective                                                               
date  of this  act.   Although  the director  is  allowed to  not                                                               
reissue those  leases, the conditions  are such that  there can't                                                               
be any development  on the leases and very  little potential that                                                               
development will take place.                                                                                                    
                                                                                                                                
REPRESENTATIVE SEATON  highlighted that the fiscal  note is zero,                                                               
although there  is a question  concerning the  indeterminate lack                                                               
of revenue.   The aforementioned isn't the case  because the only                                                               
condition under which these won't  be reissued is if the director                                                               
has determined that the probability  is extremely low that anyone                                                               
will produce gas within the next  three years.  He noted that the                                                               
committee packet  should include supportive resolutions  from the                                                               
City of  Homer, Kachemak City,  and the Kenai  Peninsula Borough,                                                               
all of which are the local government units of the area.                                                                        
                                                                                                                                
Number 1122                                                                                                                     
                                                                                                                                
REPRESENTATIVE SEATON,  in response to  Representative Stepovich,                                                               
confirmed that  the current version of  the legislation prohibits                                                               
the extension  of the leases in  the area excluded from  the best                                                               
interest finding for the areawide lease sale.                                                                                   
                                                                                                                                
REPRESENTATIVE  STEPOVICH mentioned  his desire  to entertain  an                                                               
amendment to this legislation.                                                                                                  
                                                                                                                                
REPRESENTATIVE  WOLF inquired  as to  the size  of the  area this                                                               
legislation would impact.                                                                                                       
                                                                                                                                
REPRESENTATIVE SEATON  answered that it's 22,000  square acres of                                                               
state  land of  which  approximately 18,000  acres are  non-state                                                               
owned  subsurface rights.    Therefore, in  total  it amounts  to                                                               
about 40,000  acres, which is  eight leases of nine  square miles                                                               
each.   He  noted  that the  area  is a  patchwork  of state  and                                                               
private subsurface rights.                                                                                                      
                                                                                                                                
REPRESENTATIVE  WOLF inquired  as  to the  average  depth of  the                                                               
water wells in the area.                                                                                                        
                                                                                                                                
REPRESENTATIVE SEATON  related his  knowledge of some  wells that                                                               
are in the  150-200 foot range.  He further  related that much of                                                               
the area has very poor water,  and therefore the water comes from                                                               
the municipal  delivery services.   He noted that there  are coal                                                               
seams in the area.  There isn't  good ground water in the area to                                                               
the east.   He  indicated that  in some areas  almost all  of the                                                               
water is  delivered by truck  from the reservoir, where  the city                                                               
has extraterritorial powers.   Towards Anchor Point  is where one                                                               
finds shallow wells  that are 20-25 feet,  although most financed                                                               
homes in the area require a drilled well of over 100 feet.                                                                      
                                                                                                                                
REPRESENTATIVE WOLF  recalled hearing concern  with contamination                                                               
of  water wells  due to  shallow natural  gas development  in the                                                               
Kachemak Bay  area.   However, if  much of  the water  is trucked                                                               
into the area, he questioned from where the concern stems.                                                                      
                                                                                                                                
REPRESENTATIVE  SEATON  said that  water  wells  aren't the  only                                                               
problem.   Part of the  problem is  related to the  procedures in                                                               
which  shallow  natural  gas  leases   were  let  without  public                                                               
comment.   There  wouldn't have  been problems  in a  rural area,                                                               
however,  what  was  available  was   urban  Homer.    Homer  has                                                               
traditionally had  an economy based on  eco-tourism, tourism, and                                                               
fishing, which is why the state  bought back the Kachemak Bay oil                                                               
and gas  leases back in  1976.  "This  is within that  same area.                                                               
In fact, we're using the same  line; those were all sub-tidal and                                                               
this is the uplands," he explained.                                                                                             
                                                                                                                                
Number 1534                                                                                                                     
                                                                                                                                
REPRESENTATIVE GUTTENBERG  inquired as  to why only  the Kachemak                                                               
Bay  area is  addressed.    He noted  that  there  are leases  in                                                               
downtown Healy as well as the Matanuska-Susitna Valley area.                                                                    
                                                                                                                                
REPRESENTATIVE SEATON highlighted that  the Kachemak Bay area has                                                               
some specific  peculiarities.  First,  it was  in the area  of an                                                               
oil  and  gas buyback  and  was  specifically excluded  from  the                                                               
areawide lease sale  best interest finding, which  made that area                                                               
available.   The  aforementioned conditions  didn't occur  in the                                                               
other    areas    mentioned   by    Representative    Guttenberg.                                                               
Furthermore, there has  been no activity on the  leases, which is                                                               
also  different  than the  other  areas  mentioned.   Under  this                                                               
legislation,  the  discretionary  terms  are  whether  "they  are                                                               
paying quantities of gas, which  means if you're getting more gas                                                               
out of  the well than  it costs you to  produce that gas  ... the                                                               
leases are automatically extended."   Under the conditions of DNR                                                               
if  there is  any production  or significant  planned production,                                                               
the leases  would be extended.   Representative  Seaton clarified                                                               
that this legislation merely stops  speculative holding of leases                                                               
if the  director of the  Division of  Oil & Gas  determines those                                                               
aren't going  to be put  into production.  Furthermore,  it keeps                                                               
the state from doing a best  interest finding for all gas as does                                                               
an oil and gas sale due to correlative rights.                                                                                  
                                                                                                                                
Number 1711                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA declared a  conflict of interest with the                                                               
Matanuska-Susitna  Valley  area  [because of  her  family's  land                                                               
holdings in that area].                                                                                                         
                                                                                                                                
REPRESENTATIVE STEPOVICH asked  if SSHB 364 is related  to HB 531                                                               
and HB 312.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON clarified  that SSHB  364 only  relates to                                                               
the shallow  natural gas program.   The passage  of HB 531  or HB                                                               
312  would  eliminate  the  shallow natural  gas  program.    The                                                               
legislation  before  the committee  today,  SSHB  364, speaks  to                                                               
leases issued  before and now being  held and not developed.   He                                                               
reminded the committee that if  the shallow natural gas wells are                                                               
being  developed,  production is  taking  place,  or there  is  a                                                               
production plan  the director  views as  a plan  for development,                                                               
the director will reissue the  leases.  The aforementioned is the                                                               
discretionary  provision.   The  only time  the  director of  the                                                               
Division  of Oil  & Gas  wouldn't  reissue those  leases for  the                                                               
second  three  years   is  if  the  leases  appear   to  be  held                                                               
speculatively  and   it  doesn't   appear  that  there   will  be                                                               
production on the leases.   Representative Seaton emphasized that                                                               
the aforementioned is the case in the Homer area.                                                                               
                                                                                                                                
Number 1840                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEPOVICH  inquired  as  to  the  length  of  the                                                               
moratorium.                                                                                                                     
                                                                                                                                
REPRESENTATIVE  SEATON explained  that the  leases, which  have a                                                               
three-year  term, were  issued in  June 2003.   This  legislation                                                               
specifies that if there is no  development on those leases and no                                                               
plan  for  development, then  the  lease  expires at  that  three                                                               
years.  Therefore,  there would never be  another shallow natural                                                               
gas lease on  that property, although there could  be another gas                                                               
lease  or  oil and  gas  lease  on  that  property.   In  further                                                               
response  to  Representative   Stepovich,  Representative  Seaton                                                               
explained that if these leases  weren't reissued and there wasn't                                                               
a  moratorium, another  individual/entity  could  come along  and                                                               
start the process again.                                                                                                        
                                                                                                                                
Number 1940                                                                                                                     
                                                                                                                                
SEAN PARNELL, Deputy Director, Division  of Oil & Gas, Department                                                               
of  Natural  Resources,  turned  to  Representative  Guttenberg's                                                               
inquiry regarding whether there are  any other areas of the state                                                               
where this [lease] program is  available under the same scenario.                                                               
He  related his  understanding that  this legislation  proposes a                                                               
moratorium  on shallow  natural  gas leases  in  the Homer  area.                                                               
Therefore,  this legislation  could be  extended to  any area  in                                                               
which other  leases have been  issued.  Mr. Parnell  informed the                                                               
committee that  [the division/department]  supports Section  2 of                                                               
[CSSSHB 364(O&G)],  which limits  the discretion of  the Division                                                               
of Oil &  Gas director for extending shallow  natural gas leases.                                                               
However, [the division/department] doesn't  support Section 1 and                                                               
3,  which  would implement  a  moratorium  and prevent  DNR  from                                                               
reissuing  leases.   He related  that DNR  actually supports  the                                                               
broader statewide approach offered in HB 531.                                                                                   
                                                                                                                                
REPRESENTATIVE SEATON noted that he  supports HB 531 as well, but                                                               
no one knows if that  legislation will pass.  Therefore, Sections                                                               
1 and 3 of  [CSSSHB 364(O&G)] take care of the  program if HB 531                                                               
doesn't pass.  Moreover, if HB  531 doesn't pass and Section 2 of                                                               
[CSSSHB 364(O&G)]  is in  place and  the leases  aren't extended,                                                               
anyone can apply  for the leases on a  noncompetitive basis under                                                               
the same program.  He explained:                                                                                                
                                                                                                                                
     And so,  that's what this  is to prevent and  so that's                                                                    
     what Sections  1 and 3  do, and they would,  of course,                                                                    
     just apply to this and [HB]  531 would take care of the                                                                    
     entire  shallow  natural  gas program.    If  [HB]  531                                                                    
     passes, [Sections] 1 and 3  are moot.  Because if these                                                                    
     weren't extended, the shallow  natural gas program goes                                                                    
     away anyway and so you  couldn't issue leases under the                                                                    
     shallow  natural  gas  program  because  HB  531  would                                                                    
     eliminate the  shallow natural gas  program.   And this                                                                    
     only  addresses termination  and reissuances  of leases                                                                    
     under shallow  natural gas; this  does not  prevent, in                                                                    
     any way, the formation ...  a Cook Inlet areawide lease                                                                    
     sale,  or the  issuance,  under [HB]  531,  of all  gas                                                                    
     leases.                                                                                                                    
                                                                                                                                
Number 2168                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE  asked if [DNR]  could make it work.   "How                                                               
bad would this be if this bill went through ...," she asked.                                                                    
                                                                                                                                
MR. PARNELL said that it depends  upon HB 531.  He explained that                                                               
[DNR] is  trying to address  issues on  a statewide basis  and if                                                               
CSSSHB  364(O&G)  passes,  it may  take  care  of  Representative                                                               
Seaton's area.   However, there  would still be  statewide issues                                                               
with the program.   He informed the committee that  there will be                                                               
other  leases that  expire in  the  Matanuska-Susitna Valley  and                                                               
near Fairbanks.  Therefore, [DNR]  is focusing on addressing this                                                               
issue on a statewide basis rather than in a piecemeal fashion.                                                                  
                                                                                                                                
REPRESENTATIVE  HEINZE   asked  whether   [DNR]  could   make  it                                                               
[Sections 1  and 3 of  CSSSHB 364(O&G)] work  if HB 531  is taken                                                               
off the table.                                                                                                                  
                                                                                                                                
MR.  PARNELL  explained  that  if  Sections 1  and  3  of  CSSSHB                                                               
364(O&G)  pass, uncertainty  will  be created  about the  state's                                                               
leasing program,  both the  shallow natural  gas program  and any                                                               
other  program.    He  predicted  that  there  will  be  problems                                                               
statewide if the state is carved  up as is the case under [CSSSHB                                                               
364(O&G)]  rather than  approaching  the problem  statewide in  a                                                               
best interest  finding process.   If [CSSSHB 364(O&G)]  passes, a                                                               
moratorium  would be  imposed on  leasing in  the Homer  area and                                                               
would  have statewide  implications  with  regard to  uncertainty                                                               
with  the  state's  leasing program.    Furthermore,  passage  of                                                               
[CSSSHB 364(O&G)]  could [prevent] future industry  investment in                                                               
the  state if  [the industry]  thinks  other areas  of the  state                                                               
might be  at risk.   He noted that  this would go  beyond shallow                                                               
natural gas.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KERTTULA surmised  then  that if  HB 531  passes,                                                               
Sections 1  and 3 would be  "wiped out" because there  is no more                                                               
shallow  natural  gas program.    She  noted  that Section  2  of                                                               
[CSSSHB 364(O&G)] is already included  in HB 531.  Therefore, the                                                               
question is  if the shallow  natural gas program doesn't  go away                                                               
as planned  in HB  531, then this  legislation would  exempt only                                                               
the Kachemak Bay area rather than  the entire state and Section 2                                                               
would add in the protection for the entire state.                                                                               
                                                                                                                                
MR.  PARNELL indicated  agreement with  Representative Kerttula's                                                               
understanding.                                                                                                                  
                                                                                                                                
Number 2384                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG asked  if  [CSSSHB 364(O&G)]  provides                                                               
[DNR] the technical tools to implement the moratorium.                                                                          
                                                                                                                                
MR. PARNELL replied, "For the Homer area, yes."                                                                                 
                                                                                                                                
Number 2424                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO inquired as to  Mr. Parnell's thoughts on an                                                               
amendment to include the entire state.                                                                                          
                                                                                                                                
MR.  PARNELL  said whether  to  impose  a moratorium  on  shallow                                                               
natural gas throughout the state would be a policy call.                                                                        
                                                                                                                                
REPRESENTATIVE STEPOVICH  questioned why Kachemak Bay  received a                                                               
buyback, but not the Matanuska-Susitna Valley area.                                                                             
                                                                                                                                
REPRESENTATIVE SEATON reiterated  his earlier testimony regarding                                                               
the unique situation of the  Kachemak Bay, which resulted in this                                                               
legislation.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  STEPOVICH related  that  the  state does  buyback                                                               
leases in  which a  mistake was  made by issuing  the lease.   He                                                               
noted  that he  owns leases.   He  inquired as  to why  the state                                                               
bought back the leases originally.                                                                                              
                                                                                                                                
REPRESENTATIVE SEATON  noted that it was  an entirely contentious                                                               
situation between the  state and the Kachemak Bay  area for quite                                                               
some time.   Ultimately, the state decided that it  wasn't in its                                                               
best interest  to have  those leases,  and therefore  bought back                                                               
the leases in  [the Kachemak Bay area].  He  pointed out that the                                                               
best interest  finding that excluded  this area from oil  and gas                                                               
leases was  the establishment  of the  Cook Inlet  areawide lease                                                               
sale.                                                                                                                           
                                                                                                                                
REPRESENTATIVE   STEPOVICH  indicated   that  he   may  offer   a                                                               
conceptual amendment  to include the Matanuska-Susitna  Valley in                                                               
the buyback.                                                                                                                    
                                                                                                                                
CO-CHAIR  MASEK   clarified  that  the  legislation   before  the                                                               
committee isn't buyback legislation.                                                                                            
                                                                                                                                
REPRESENTATIVE  SEATON reiterated  that  [CSSSHB  364(O&G)] is  a                                                               
moratorium  on the  reissuance of  leases  that weren't  extended                                                               
because they were nonproductive.                                                                                                
                                                                                                                                
The committee took an at-ease from 2:58 p.m. to 3:02 p.m.                                                                       
                                                                                                                                
CO-CHAIR MASEK informed the committee that Representative                                                                       
Stepovich had provided the committee with an amendment during                                                                   
the at-ease.                                                                                                                    
                                                                                                                                
Number 2777                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEPOVICH  said that  his amendment  would broaden                                                               
the  legislation.    Representative   Stepovich  moved  that  the                                                               
committee  adopt  Amendment  1 [23-LS1464\S.1,  Chenoweth,  which                                                               
read:                                                                                                                           
                                                                                                                                
     Page 1, line 5 following "lease;":                                                                                       
          Insert "directing the commissioner of natural                                                                       
     resources to  reacquire shallow  natural gas  leases in                                                                  
     the Matanuska-Susitna Borough;"                                                                                          
                                                                                                                                
     Page 3, following line 30:                                                                                                 
     Insert a new bill section to read:                                                                                         
        "*  Sec. 4.   The  uncodified  law of  the State  of                                                                
     Alaska is amended by adding a new section to read:                                                                         
          REACQUISITION OF CERTAIN SHALLOW NATURAL GAS                                                                          
     LEASES.   (a)   The  commissioner of  natural resources                                                                    
     shall   enter  into   negotiations  to   reacquire,  by                                                                    
     purchase  in the  name of  the state,  the title  to or                                                                    
     accountable  interests in  shallow  natural gas  leases                                                                    
     entered  into under  AS 38.05.177 before  the effective                                                                    
     date  of this  Act within  the boundaries  described in                                                                    
     (d) of this section.                                                                                                       
          (b)  In lieu of cash payment for a negotiated                                                                         
     repurchase of a leasehold  interest described in (a) of                                                                    
     this  section, the  commissioner  of natural  resources                                                                    
     may  authorize  a credit  of  the  purchase price  plus                                                                    
     interest at  the rate prescribed in  AS 09.30.070 to be                                                                    
     granted  to the  seller, to  be applied  against future                                                                    
     lease   bonus   or   rental  payments,   permit   fees,                                                                    
     royalties, or oil  and gas taxes that  may become owing                                                                    
     on new  production from other  leases or  property held                                                                    
     by the  seller for  oil and gas  development, including                                                                    
     shallow natural gas development.   The commissioner may                                                                    
     also negotiate  to reimburse, in like  manner by credit                                                                    
     provision a reasonable amount  to compensate the lessee                                                                    
     for expenses and other costs incurred by the lessee.                                                                       
          (c)  If the commissioner of natural resources is                                                                      
     unable   to   negotiate   a  satisfactory   price   for                                                                    
     repurchase of a leasehold  interest described in (a) of                                                                    
     this section, the commissioner  may acquire a leasehold                                                                    
       interest described in (a) of this section through                                                                        
     exercise of the power of eminent domain.                                                                                   
          (d)  The provisions of this section apply to                                                                          
      shallow natural gas leases issued under AS 38.05.177                                                                      
       before the effective date of this Act on land and                                                                        
     water described in the Matanuska-Susitna Borough."                                                                         
                                                                                                                                
     Renumber the following bill section accordingly.                                                                           
                                                                                                                                
                                                                                                                                
REPRESENTATIVE HEINZE objected.                                                                                                 
                                                                                                                                
CO-CHAIR MASEK related  what Amendment 1 would do  to Mr. Parnell                                                               
who didn't have  a copy to review.   She asked Mr.  Parnell if he                                                               
believes Amendment 1 should be added to the legislation.                                                                        
                                                                                                                                
MR. PARNELL  replied no,  he reiterated  [DNR's] opposition  to a                                                               
buyback,   which  could   be  expensive   and  could   shut  down                                                               
exploration for  rural energy alternatives.   The approach  in HB                                                               
531 is preferred, he reiterated.                                                                                                
                                                                                                                                
Number 2880                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEPOVICH related  that  constituents have  asked                                                               
for [what is proposed in Amendment 1].                                                                                          
                                                                                                                                
REPRESENTATIVE SEATON  highlighted that  Amendment 1  changes the                                                               
entire character of  the legislation.  He noted  that Amendment 1                                                               
would've been  appropriate with  the original  HB 364,  which was                                                               
buyback legislation.   With [the  changes to the  current version                                                               
of HB 364], the accompanying fiscal note has become zero.                                                                       
                                                                                                                                
TAPE 04-25, SIDE B                                                                                                            
                                                                                                                                
REPRESENTATIVE SEATON indicated that  Amendment 1 would require a                                                               
large fiscal note.  Representative  Seaton related his opposition                                                               
to Amendment 1.                                                                                                                 
                                                                                                                                
Number 2918                                                                                                                     
                                                                                                                                
REPRESENTATIVE  GATTO  inquired  as  to  what  would  happen  if,                                                               
instead  of the  buyback, the  same language  was extended  "that                                                               
called  for  a  moratorium  on inactive  nonrenewal  of  inactive                                                               
leases to other areas besides  Kachemak [Bay]."  He surmised that                                                               
doing the aforementioned would maintain  a zero fiscal note while                                                               
allowing inactive leases not to be extended or bought.                                                                          
                                                                                                                                
REPRESENTATIVE  SEATON agreed  that "in  one way"  Representative                                                               
Gatto  is correct.   However,  there  are rural  leases that  are                                                               
nonproductive  because individuals  haven't gotten  their permits                                                               
in line.   He  related that  through this  legislation he  has no                                                               
intention of shutting  down Healy or Pogo, a couple  of the areas                                                               
of  the  state in  which  the  shallow  natural gas  leases  were                                                               
ongoing but hadn't yet become  productive.  Representative Seaton                                                               
reiterated his  earlier testimony regarding the  unique situation                                                               
of Homer,  which is an  area opposed  to the shallow  natural gas                                                               
program  and  where  it  isn't   underway  at  all.    Therefore,                                                               
extending  it  into areas  where  there  are developmental  wells                                                               
could result  in a situation in  which the Division of  Oil & Gas                                                               
is  in more  of a  quandary  regarding which  [leases] should  be                                                               
extended.    He  reiterated  that  such isn't  the  case  in  the                                                               
[Kachemak  Bay]  area where  it's  completely  speculative.   The                                                               
purpose  of this  legislation,  he clarified,  is  to not  extend                                                               
speculative leasing,  although it doesn't intend  to stop leasing                                                               
that's  under  development.    However,  if  "it's  expanded  out                                                               
throughout the state, that could well be the intent," he said.                                                                  
                                                                                                                                
REPRESENTATIVE STEPOVICH agreed that he  didn't want to shut down                                                               
any more  leasing either.  He  said he wouldn't want  to impose a                                                               
moratorium in other areas unless  it was brought to the attention                                                               
of the  area and  those in  the area  wanted it.   Representative                                                               
Stepovich asked if the administration  has discussed a buyback in                                                               
the Matanuska-Susitna Valley.                                                                                                   
                                                                                                                                
Number 2730                                                                                                                     
                                                                                                                                
MR. PARNELL related that the  governor, on a number of occasions,                                                               
has said that a  buyback should be a last resort.   In this case,                                                               
[DNR]  believes a  buyback would  be very  expensive, would  be a                                                               
disincentive  to the  development of  rural energy  alternatives,                                                               
and undermines the state's leasing  programs.  Mr. Parnell opined                                                               
that  there is  a  better  statewide solution.    The desire,  he                                                               
related,  is to  include the  public in  a best  interest finding                                                               
process  and  move  through a  competitive  process  rather  than                                                               
through  the  over-the-counter  program  that  currently  exists.                                                               
Therefore, he related opposition to Amendment 1.                                                                                
                                                                                                                                
REPRESENTATIVE  KERTTULA declared  a  conflict  of interest  with                                                               
regard to  Amendment 1 [because  her family owns property  in the                                                               
Matanuska-Susitna Valley area].                                                                                                 
                                                                                                                                
The committee took an at-ease from 3:12 p.m. to 3:15 p.m.                                                                       
                                                                                                                                
REPRESENTATIVE GATTO declared a conflict of interest.                                                                           
                                                                                                                                
REPRESENTATIVE STEPOVICH withdrew Amendment 1.                                                                                  
                                                                                                                                
Number 2621                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE moved to report CSSSHB 364(O&G) out of                                                                    
committee with individual recommendations and the accompanying                                                                  
fiscal notes.  There being no objection, it was so ordered.                                                                     
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 3:16 p.m.                                                                 

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