Legislature(2007 - 2008)CAPITOL 124
02/07/2007 01:00 PM House RESOURCES
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| Overview: Department of Natural Resources - Division of Oil & Gas | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
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ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 7, 2007
1:01 p.m.
MEMBERS PRESENT
Representative Carl Gatto, Co-Chair
Representative Craig Johnson, Co-Chair
Representative Vic Kohring
Representative Bob Roses
Representative Paul Seaton
Representative Peggy Wilson
Representative Bryce Edgmon
Representative David Guttenberg
Representative Scott Kawasaki
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
OVERVIEW: DEPARTMENT OF NATURAL RESOURCES DIVISION OF OIL &
GAS
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
KEVIN BANKS, Acting Director
Central Office
Division of Oil & Gas
Department of Natural Resources (DNR)
Anchorage, Alaska
POSITION STATEMENT: Presented Division of Oil & Gas overview.
ACTION NARRATIVE
CO-CHAIR CARL GATTO called the House Resources Standing
Committee meeting to order at 1:01:09 PM. Representatives
Gatto, Johnson, Kawasaki, Kohring, Wilson, and Seaton were
present at the call to order. Representatives Roses,
Guttenberg, and Edgmon arrived as the meeting was in progress.
^OVERVIEW: DEPARTMENT OF NATURAL RESOURCES DIVISION OF OIL &
GAS
1:02:09 PM
CO-CHAIR GATTO announced that the day's only order of business
would be an overview by the Department of Natural Resources,
Division of Oil & Gas.
1:03:01 PM
KEVIN BANKS, Acting Director, Central Office, Division of Oil &
Gas, Department of Natural Resources (DNR), referenced pages 2
and 3 of his written presentation and explained that by
encouraging oil and gas exploration and development, the
division maximizes revenue to the state. He stressed that his
primary concern is making sure the state gets what it is
entitled to under the provisions of its lease agreements.
1:06:04 PM
MR. BANKS then directed attention to page 4 of his written
presentation regarding the gross oil volumes produced from state
leases between January 2006 and November 2006. He noted that
during this time period the State of Alaska received from its
leases a gross oil volume of 32,823,355 barrels. This amount is
four times the volume produced by the state's fourth largest
producer, he pointed out. The state is in the enviable position
of receiving approximately 100,000 to 120,000 barrels a day, he
emphasized, a position most oil companies would be delighted to
be in.
MR. BANKS reminded the committee that oil and gas revenue
constitutes nearly 90 percent of the state's total General Fund
(GF) revenue, as shown on page 5 of his written presentation.
For fiscal year 2006 (FY 06), the division was responsible for
about $2.4 billion in royalty collections. He pointed out that
the Division of Oil and Gas contributed more than half of all of
the state's revenues for FY 06. Mr. Banks then referred to
pages 6 and 7 of his written presentation and relayed that, over
the past few years, royalty revenues on state lands increased
while production decreased. He also pointed out that the state
is selling over 60 percent of its royalty to Flint Hills
Resources Alaska, LLC ("Flint Hills"), alone, and the resulting
revenue is more than the state receives from any other
individual producer.
1:09:09 PM
REPRESENTATIVE SEATON asked what percentage of Alaska's royalty
is taken in-kind versus in-value.
MR. BANKS reported that 60 percent of the state's royalty is
taken in-kind and sold to Flint Hills Resources, the state's
sole customer for royalty-in-kind (RIK). Responding to further
questions, he noted that the State stopped selling to the Tesoro
Alaska Company's ("Tesoro") refinery in Nikiski in 1998. Most
of the oil used by this refinery comes from the Cook Inlet, with
additional oil being shipped in from Valdez. Tesoro also ships
oil by tanker to the Lower 48. In response to another question,
he explained that state regulations require that the State
receive more for sales of RIK. For example, the 2004 [Flint
Hills] contract guarantees the state at least 30 cents more for
its RIK. However, he continued, because of the formula used for
calculating RIK, the state receives much more than that, as
compared to what it receives for royalty-in-value (RIV).
1:11:25 PM
CO-CHAIR GATTO inquired whether Flint Hills had a lawsuit
pending to recover some of that royalty money.
MR. BANKS replied that there are two disputes before the Federal
Energy Regulatory Commission (FERC). One is a long-standing
dispute regarding the calculation of components in the Trans-
Alaska Pipeline System (TAPS) Quality Bank. He explained that
when Flint Hills and other refineries take oil out of the
pipeline, make products from it, and then dispose of oil back
into the pipeline, they are changing the quality of the oil for
all the other pipeline users. Therefore, he said, the
refineries must pay into the Quality Bank to make whole those
companies whose oil is being shipped all the way to Valdez. He
stated that Flint Hills and Petro Star, Inc. will have to pay
more into the Quality Bank if the State and other shippers
prevail.
MR. BANKS said the second dispute involves the TAPS tariff for
inter-state rates. Several years ago, he explained, the
Regulatory Commission of Alaska (RCA) lowered the intra-state
tariff. Today, the pipeline charges $1.96 [per barrel] for
shipping oil from Pump Station 1 on the North Slope to Valdez
for intra-state use, such as for the Nikiski refinery. However,
the pipeline's inter-state rate has risen over the last few
years and is currently $5.20 [per barrel]. It is this
difference that is at issue, he pointed out. The plaintiffs are
asking the FERC to decrease the $5.20 inter-state rate. Because
of how the State calculates the price it charges Flint Hills for
the State's RIK, he continued, the company deducts that $5.20
from the price. If the FERC orders a new change to the tariffs
that have been suspended during this litigation, a retroactive
contract provision will allow the State to collect the $3.24
difference from Flint Hills.
1:14:44 PM
MR. BANKS, responding to a further question, stated that it is
the pipeline that charges the $5.20 for the service of moving
the oil from the North Slope to Valdez. After the oil leaves
Valdez there are additional tanker charges. He explained that
oil is valued at Pump Station 1 using a "net-back calculation."
This calculation begins with the market price where the oil is
sold on the West Coast, called the ANS Spot Price. Deducted
from the market price is the cost of tankers or a location
differential one or the other then there is a deduction for
the tariff, as well as adjustments for quality.
MR. BANKS, referring to page 8 of his written presentation, then
discussed the six sections comprising the Division of Oil & Gas:
Resource Evaluation, Leasing/Permitting, Unit/Tech Support,
Royalty Accounting, Audit Section, and Commercial Section. He
outlined the duties of the various sections which include:
developing concepts about prospects and exploration, monitoring
development proposals received from the oil industry, monitoring
and administrating leases, conducting lease sales, maintaining
the legal documentation of leases, calculating royalty and
determining whether the state should take RIK or RIV, and
ensuring that the environmental and other lease obligations are
being met by the industry.
1:18:15 PM
REPRESENTATIVE EDGMON inquired whether the division's duties are
easier since the Office of Habitat Management & Permitting
(OHMP) was moved from the Alaska Department of Fish & Game
(ADF&G) to the DNR.
MR. BANKS stated that there is now better access to the OHMP.
He said one aspect that is different is that the roles between
his division and the OHMP seem more balanced and this has
reduced the tension that existed before.
MR. BANKS then directed attention to the summaries of the
division's 2006 achievements and activities as outlined on pages
9-14 of his written presentation and to pages 32-37, which
summarize North Slope and Cook Inlet oil and gas development
activities. These summaries, he explained, can be used to
better interpret the features of the two maps included in
committee packets.
1:20:45 PM
REPRESENTATIVE SEATON requested the definition of the term "PA"
as used on page 11.
MR. BANKS began by explaining that a "unit" is an aggregation of
leases over a prospect. Aggregating the leases provides
efficient and economic production of the state's oil, and
reduces the environmental impact because only one set of
facilities is built over a field instead of many. The
correlative rights of the lease owners within a unit must be
protected when oil developments occur. At the initial formation
of a unit, he continued, the size of the "tank," so-to-speak, is
not quite known. As exploration occurs, an opinion can be
formed about how big that tank is, and a participating area, PA,
is then formed. Production from that PA is allocated to the
various owners, including the state as a royalty owner. He
explained that eventually the knowledge about a PA is refined
and the unit will shrink to the size of that PA. The acreage
remaining outside of the PA is then released for attracting new
entrants.
1:22:50 PM
REPRESENTATIVE SEATON inquired what the distinction is when
there are four PAs located within one unit.
MR. BANKS explained that a unit can contain more than one PA,
depending on the zones that wells are producing from. A PA is
defined by the pool of hydrocarbons. There could be a PA at one
depth and another PA at a different depth. Defining a PA, he
continued, determines what share of production each lease owner
will receive from that PA. A PA manages the correlative rights
of the various participants in the unit. For example, depending
on the various lease ownerships on the surface, Company A might
get 60 percent of the production from a particular PA and
Company B might only get 20 percent. In other words, a unit is
a surface area designation and a PA is a reservoir designation.
1:24:41 PM
REPRESENTATIVE GUTTENBERG surmised that the definitions are for
the horizontal surface as well as for the vertical depth of the
different fields; therefore, facilities located right next to
each other can represent very different entities. He then
mentioned the previous administration's proposed Lease
Monitoring and Engineering Integrity Coordinator's Office
(LMEICO) to be established within the DNR, and asked what role
the Division of Oil & Gas would be playing in the LMEICO and the
addressing of regulatory gaps.
MR. BANKS stated that under the LMEICO, liaisons from the
Department of Environmental Conservation (DEC), the Joint
Pipeline Office, and other state and federal agencies would be
physically located in one place. However, he said, the Division
of Oil & Gas is suggesting that Governor Palin instead consider
using a proposed Petroleum Systems Integrity Office (PSIO),
described on page 20 of his written presentation, as an
alternative. Rather than establishing a separate coordinator's
office, liaison people would be identified within each of the
departments and arrangements would be made for complete
communication among those agencies. The liaisons first task
would be identifying regulatory gaps and making sure those gaps
are filled. The PSIO would reside within the Division of Oil &
Gas because the pipeline facilities are within the units managed
by the division and the unit agreements give the DNR the
authority to manage and inspect facilities so that production
occurs safely and continuously.
REPRESENTATIVE GUTTENBERG responded that it might take
legislative oversight [of the PSIO] to make sure that that
happens.
1:29:31 PM
MR. BANKS then directed attention to pages 32-33 of his
presentation and to the two maps showing North Slope and Cook
Inlet oil and gas activities for 2006-2007. He noted that the
bold, black lines delineate the units and the callout boxes
describe the activities underway within the units. He reported
that exploration activities increased on the North Slope over
the past year and that new players are involved. He also
reported that the division just approved three new units shown
on the Cook Inlet map the North Alexander Unit in the
Matanuska-Susitna (Mat-Su) Borough area and the offshore Corsair
and Kitchen units. Not illustrated on the maps, he continued,
are companies working in the National Petroleum Reserve-Alaska
(NPR-A) such as ConocoPhillips Alaska, Inc. and FEX, L.P., a
company new to Alaska.
1:33:49 PM
CO-CHAIR JOHNSON asked whether permits have been issued for all
of the leases awarded in the Cook Inlet over the past several
years.
MR. BANKS said the answer is, "No," because the leases for 71
Cook Inlet tracts sold in May 2006 have not yet been issued.
However, he stressed, that is not an abnormal length of time
because a lot of survey work must be conducted after a lease is
awarded. He said he believes that leases from a couple of years
ago which experienced delays have all been issued. HE further
explained that the timeline between purchasing a lease and
taking possession for drilling is much less than two years.
Title work is done by the Division of Mining, Land and Water, he
continued, and an additional title person was hired to help with
a backlog in the workload. Unlike earlier years, title work is
now done after leases are purchased, rather than before, so that
time is not wasted on surveying unsold leases. Furthermore, he
said, the division offers leases throughout the whole area of
the Cook Inlet each year. This provides industry with
predictable and manageable access to the oil and gas lands in
the Cook Inlet, he emphasized, and [offering leases throughout
the whole area] also applies to the North Slope, the Beaufort
Sea, and now the Bristol Bay region.
1:37:25 PM
REPRESENTATIVE GUTTENBERG asked if the attitude of the oil and
gas industry has changed with the election of a new governor who
is seeking changes to the previous proposed gas pipeline
contract.
MR. BANKS said he is being told by exploration companies that
they are targeting gas on the North Slope, not just oil. Also,
he pointed out, there is an expectation on the part of new
players that this pipeline is going to be built by the time they
are ready to participate.
1:38:54 PM
REPRESENTATIVE GUTTENBERG requested an expansion on activities
happening in the Nenana Basin.
MR. BANKS reported that there is an exploration license over the
area and that some seismic work has been completed in
conformance to the work commitments. However, plans for
drilling a well are currently on hold, he said, because the
Nenana Basin geology is very complicated and there is some
uncertainty as to whether a drilling program there will yield an
economic source of gas for local use in Fairbanks or for
delivery to some kind of a pipeline. Mr. Banks further reported
that the division's approval for putting the Nenana drilling on
hold was not needed because a well was not part of the work
commitment for the license. Evaluation of the seismic
information is being completed, he continued, and questions
remain as to whether an exploration well is the logical next
step. He offered to send members a more complete summary of
activities in the Nenana Basin.
1:44:19 PM
MR. BANKS, in response to a question, relayed that the public
school trust fund receives one-half of 1 percent of the
royalties and is not a large fund. He offered to research the
topic and provide more information to members.
1:45:15 PM
CO-CHAIR GATTO requested clarification regarding the School Fund
footnote on page 5 which states, "Includes Federally shared
rentals + royalties".
MR. BANKS explained that Alaska receives "about 27 percent" of
the royalties from federal lands located between three miles and
six miles on the outer continental shelf (OCS). The federal
government is obliged to share these particular revenues with
coastal states under provisions of [Section 8(g)(2)] of the
Outer Continental Shelf Lands Act. An example, he said, is the
royalty collected by the federal government on its leases in the
North Star Unit on the North Slope. Another example is the
royalty received under provisions of the Mineral Leasing Act
where the state receives 90 percent of the royalties from
production on federal lands in the Cook Inlet. Beyond the six
miles, all of the royalties belong to the federal government.
1:46:54 PM
REPRESENTATIVE GUTTENBERG inquired whether the percentage of
royalty revenues paid under the Outer Continental Shelf Lands
Act is the same for each state.
MR. BANKS said he thinks the [Section 8(g)(2)] revenues apply to
all coastal states equally, a [27 percent] share of the
royalties. Coastal states have tried through Congress to
acquire a greater share of the OCS revenues, he commented, but
to his knowledge those requests were denied because non-coastal
states do not want their federal revenues clipped by a coastal
state. He confirmed that the aforementioned revenues go into a
pool that is then divided amongst the coastal states.
1:48:35 PM
REPRESENTATIVE SEATON pointed out that in the last Congress
there was a bill in which the five southern states succeeded in
getting 70 percent of those off-shore royalties and Alaska was
cut out. He said he and others opposed the Bristol Bay leases
because that same royalty distribution would have been applied
to those leases.
MR. BANKS said he will get back to the committee on this issue,
but offered his belief that there are no current leases in
Bristol Bay on the OCS.
1:49:47 PM
REPRESENTATIVE EDGMON asked if the division plays any policy-
making role in the OCS process in addition to any informational
roles.
MR. BANKS replied that the division responds to the
environmental and lease processes conducted by the U.S. Minerals
Management Service on the OCS by providing comments for the
governor's signature.
1:51:00 PM
REPRESENTATIVE GUTTENBERG inquired whether the magnetic mapping
process done by the Division of Geological & Geophysical Surveys
while looking for gold could also be useful in looking for oil.
MR. BANKS responded that magnetic surveys are indeed used for
some of the initial exploration play for oil and gas.
1:53:38 PM
REPRESENTATIVE SEATON requested further information regarding
the issues listed on page 15 of the written presentation.
MR. BANKS explained that on the issue of the Point Thomson Unit
the lessees asked for a reconsideration of the DNR's November
2006 decision made by then-Commissioner Menge. In December
2006, the [acting] commissioner, Marty Rutherford, affirmed the
first decision. Mr. Banks said the lessees sued the state on
the issue of termination of the unit and there is currently a
motion to consolidate the appeals into a single case.
MR. BANKS next referred to the issue of the North Slope Natural
Gas Pipeline. He said the gasline team led by Acting
Commissioner Rutherford is proceeding and there has been
discussion with applicants and experts regarding how the
[proposed] Alaska Gasline Inducement Act (AGIA) should be
written. The legislature will help determine what the state
wants out of the gas pipeline as it considers the AGIA, he said,
unlike the process of writing the Alaska Stranded Gas
Development Act which simply offered a contract to the
legislature without its involvement.
1:58:52 PM
MR. BANKS then discussed the issue of New Unit Initiatives in
Cook Inlet. Supply-and-demand is obviously going to be an
extremely important issue for the Cook Inlet, he emphasized.
This is highlighted by "ConocoPhillips" and "Marathon"
announcing that they would like to extend their federal export
license to continue shipping liquefied natural gas (LNG) to
Japan through 2011.
2:00:03 PM
CO-CHAIR GATTO asked if exploration in Cook Inlet is for gas and
oil and whether new wells have been productive.
MR. BANKS stated that recent exploration in the Cook Inlet has
been for gas. More than 300 exploration wells have been drilled
in the Cook Inlet over the past 50 years. During the last seven
years, he said, 30 wells were drilled and many of those were
targeting gas. The market appears to be opening up and
changing, he explained, and new players are interested in
participating. There are new reserves as a result of that
exploration. Many of the wells were drilled into existing known
prospects and development on those is still pending. There have
been a few dry holes too, he said.
2:01:48 PM
REPRESENTATIVE SEATON offered his understanding that some time
ago the RCA had approved higher gas prices on the assumption
that higher prices would stimulate development and exploration
for more gas. He said he further understood that the RCA
recently denied another proposed price increase because it
determined that the gas companies had kept the profits and not
expanded exploration. Are "we" left with a cheap price in the
Cook Inlet that is not going to expand the exploration fields,
he inquired.
MR. BANKS explained his belief was that the RCA's objection was
to the price mechanism used in the contract being offered by
ENSTAR Natural Gas Company ("ENSTAR") and "Marathon." The
contract used the Louisiana Henry Hub price indices, which the
RCA felt to be a market indicator unrelated to the real cost of
providing gas in the Cook Inlet. However, he said, he did not
think the RCA categorically stated that the [Henry Hub] price is
too high, but rather that a better market price indicator might
be one used closer to the wellhead in the Lower 48 and would
still be higher than the prices seen in historical contracts in
the Cook Inlet. He stated that, in his opinion, the
"Unocal/ENSTAR" contract approved some years ago by the RCA did
generate increased exploration activity in Alaska.
2:07:01 PM
MR. BANKS responded to further questions by pointing out that
ENSTAR is reporting it will have a gap in its supply
requirements beginning in 2009; ENSTAR will have to find sellers
in the marketplace that can fill that gap, he said, and it will
likely be at historical prices. He said a Division of Oil & Gas
economist describes the market as a "tightened balance" there
is only so much gas that can be consumed in the Cook Inlet
because it is isolated from any other destination. As a result,
he continued, once that demand is satisfied it is hard to put
any more gas in at any price. Mr. Banks stressed that there are
significant resources [in Alaska] "where a market needs to be
cracked open so that we can see an increase in reserves instead
of what looks like a precipitous drop in reserves."
2:09:07 PM
CO-CHAIR GATTO discussed that many people feel the exportation
of LNG from the Nikiski plant should be stopped and the gas
instead saved for use in Southcentral Alaska. However, the
demand for gas in Cook Inlet is three times higher in the winter
than in the summer, he explained. Rather than storing gas to
meet the winter demand, the LNG exports are simply reduced
during the winter months so that enough gas is available for use
in Southcentral Alaska. The end result, he continued, is that
having LNG exports is good because it allows Southcentral
Alaskans to have gas at a decent price. He asked whether it is
possible to run out of gas if exportation of LNG continues, or
is it that the gas is there and can be developed when the market
demand is high enough.
MR. BANKS responded that there is a "chicken and egg" problem.
The division's estimates show there is another eight years of
known reserves in currently developed fields. There is another
1.6 trillion cubic feet (TCF) of gas that could be explored for,
and this would add an additional eight years of supply. So yes,
he said, there is more gas [in the Cook Inlet], but it is going
to be harder to find and more expensive to develop. He went on
to explain that if, for example, a producer discovered a field
with 10 billion cubic feet (BCF) this amount would supply only a
small fraction of the current [Alaskan] marketplace and,
therefore, the producer would likely find a position in the
marketplace. However, he said, if this same producer were to
discover 100-200 BCF of gas, then that producer might be left
standing in line waiting to develop that resource. Somehow, he
stressed, the market needs to accommodate for large discoveries
and this is an issue that is being discussed in respect to an
export license extension.
2:12:27 PM
MR. BANKS further pointed out that the Nikiski LNG plant is the
only LNG exporter in the U.S. He confirmed that Co-Chair
Gatto's portrayal of the seasonal swings in the marketplace
correctly describes what is at issue for ENSTAR and, to a lesser
extent, other electrical utilities. What ENSTAR requires in a
contract is that kind of deliverability and this can be provided
for by developing the field with a lot of compression with a lot
of wells, or by constructing and providing storage in spent
fields where gas is injected during the summer and drawn out
during the winter, or by "backing out" supplies that go to the
Nikiski LNG plant.
2:14:07 PM
REPRESENTATIVE WILSON requested that Mr. Banks review page 31 of
his presentation entitled, "Oil and Gas Incentives".
MR. BANKS explained that this page is an inventory of the kinds
of incentives that can be offered either automatically or at the
request and application of a lessee/producer. These incentives
figure into the economics of an exploration prospect differently
based on whether they can be counted on or whether permission
must be requested. A royalty reduction incentive would need to
be applied for. Exploration Incentive Credits (EICs), on the
other hand, are offered with the lease and might be offered with
a very specific work commitment. Additional incentives, he
continued, are discovery royalties, Exploration Incentive
Credits (EICs) through the Department of Revenue (DOR), and
production profits tax (PPT) credits for North Slope producers.
His understanding, he said, is that at very high price levels,
when the PPT is at its maximum, the state may offer a tax credit
of up to 60-70 percent of the cost of drilling an exploration
well; however it remains to be seen whether this credit will
affect exploration activity.
2:19:50 PM
REPRESENTATIVE GUTTENBERG referred to a recent article in The
New York Times dealing with Gulf Coast oil and gas issues. The
article said that in the long term, tax and other incentives for
production did not result in producing any more oil and gas than
would have been produced otherwise. According to the article,
he said, incentives are generally reductions for things the oil
companies were going to do anyway and, therefore, end up being
enhancements for corporate bottom-lines. Referencing page 16 of
the written presentation, he asked what the division is doing to
expand the number of explorers and producers on the North Slope.
He said he believes that facility access would open up more
exploration and create more jobs in the state.
MR. BANKS agreed that facility access is extremely important,
and that this applies to pipelines as well as machinery and
buildings. Also, he said, low inter- and intra-state tariffs
are important to a company that is looking to find and produce
oil, because the tariffs affect the amount a company will get in
"net-back" value. The state offers land [for lease] every year
on the North Slope on a predictable and area-wide basis so
companies know they will have predictable access to the
resource.
MR. BANKS pointed out that the capacity and capability of
facilities on the North Slope were examined as part of a
division study done several years ago. He said the division is
currently playing the role of ensuring that incumbents are
playing fairly with newcomers. Virtually all facilities on the
North Slope are running at or near capacity, he emphasized.
They are constrained either by water or gas handling, or by oil
in some of the newer oil fields. Putting a newcomer's oil into
an incumbent's facility comes at the cost of having to back out
some of the oil being produced by the incumbent. However, he
continued, chances are that some of the fluids a [newcomer] is
requesting to bring to an incumbent's facility have a much
higher oil content than the fluids coming from the incumbent's
oilfield. In this case, a [favorable] outcome might result
because both parties will benefit from more efficient use of the
equipment that is already there. Mr. Banks said he prefers to
see the companies reach their own solution to the problem of
facility access and, then, if this does not work the state could
become more pro-active and get involved.
2:24:51 PM
REPRESENTATIVE GUTTENBERG noted that not everything on the North
Slope is regulated by either the FERC or the RCA and some of
those gaps become restrictions on trade. Wherever there are
regulatory gaps the prices charged can be raised high enough to
keep others out. He asked if either the division or the RCA is
looking at closing such gaps.
MR. BANKS responded that the division will first be looking at
the issues of systems and integrity to determine where there are
regulatory gaps in implementing a monitoring program. However,
he said, the question of facility access still needs to be
explored. He pointed out that pipeline access is regulated by
the RCA and the FERC, and the boundary is typically the boundary
of the unit. The Division of Oil & Gas, through its unit
agreements, has some authority that could perhaps be exercised
for facility access upstream of the boundary of the unit. He
said that the division is looking into what needs to be done and
what the division can do in that regard.
2:27:44 PM
REPRESENTATIVE SEATON pointed out that the long-term issues for
slowing the decline in oil production and for facility access
apply also to gas. One of the biggest problems has been trying
to provide capacity for the minor players, he said. He urged
the Division of Oil & Gas to participate in future discussions
before the House Resources Standing Committee regarding the
technology of converting gas to oil for injecting into the TAPS.
He said his understanding is that this would extend the
pipeline's life to the year 2035 without further oil
discoveries, and that this would also give the state further
options to consider when discussing a gas pipeline.
MR. BANKS stated that he planned to be in on those discussions.
2:30:17 PM
CO-CHAIR GATTO expressed his belief that converting gas to
liquid is a last resort, or at least a backup plan, if the state
is unable to get a gasline.
2:31:43 PM
REPRESENTATIVE GUTTENBERG offered his belief that money is
supposedly being set aside for the dismantlement, removal, and
restoration of the TAPS, should it ever come to that. He asked
if Mr. Banks knew where those funds are being held.
MR. BANKS responded that those funds "are on the balance sheet
of the owners of that pipeline." He offered to research the
issue and provide the committee with further information
regarding the current amount of those funds and where they are
located.
2:34:31 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:34 PM.s
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