Legislature(2003 - 2004)

02/02/2004 01:34 PM CRA

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
    SENATE COMMUNITY AND REGIONAL AFFAIRS STANDING COMMITTEE                                                                  
                        February 2, 2004                                                                                        
                           1:34 p.m.                                                                                            
TAPE (S) 04-01 SIDE A                                                                                                         
MEMBERS PRESENT                                                                                                               
Senator Bert Stedman, Chair                                                                                                     
Senator Thomas Wagoner, Vice Chair                                                                                              
Senator Gary Stevens                                                                                                            
Senator Kim Elton                                                                                                               
Senator Georgianna Lincoln                                                                                                      
MEMBERS ABSENT                                                                                                                
All members present                                                                                                             
COMMITTEE CALENDAR                                                                                                            
SENATE BILL NO. 266                                                                                                             
"An Act  approving an interim classification  by the commissioner                                                               
of natural resources closing certain  land within the area of the                                                               
proposed Bristol  Bay (Alaska Peninsula) competitive  oil and gas                                                               
areawide  lease sale  to oil  and gas  exploration licensing  and                                                               
shallow  natural  gas leasing;  and  providing  for an  effective                                                               
     MOVED SB 266 OUT OF COMMITTEE                                                                                              
PREVIOUS ACTION                                                                                                               
No previous action to record.                                                                                                   
WITNESS REGISTER                                                                                                              
Mark Meyers, Director                                                                                                           
Division of Oil and Gas                                                                                                         
Department of Natural Resources                                                                                                 
400 Willoughby Ave.                                                                                                             
Juneau, AK  99801-1724                                                                                                          
ACTION NARRATIVE                                                                                                              
TAPE 04-01, SIDE A                                                                                                            
        SB 266-BRISTOL BAY OIL & GAS LEASE SALE CLOSURE                                                                     
CHAIR  BERT  STEDMAN called  the  Senate  Community and  Regional                                                             
Affairs Standing Committee meeting to  order at 1:34 p.m. Present                                                               
were Senators  Elton, Wagoner, Gary  Stevens, and  Chair Stedman.                                                               
He announced SB  266 to be up for consideration.  He advised that                                                               
Governor Murkowski requested the  bill, which approves an interim                                                               
classification closing certain land in  the Bristol Bay region to                                                               
oil and  gas exploration and  natural gas leasing. He  stated his                                                               
intention to move  the bill from committee that  day then invited                                                               
Mr. Meyers to testify.                                                                                                          
MARK MEYERS,  director, Division  of Oil  and Gas,  Department of                                                               
Natural  Resources  (DNR)  explained  that  the  bill  affirms  a                                                               
mineral closing order  by the DNR commissioner and  for the order                                                               
to be effective, it must be  approved during the first 90 days of                                                               
the legislative session.                                                                                                        
He admitted  that the purpose  of the bill  appears a bit  odd in                                                               
that it closes mineral rights to oil  and gas in an area so there                                                               
can be a  competitive sale for oil  and gas in the  same area. He                                                               
then pointed to a geologic map  of the Alaska Peninsula region to                                                               
show  the  area  (red  outlined  area) that  is  proposed  for  a                                                               
conventional sale and  said that within that  area (blue outlined                                                               
area) there  would be  a closure  for other  oil and  gas leasing                                                               
under  the shallow  gas program,  or exploration  licensing. They                                                               
could then  put the area  in the competitive lease  sale schedule                                                               
and then lease the mineral rights.                                                                                              
To demonstrate  DNR's reasoning,  he pointed  to a  chart showing                                                               
the geologic  cross section of  the Alaska Peninsula.  He advised                                                               
members  that  other  programs, in  particular  the  shallow  gas                                                               
program, would lease  the mineral rights of just  the upper layer                                                               
in an  over the counter program  so there would be  the potential                                                               
for  the shallow  part to  be leased  to a  different party  than                                                               
would bid in the competitive lease sale. He said:                                                                               
     In areas  where you  have high  oil and  gas potential,                                                                    
     particularly one that is  stratified at various depths,                                                                    
     you prefer  to have  a single  mineral stake  owner. It                                                                    
     increases the value and makes  it easier to assure that                                                                    
     all the resources would be  exported for development in                                                                    
     an orderly  fashion and it  prevents a lot  of disputes                                                                    
     between  parties if  the mineral  stratum  was in  fact                                                                    
     split. We  also believe  we would  get more  and higher                                                                    
     competitive  bids  on the  sale  if  the area  was  all                                                                    
     offered and  the tracts  were kept  geologically whole.                                                                    
     In a sense, that's what this does.                                                                                         
SENATOR  THOMAS  WAGONER noted  that  that  doesn't preclude  the                                                               
successful  bidder from  subbing out  a  portion of  the area  to                                                               
someone with different expertise.                                                                                               
MR. MEYERS agreed that the lessee  is able to convert part of the                                                               
lease  to another  party.  In fact,  it is  not  uncommon in  the                                                               
industry to mitigate risk so that costs and benefits are shared.                                                                
He  continued  saying  that  DNR believes  the  area  has  enough                                                               
potential and that  the competitive sales will  bring the highest                                                               
and  best value  to  the  state, if  in  fact  the best  interest                                                               
finding process demonstrates it  is appropriate. He repeated they                                                               
are  closing  an area  so  it  can  potentially be  reopened  for                                                               
competitive  sale. The  area of  the closure  is just  inside the                                                               
competitive sale  area. He referred  to the geologic  chart again                                                               
and said:                                                                                                                       
     Just to  note, in the  blue area  up here, the  area we                                                                    
     are, we  have an  exploration license proposal  at this                                                                    
     time. Again, that  is allowed. Also in  this area we're                                                                    
     closed  to  exploration   licensing.  Again,  the  same                                                                    
     reasons,  the license  is in  the area  where, ideally,                                                                    
     you don't think  a competitive sale is the  best way to                                                                    
     go.  We're giving  a large  portion  of the  land to  a                                                                    
     single operator  for a  work commitment  is the  way to                                                                    
     go. In this basin we  think there is geologic potential                                                                    
     as well as enough data  to pull off a competitive sale.                                                                    
     We  think the  resources in  the competitive  sale will                                                                    
     bring in  more money to the  state in the up  front and                                                                    
     will  help  accelerate   exploration  development  from                                                                    
     multiple  lessees  who  are   willing  to  explore  and                                                                    
     develop their land.                                                                                                        
SENATOR KIM ELTON asked what the  public process is that leads to                                                               
a competitive lease sale.                                                                                                       
MR.  MEYER replied  there  is a  best  interest finding  process,                                                               
which  will take  DNR  until some  time in  2005  to complete.  A                                                               
document  that is  similar to  an environmental  impact statement                                                               
(EIS)  is  prepared   prior  to  the  lease  sale.   There  is  a                                                               
preliminary   best   interest   finding  (BIF)   prepared   after                                                               
considerable interaction  with people in  the local area  as well                                                               
as planning  and inter-agency work.  The preliminary BIF  is sent                                                               
to the public  and the agencies for comment after  which DNR must                                                               
address all  the comments  and adjust them  into a  best interest                                                               
finding, which  determines whether  or not it  is in  the state's                                                               
best interest  to lease. It  also stipulates what  the mitigation                                                               
measures will  be, what areas  will be off limits  to exploration                                                               
and what requirements will be placed on the lessees.                                                                            
SENATOR ELTON asked  if there would be no decision  until the end                                                               
of 2005 or in 2006.                                                                                                             
MR. MEYER replied there would be  decisions made along the way as                                                               
to the best interest finding,  but the complete document won't be                                                               
ready until  2005. The preliminary BIF  will be sent out  in late                                                               
fall 2004.                                                                                                                      
CHAIR STEDMAN  announced that Senator Lincoln  joined the meeting                                                               
then he gave a short recap of the proceedings.                                                                                  
SENATOR GARY STEVENS  noted that the area  under consideration is                                                               
a rich  fishing area  then asked what  comments DNR  had received                                                               
regarding damage to the fishing industry.                                                                                       
MR.  MEYERS  replied   the  DNR  has  worked   closely  with  the                                                               
communities and they have been  very supportive. He described the                                                               
process as  a model for  integrating the concerns of  the fishing                                                               
community  with the  balancing for  oil and  gas issues.  DNR has                                                               
held  meetings with  the three  borough governments,  the Bristol                                                               
Bay Native  Corporation, and the  Bristol Bay  Native Association                                                               
and he  admitted that they own  much of the process.  DNR expects                                                               
the sale to be integrated and compatible with the industry.                                                                     
A  part  of the  proposed  sale  is  to  have no  development  of                                                               
offshore facilities,  but directional drilling to  offshore would                                                               
be  allowed,  which   is  an  important  point   to  the  fishing                                                               
community. DNR recognizes the value  of the fishing resource, the                                                               
anadromous streams  and habitat  and those  values will  be fully                                                               
integrated into the best interest finding process.                                                                              
Fishermen have  emphasized their  need for  an economic  base and                                                               
lower power cost  for processing fish. To this  end, the northern                                                               
area of the sale tends to be more  gas prone and it may provide a                                                               
source  of natural  gas to  develop  a regional  power grid.  The                                                               
fishing community realizes  that they need to  increase the value                                                               
of their product,  they need a lower cost of  energy and they are                                                               
looking at the economic tax base  that oil and gas could provide.                                                               
He  said  he  has  enjoyed working  with  the  fishing  community                                                               
because they  are straightforward in  their concerns and  in what                                                               
they want to receive from the sale.                                                                                             
Governor  Murkowski made  it clear  that the  process began  as a                                                               
result  of   supporting  input  from   the  Bristol   Bay  Native                                                               
Association,  local  municipalities  and  the  boroughs.  DNR  is                                                               
modeling  the process  with good  stipulations and  mitigation so                                                               
that, if the  sale goes forward, the communities'  input into the                                                               
best interest finding will be a key part.                                                                                       
SENATOR GARY  STEVENS said  he understands the  tax base  and how                                                               
that would affect the communities,  but he was curious what other                                                               
economic  factors, such  as  jobs, might  be  expected. Also,  he                                                               
questioned  how to  make sure  that  lower cost  power becomes  a                                                               
MR. MEYERS replied that there  are no guarantees. When DNR looked                                                               
at the  design of the exploration  license, it was for  a quicker                                                               
process, with  a decision  scheduled for 2004.  That was  for the                                                               
northern basin  area where they  expected to find enough  gas for                                                               
power generation. They also know  that there are several mines in                                                               
the  area that  might benefit  from the  power. That  process was                                                               
specifically around  natural gas  and local power  generation and                                                               
transmission, but they  recognize that the area is  large and has                                                               
a low density.                                                                                                                  
A second  approach would be to  find enough gas to  create an LNG                                                               
or a pipeline  project. In that case,  the commercial development                                                               
would pay for  most of the cost of getting  the gas developed and                                                               
produced.  Then the  local  benefit  is there  to  spin off  that                                                               
Until  a  full  exploration  assessment is  done,  no  one  knows                                                               
whether commercial natural gas is  present or where the gas might                                                               
be. The geologic  map shows that they expect to  find the thicker                                                               
part of the basin farther south away from the head of the bay.                                                                  
MR.  MEYERS  reported  that  they  do  know  that  there  is  oil                                                               
potential in the bay because they  have found oil source rocks in                                                               
the basin  and there have  been oil shows  in the wells.  For the                                                               
oil, an export  facility would have to be  developed, which might                                                               
entail a  pipeline to  the south  side of  the Aleutians  to some                                                               
sort of tanker facility.                                                                                                        
SENATOR WAGONER asked whether DNR  had any guesstimates regarding                                                               
the size of the reserves.                                                                                                       
MR.  MEYERS  replied  their  best  guess  is  the  potential  for                                                               
multiple tcfs of  gas in fields that could be  in the hundreds of                                                               
millions  of barrels.  They believe  it compares  favorably to  a                                                               
Cook Inlet  type sale,  but the  geology doesn't  suggest another                                                               
Prudhoe Bay. The  part of the equation that helps  makes a small-                                                               
scale field feasible for development is the tidewater location.                                                                 
SENATOR  GEORGIANNA  LINCOLN  noted that  the  sponsor  statement                                                               
states that local governments  and Native organizations requested                                                               
this yet she  had nothing in her file indicating  that this was a                                                               
request  of  any  of those  entities.  She  requested  supporting                                                               
documentation from that area and  asked whether there were people                                                               
from the  area who were online  and waiting to testify.  Next she                                                               
asked  the Chair  whether a  timeframe had  been established  for                                                               
hearing and moving the bill.                                                                                                    
CHAIR STEDMAN  said there  was no one  online waiting  to testify                                                               
and no one had signed up to testify in person.                                                                                  
SENATOR LINCOLN asked  whether he intended to move  the bill that                                                               
CHAIR STEDMAN replied that was his intention.                                                                                   
SENATOR  LINCOLN  stated  for  the record  that  she  would  have                                                               
difficulty  voting for  the legislation  because she  didn't have                                                               
any  documentation   showing  that  the  local   governments  are                                                               
MR. MEYERS  advised that there  is a memorandum  of understanding                                                               
between the Bristol  Bay Native Association and the  state on the                                                               
process of  holding a lease  sale. He  stated that they  are very                                                               
supportive. He suggested  that a confusing aspect is  that SB 266                                                               
is a mineral closing order and  simply closes the area to oil and                                                               
gas licensing  or shallow  gas leasing. It  is not  a substantive                                                               
bill regarding  the benefits of  a lease  sale or whether  one is                                                               
justified. He  described SB 266  as a  small part of  the process                                                               
toward holding a competitive sale  in the area. A mineral closing                                                               
order is necessary  to prevent shallow gas leases  from being top                                                               
filed  in the  area  or exploration  application  licenses to  be                                                               
received for the area.                                                                                                          
DNR is  in the process  of drafting memorandums  of understanding                                                               
in support of  the process with all three  borough governments in                                                               
the area. He said they would  provide that information to her and                                                               
other   members.   With   regard   to   scheduling,   they   have                                                               
documentation  that shows  all public  comments and  if the  best                                                               
interest finding supports the sale, what happens on a month-to-                                                                 
month timeline.  He assured her  that that  too would be  sent to                                                               
her office.                                                                                                                     
SENATOR WAGONER  asked Mr.  Meyers to  refer to  the map  to show                                                               
possible  accesses to  the south  side and  said he  would assume                                                               
that  the accesses  would  be  used for  both  road and  pipeline                                                               
MR.  MEYER  acknowledged there  is  discussion  between DNR,  the                                                               
Department of  Natural Resources (DNR) and  the local communities                                                               
regarding  which roads  would  be for  general  access and  which                                                               
might spur  oil and gas  development. There are  also discussions                                                               
about the  year around port  at Cold Bay and  that it might  be a                                                               
major resupply  port. Until  the sale  occurs, it's  difficult to                                                               
pin  down what  and  where  actual development  will  be, but  he                                                               
expects  that  in  the  early  exploration  period  much  of  the                                                               
transportation needs  would be met with  barges. Communities have                                                               
made it  clear that  they are interested  in roads  for community                                                               
development and  any decisions regarding longer  roads would come                                                               
CHAIR STEDMAN  announced that  Dillingham, Bethel,  and Anchorage                                                               
were online, but no one wanted to testify.                                                                                      
SENATOR Elton  asked whether someone  has an  exploration license                                                               
in the  proposed Bristol Basin  area and that someone  is looking                                                               
at the shallow resource.                                                                                                        
MR. MEYERS referred to the map and said:                                                                                        
     The blue area is where if  you look at the geology, you                                                                    
     can  see the  lighter colors.  The basin  thins and  we                                                                    
     have contours  that show  that the  perspective section                                                                    
     is much thinner and we  believe more gas prone and less                                                                    
     likely  to have  large-scale  commercial quantities  of                                                                    
     gas.  The  thought  process was,  folks  want  a  local                                                                    
     energy  process  as  quickly as  they  can  get  going.                                                                    
     Licensing has,  in some cases, some  advantages in that                                                                    
     it  requires a  guaranteed work  commitment of  so many                                                                    
     millions of  dollars typically  being bid.  The process                                                                    
     of  issuing  a  license  is somewhat  separate  from  a                                                                    
     competitive sale. So, we've taken  the area and divided                                                                    
     it into  two with  the license  area. The  license area                                                                    
     also has  a best  interest finding, unlike  shallow gas                                                                    
     leasing.  That  best  interest finding  is  accelerated                                                                    
     relative to this one. A  couple of the reasons for that                                                                    
     is  the license  area itself  is a  much smaller  area.                                                                    
     Within this proposed area, the  actual proposal we have                                                                    
     only covers  a relatively small  percent of it.  It's a                                                                    
     much smaller area and it  doesn't deal with some of the                                                                    
     issues  that  a  competitive  sale  does.  The  mineral                                                                    
     rights there  are for all  mineral rights;  they're not                                                                    
     restricted  like  shallow  gas  leasing  to  a  certain                                                                    
     depth. Realistically,  the base itself is  pretty thin.                                                                    
     The basin  is pretty thin  there so it's  restricted by                                                                    
     the geology.                                                                                                               
SENATOR ELTON noted that Wood-Tikchik  State Park is just outside                                                               
the  proposed  area (The  area  outside  both  the red  and  blue                                                               
lines.)  and  asked  if  there  are any  state  parks  or  marine                                                               
sanctuaries that fall inside the red lines.                                                                                     
MR. MEYER  replied the red line  indicate state lands and  DNR is                                                               
in the  process of looking  at all  the special use  areas inside                                                               
the red  lines to  determine which areas  might be  leased. Those                                                               
considerations all go into the  best interest finding process. He                                                               
said he  was not  aware of  any parks  or sanctuaries  within the                                                               
license  area. He  advised that  Jim Hansen  or Pat  Galvin could                                                               
give a more  definitive answer, but in the lease  sale area there                                                               
is the  Bristol Bay Area Plan  and other areas that  have special                                                               
use areas, which will be reviewed in the plan for a lease sale.                                                                 
SENATOR ELTON  asked Mr. Meyers  to provide  him a list  of those                                                               
areas  if one  was  available.  He stated  that  he  sits on  the                                                               
Resource Committee as  well and it would be helpful  if that were                                                               
a part of the packet.                                                                                                           
CHAIR  STEDMAN asked  if there  was  anyone else  that wanted  to                                                               
speak to  the issue. There was  no response and he  closed public                                                               
SENATOR WAGONER made a motion to  move SB 266 from committee with                                                               
the accompanying fiscal notes and individual recommendations.                                                                   
SENATOR  LINCOLN objected  and stated  that she  too sits  on the                                                               
Resource  Committee and  would  ask questions  when  the bill  is                                                               
heard  there. However,  it  did not  sit well  with  her for  the                                                               
Community and  Regional Affairs Committee  to hear this  bill and                                                               
not  have letters  from the  affected  local governments  stating                                                               
support for  this legislation because that  information should be                                                               
heard at  this level.  She closed saying,  "For that  reason, and                                                               
that reason alone, I am objecting to the passage of it today."                                                                  
SENATOR  ELTON  voiced  reservations  about voting  in  favor  of                                                               
moving  the bill  that  day  as well  and  not  because the  bill                                                               
doesn't make  sense. He  acknowledged that  the legislation  is a                                                               
technical change, but  the previous speaker had  valid points. Of                                                               
course  resource  related  issues  will be  raised  in  the  next                                                               
committee,  but it  is  the  purview of  this  committee to  gage                                                               
community  reaction. He  said he  expects that  if the  bill were                                                               
held  in   committee,  members  would  then   receive  supporting                                                               
documentation that would  make him more comfortable  in voting in                                                               
favor of passage.                                                                                                               
CHAIR STEDMAN  stated that  there were  two objections  and asked                                                               
for  a roll  call vote.  The motion  to move  SB 266  passed with                                                               
Senators Lincoln and Elton voting  nay and Senators Wagoner, Gary                                                               
Stevens, and Chair Stedman voting yea.                                                                                          
CHAIR STEDMAN adjourned the meeting at 2:00 p.m.                                                                                

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