Legislature(2019 - 2020)SENATE FINANCE 532

01/24/2019 09:00 AM FINANCE

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Audio Topic
09:01:35 AM Start
09:02:12 AM Presenation: Alaska Oil and Gas Conservation Commission
10:36:44 AM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Alaska Oil & Gas Conservation Commission: TELECONFERENCED
Overview, Mission, Update & Gas Offtake by
Commissioners Cathy Foerster & Dan Seamount
                 SENATE FINANCE COMMITTEE                                                                                       
                     January 24, 2019                                                                                           
                         9:01 a.m.                                                                                              
9:01:35 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stedman called the Senate Finance Committee                                                                            
meeting to order at 9:01 a.m.                                                                                                   
MEMBERS PRESENT                                                                                                               
Senator Natasha von Imhof, Co-Chair                                                                                             
Senator Bert Stedman, Co-Chair                                                                                                  
Senator Click Bishop                                                                                                            
Senator Lyman Hoffman                                                                                                           
Senator Peter Micciche                                                                                                          
Senator Donny Olson                                                                                                             
Senator Mike Shower                                                                                                             
Senator Bill Wielechowski                                                                                                       
Senator David Wilson                                                                                                            
MEMBERS ABSENT                                                                                                                
ALSO PRESENT                                                                                                                  
Senator   Cathy   Giessel;    Daniel   T.   Seamount,   Jr.,                                                                    
Commissioner,  Alaska Oil  and Gas  Conservation Commission,                                                                    
Department  of Administration;  Cathy Foerster,  Engineering                                                                    
Commissioner,  Alaska Oil  and Gas  Conservation Commission,                                                                    
Department of Administration.                                                                                                   
PRESENTATION: ALASKA OIL and GAS CONSERVATION COMMISSION                                                                        
Co-Chair Stedman noted that Senate President Cathy Giessel                                                                      
was in attendance.                                                                                                              
^PRESENATION: ALASKA OIL and GAS CONSERVATION COMMISSION                                                                      
9:02:12 AM                                                                                                                    
Co-Chair  Stedman   expressed  that   the  subject   of  the                                                                    
presentation would be a  broad reaching information hearing.                                                                    
He intended to  focus on the subject matter in  front of the                                                                    
committee.  He   thought  the  presentation   would  provide                                                                    
background for  work being done  by oil and  gas consultants                                                                    
in  the  state.  He  emphasized   to  those  presenting  the                                                                    
importance of  defining concepts  and avoiding  acronyms for                                                                    
greater understanding for the listening public.                                                                                 
Co-Chair Stedman  commented on  the common topic  of inquiry                                                                    
regarding  a state  gas line.  He stressed  that the  public                                                                    
understanding of oil and gas issues was important.                                                                              
9:05:18 AM                                                                                                                    
DANIEL T.  SEAMOUNT, JR., COMMISSIONER,  ALASKA OIL  AND GAS                                                                    
CONSERVATION   COMMISSION,  DEPARTMENT   OF  ADMINISTRATION,                                                                    
showed  the presentation  "Alaska Oil  and Gas  Conservation                                                                    
Commission (AOGCC),"  (copy on file). He  discussed the role                                                                    
of AOGCC  as well  as its duties  pertaining to  North Slope                                                                    
gas  sales.   He  furthered  that   he  wanted   to  provide                                                                    
statistics  regarding  production, development,  exploration                                                                    
and potential new discoveries.                                                                                                  
Commissioner  Seamount   directed  attention   to  hydraulic                                                                    
fracturing in Alaska,  the role of AOGCC in  North Slope gas                                                                    
sales, and allowable  gas offtake for Prudhoe  Bay and Point                                                                    
Thomson field. He highlighted two  orders the agency made on                                                                    
gas offtake  on Prudhoe  Bay and  Point Thomson.  He invited                                                                    
members to  read through the  information and  contact AOGCC                                                                    
with any questions.                                                                                                             
Commissioner  Seamount   showed  the   first  page   of  the                                                                    
presentation,  which  showed a  photo  of  the AOGCC  office                                                                    
location. He  talked about the Southeast  Alaska communities                                                                    
he visited in the recent past.                                                                                                  
9:09:33 AM                                                                                                                    
Commissioner   Seamount   explained   that  AOGCC   was   an                                                                    
independent quasi-judicial body that  held hearings and made                                                                    
rules  related to  spacing  and  other exceptions.  Granting                                                                    
permits  for  drilling  wells  and  performing  sundry  well                                                                    
workovers   were  additional   responsibilities  of   AOGCC.                                                                    
Associated statutes  were found  in Title  31, chapter  5 of                                                                    
Alaska Statutes;  and regulations were located  in Title 20,                                                                    
chapter 25  of the Alaska Administrative  Code. He continued                                                                    
that  AOGCC had  three commissioners:  Commissioner Seamount                                                                    
was  the  geology  commissioner,   Cathy  Foerster  was  the                                                                    
engineering commissioner, and there was a public member.                                                                        
Commissioner Seamount  made note of a  recent statute change                                                                    
demanding  that   the  public   member  have   training  and                                                                    
experience relative  to the oil  and gas industry.  He noted                                                                    
that  AOGCC  had  34  people on  its  staff,  including  two                                                                    
geologists,  six   engineers,  nine  field   inspectors  and                                                                    
several administrative support staff.                                                                                           
9:11:06 AM                                                                                                                    
Commissioner  Seamount displayed  slide 2.  He made  note of                                                                    
two  offices  including  one in  North  Slope  staffed  with                                                                    
inspectors.  He added  that  there  were inspectors  working                                                                    
from home on the Kenai Peninsula.                                                                                               
Commissioner  Seamount turned  to  slide 3,  "Quasi-judicial                                                                    
State regulatory agency - Mainly Sub-surface":                                                                                  
     To  protect  the  public interest  in  exploration  and                                                                    
     development   of  Alaska's   valuable  oil,   gas,  and                                                                    
     geothermal   resources  through   the  application   of                                                                    
     conservation  practices  designed   to  ensure  greater                                                                    
     ultimate  recovery   and  the  protection   of  health,                                                                    
     safety,  fresh  ground waters  and  the  rights of  all                                                                    
     owners to recover their share of the resource.                                                                             
     Exception to  sub-surface oversight  is the  proving of                                                                    
     metering   so  allocation   of  production   is  fairly                                                                    
     Funded by Industry receipts $7,468,600 (FY19).                                                                             
     Small  amount   from  EPA  for  managing   UIC  program                                                                    
     $119,000 (FY19)                                                                                                            
     Extremely Technical    Arbitrary interpretation  of law                                                                    
     regarding AOGCC decisions difficult.                                                                                       
     Statute  (title  31),  regulations,  and  science  very                                                                    
     Jurisdiction over private and public lands                                                                                 
     Adjudicate disputes between resource owners                                                                                
     32 Total Staff includes positions for 3 commissioners,                                                                     
     2 geologists, 6 engineers, 9 field inspectors, 2                                                                           
     statisticians, 2 IT, 8 administrative                                                                                      
Commissioner  Seamount commented  that Alaska  was the  best                                                                    
area in  the world for  gas flaring. He specified  that none                                                                    
of AOGCC's funding came from  the General Fund (GF). Rather,                                                                    
AOGCC  was  funded by  industry  receipts  charged based  on                                                                    
production  and injection  of fluids  and gas.  He estimated                                                                    
that  the commission's  budget  for FY  19  was almost  $7.5                                                                    
CATHY  FOERSTER, ENGINEERING  COMMISSIONER,  ALASKA OIL  AND                                                                    
GAS CONSERVATION  COMMISSION, DEPARTMENT  OF ADMINISTRATION,                                                                    
introduced  herself and  explained  her role  at AOGCC.  She                                                                    
relayed  that   the  Underground  Injection   Control  (UIC)                                                                    
Program protected fresh  groundwater from contamination from                                                                    
oilfield activities.                                                                                                            
Commissioner  Seamount  estimated   that  one-third  of  the                                                                    
commission's budget was spent on the UIC program.                                                                               
Commissioner   Seamount   continued  discussing   slide   3,                                                                    
emphasizing   that   AOGCC   was  an   extremely   technical                                                                    
organization.  He thought  arbitrary  interpretation of  the                                                                    
law regarding the commission's  decisions was difficult. The                                                                    
commission  tried to  stay  by  the letter  of  the law.  He                                                                    
explained  that that  commission was  an independent  agency                                                                    
and its dispute adjudication had included the state.                                                                            
9:15:58 AM                                                                                                                    
Commissioner  Seamount  discussed slide  4,  "Quasi-judicial                                                                    
State regulatory agency - Mainly Sub-surface":                                                                                  
     ? Protect human safety                                                                                                     
     ? Protect fresh water (down to ? mile)                                                                                     
          o Manage Class II UIC program                                                                                         
     ? Prevent physical waste of energy                                                                                         
     Resources (1/2 to 5.5 miles drilled depth, 3 miles                                                                         
     vertical depth deep)                                                                                                       
     ? Promote greater ultimate recovery - (1/2 to 5.5                                                                          
     miles drilled depth, 3 miles vertical depth deep)                                                                          
     ? Protect correlative rights                                                                                               
     ? Intense Inspection and Enforcement                                                                                       
Commissioner   Seamount  recalled   that   AOGCC  had   only                                                                    
witnessed  approximately 20  violations in  the previous  19                                                                    
years and  thought that industry was  careful. He reiterated                                                                    
that only  .2 percent  of gas  was flared  in the  state. He                                                                    
reported  that  here  had  never been  a  reported  case  of                                                                    
contamination of  fresh water due to  oilfield operations in                                                                    
the 60-year history of production in the state.                                                                                 
9:18:31 AM                                                                                                                    
Commissioner  Seamount   showed  slide  5,   "AOGCC  PRIMARY                                                                    
     Regulate,   monitor   and    inspect   all   subsurface                                                                    
     activities directly related to  oil and gas exploration                                                                    
     and production  including the  design and  integrity of                                                                    
     wells,   well   control   procedures   and   equipment,                                                                    
     reservoir  management  plans and  proposed  underground                                                                    
     injection programs.                                                                                                        
       Hold Hearings                                                                                                            
      Issue pool rules and other conservation orders.                                                                           
       Approve  and monitor plans for  reservoir development                                                                    
     and enhanced oil recovery.                                                                                                 
        Approve  permits  for  initial  drilling,  re-drill,                                                                    
     sidetrack, and remedial  well operations. This includes                                                                    
     the  evaluation and  approval of  proposed designs  for                                                                    
     drilling  fluids, well  control, casing,  cementing and                                                                    
     well completion operations.                                                                                                
        Inspect drill  rigs and  wells to  ensure compliance                                                                    
     with AOGCC regulations.                                                                                                    
        Witness  safety  valve,  mechanical  integrity,  and                                                                    
     blowout preventer tests.                                                                                                   
       Witness  meter-proving, calibration, and  oil quality                                                                    
       Enforce well spacing rules                                                                                               
        Monitor production  rates,  injection well  pattern,                                                                    
     gas/oil/water   ratios,    and   pressure   maintenance                                                                    
       Monitor and evaluate gas flaring.                                                                                        
        Collect  and maintain  all  oil  and gas  production                                                                    
       Collect and maintain all  well history files and well                                                                    
     log records.                                                                                                               
       Administer Alaska's Underground Injection Control                                                                        
     (UIC) program and the annular waste disposal program                                                                       
     (protection of drinking water).                                                                                            
Commissioner  Seamount  encouraged  members to  contact  him                                                                    
with any questions pertaining to  the AOGCC primary services                                                                    
as listed slide 5.                                                                                                              
Commissioner  Seamount showed  slide 6,  "AOGCC Permits  and                                                                    
Decisions / Orders 2009  2018":                                                                                                 
     ? Permits to Drill  1,605                                                                                                  
     ? Drilling Completed  1,658 wells / branches                                                                               
     ? Well Work Activity Reports  8,401                                                                                        
     ? Orders and Decisions  717                                                                                                
     Aquifer Exemption, Area Injection, Disposal, Enhanced                                                                      
     Recovery, Metering, Pool Rules, Production, and Other                                                                      
          Major Orders  59                                                                                                      
          Amendments  539                                                                                                       
          Well Spacing Exceptions  119                                                                                          
     ? Special Development Considerations  many                                                                                 
Commissioner   Seamount    detailed   that    most   special                                                                    
development considerations were approved  after a great deal                                                                    
of communication with operators.                                                                                                
9:21:08 AM                                                                                                                    
Senator  Shower   asked  if  there  were   any  requirements                                                                    
relating to the use of federal funds for the UIC.                                                                               
Commissioner Foerster  noted that the requirements  from the                                                                    
Environmental   Protection  Agency   (EPA)  were   primarily                                                                    
related to reporting. State standards  for almost all of the                                                                    
commission's activities  were generally more  stringent than                                                                    
federal standards.  There was no EPA  requirement that AOGCC                                                                    
add  regulation  to  the  industry.  She  commented  on  the                                                                    
commission's good relationship with the EPA.                                                                                    
Senator Olson  asked about  the approximately  20 violations                                                                    
that had occurred over the previous years.                                                                                      
Commissioner  Seamount  relayed   that  the  most  important                                                                    
function of  AOGCC's response to  violations was  to prevent                                                                    
reoccurrence. The  commission required  the submission  of a                                                                    
plan, and violations had historically been small.                                                                               
Commissioner Foerster  referenced BP's pipeline fail  due to                                                                    
corrosion. The commission had considered  the incident to be                                                                    
"waste"  and was  the biggest  violation  she could  recall.                                                                    
There  had  been  other instances  in  which  operators  had                                                                    
flared or vented gas that should not have been flared.                                                                          
Senator Olson expressed concern  about groundwater and noted                                                                    
that it  was a  significant concern of  his district  on the                                                                    
North Slope. He asked what  kind of assurances he could give                                                                    
his  constituents  that  the groundwater  would  not  become                                                                    
contaminated by the oil and gas activity.                                                                                       
Commissioner Foerster stated that  there were very stringent                                                                    
requirements on  well construction  to ensure  that injected                                                                    
oil  and  gas  never  contacted  groundwater.  There  was  a                                                                    
required  minimum   of  two  competent  barriers   to  flow;                                                                    
preventing   oil,   gas,   and  saltwater   resources   from                                                                    
contacting fresh water. She  discussed well construction and                                                                    
stated that in order  for contaminates to reach groundwater,                                                                    
it would have to find its  way through three layers of pipe.                                                                    
There were  further requirements  for operators to  test for                                                                    
and demonstrate  mechanical integrity.  If a well  could not                                                                    
demonstrate that  it could not maintain  integrity, it would                                                                    
be immediately shut down.                                                                                                       
9:25:43 AM                                                                                                                    
Senator  Olson  asked  about  the number  of  times  had  an                                                                    
integrity   of  a   well  been   breached  from   production                                                                    
Commissioner Foerster  did not have an  available number and                                                                    
offered to provide the information at a later time.                                                                             
Senator Olson wondered  how many occasions there  had been a                                                                    
lack of mechanical integrity.                                                                                                   
Commissioner  Foerster  noted  that sometimes  there  was  a                                                                    
reduction down  to one barrier,  and the commission  did not                                                                    
consider  the   situation  to  be   a  mechanical   loss  of                                                                    
integrity. She  agreed to provide the  information requested                                                                    
by Senator Olson at a later time.                                                                                               
9:26:57 AM                                                                                                                    
Ms. Foerster reviewed slide 7, "Major Issues of 2018":                                                                          
     ? Growing inventory of old and idle wells                                                                                  
            Ensuring mechanical integrity                                                                                       
           Plugging wells with no future utility                                                                                
     ? Operator bankruptcies --> orphan wells                                                                                   
     ? Well bonding adequacy                                                                                                    
     ? BLM Legacy (aka Travesty) wells                                                                                          
     ? New operators                                                                                                            
Commissioner Foerster  recounted that the  growing inventory                                                                    
of old and  idle wells was one of the  biggest issues facing                                                                    
the commission.  She detailed  that annually  AOGCC required                                                                    
every operator  to demonstrate  mechanical integrity  of old                                                                    
and  idle wells  and  provide  a plan  for  the future.  She                                                                    
commented on  the bankruptcy of  companies, after  which the                                                                    
well  plugging liability  was left  to  landowners. After  a                                                                    
company went  bankrupt, it  no longer had  the funds  or the                                                                    
legal requirement  to follow AOGCC regulations  and plug the                                                                    
wells. The  orphan wells presented  problems for  the future                                                                    
and regulations  were designed to mitigate  future problems.                                                                    
When an  operator was not  capable of plugging a  well, most                                                                    
often  the   state  was  the  landowner   and  retained  the                                                                    
Commissioner  Foerster  continued  discussing slide  7.  She                                                                    
discussed  the transition  to  smaller  operators with  less                                                                    
financial  capabilities and  the  potential  for major  cost                                                                    
liabilities. The  previous year the AOGCC  passed regulation                                                                    
changes  increasing  bonding  requirements. She  noted  that                                                                    
Prudhoe Bay  was bonded for  $200,000; which would  not even                                                                    
pay  for an  engineering  study, much  less  get started  on                                                                    
plugging a  well. She noted  that as smaller  companies took                                                                    
on  more land  ownership (from  BP, ExxonMobil,  and Conoco)                                                                    
the liability of the state increased.                                                                                           
9:31:48 AM                                                                                                                    
Commissioner  Foerster  continued   addressing  bonding  and                                                                    
noted that  the change in regulation  was awaiting signature                                                                    
by the lieutenant  governor. She explained there  were a few                                                                    
states  in  the  country  that had  adopted  legislation  to                                                                    
protect the landowner from the  liability. She had urged the                                                                    
administration and  legislature to pass  similar legislation                                                                    
that would  transfer liability to the  original landowner if                                                                    
subsequent  landowners   could  not   cover  the   costs  of                                                                    
abandoned well mitigation.                                                                                                      
Commissioner  Foerster  thought  it was  important  for  the                                                                    
state to  protect itself from future  liability for plugging                                                                    
wells  at Prudhoe  Bay. She  commented on  the collaborative                                                                    
work  with the  Bureau of  Land Management  (BLM) on  legacy                                                                    
wells. The worst  of the wells had been  secured, and AOGGCC                                                                    
and BLM  continued working to  clean up the entire  slate of                                                                    
bad wells.  She discussed new operators,  which created more                                                                    
work  for  the  agency.  She  discussed  the  education  and                                                                    
collaboration  with  new  operators,  which was  in  aid  of                                                                    
understanding regulation.                                                                                                       
9:35:01 AM                                                                                                                    
Co-Chair  von Imhof  asked  if  Commissioner Foerster  could                                                                    
provide the committee  with a map of abandoned  wells and an                                                                    
estimate of the state's potential financial recourse.                                                                           
Commissioner  Foerster agreed  to  provide the  information.                                                                    
She commented  on the  high number  of abandoned  wells. She                                                                    
considered  if  Prudhoe Bay  ceased  to  produce without  an                                                                    
operator capable of plugging the  wells and estimated a cost                                                                    
in the  hundreds of millions  to plug over 1,000  wells. She                                                                    
estimated  that an  average  cost for  plugging  a well  was                                                                    
$250,000; and  there could potentially  be 1,500  wells. She                                                                    
reminded  that  there were  idle  wells  in virtually  every                                                                    
field across the North Slope.                                                                                                   
Co-Chair  Stedman anticipated  that there  would be  further                                                                    
discussion  on  the  subject of  reclamation  on  the  North                                                                    
Commissioner Foerster  discussed slide 8, "Likely  Issues of                                                                    
     ? All the 2018 issues                                                                                                      
     ? Aggressive exploration season                                                                                            
            12 Conoco wells                                                                                                     
            1 ENI extended reach well                                                                                           
            1 Great Bear well                                                                                                   
            4 Oil Search wells                                                                                                  
     ? Conoco development work at Willow and Greater                                                                            
     Moose's Tooth                                                                                                              
     ? Unanticipated crises and challenges                                                                                      
Senator  Bishop  asked   if  the  Great  Bear   well  was  a                                                                    
conventional well.                                                                                                              
Commissioner  Foerster stated  that  exploration wells  were                                                                    
confidential and that only the location could be divulged.                                                                      
Commissioner   Seamount  recalled   that   Great  Bear   had                                                                    
announced some  information through  the press and  had both                                                                    
conventional  and shale  wells. He  believed Great  Bear was                                                                    
selling out.                                                                                                                    
9:39:32 AM                                                                                                                    
Commissioner  Foerster showed  slide 9,  "Offtake Allowables                                                                    
for North Slope - Major Gas Sales":                                                                                             
[SECRETARY'S  NOTE:  the  title  of the  projected  slide  -                                                                    
"AOGCC  Concerns with  North Slope  Major Gas  Sales" -  was                                                                    
different than on the print copy  but the slide had the same                                                                    
     ? PBU offtake: 3.6 BCF/D (including fuel usage)                                                                            
            CO2 utilization study                                                                                               
            Oil acceleration study                                                                                              
     ? Pt Thomson offtake: 1.1 BCF/D (including fuel usage)                                                                     
            5 years of pilot performance demonstrating full                                                                     
          scale cycling not viable                                                                                              
     ? Both offtakes were granted assuming a defined window                                                                     
     of opportunity for MGS                                                                                                     
     ? Oil losses will occur. Later is better. Less is                                                                          
Commissioner  Foerster  explained  that  if  gas  was  found                                                                    
associated with oil,  it was AOGCC's job  to give permission                                                                    
for the  gas to be  removed. The two  big sources of  gas on                                                                    
the North Slope were at  Prudhoe Bay and Point Thomson, both                                                                    
of  which had  gas associated  with  oil. There  had been  a                                                                    
series  of  hearings  a  year and  a  half  previously  that                                                                    
resulted  in   offtake  allowables  for  both   fields.  She                                                                    
discussed the  potential sale of offtake  gas. She discussed                                                                    
methods of utilizing CO2.                                                                                                       
Commissioner  Foerster noted  that  EOR signified  'enhanced                                                                    
oil recovery,'  which was meant  to increase  the production                                                                    
of oil through injection of fluid or other means.                                                                               
9:43:57 AM                                                                                                                    
Commissioner Foerster  continued discussing slide  9, noting                                                                    
that Point Thomson was known  as a gas condensate reservoir.                                                                    
She defined the cycling  process, which stripped condensates                                                                    
from  gas,  which  was  later  reinjected.  She  noted  that                                                                    
Exxon's  modelling  indicated  that   gas  cycling  was  not                                                                    
economically viable. She commented  that models could not be                                                                    
perfectly  accurate,  and  every  model  was  enhanced  with                                                                    
additional  data.  She  continued that  AOGCC  had  required                                                                    
Exxon to  demonstrate five years  of cycling  performance to                                                                    
show that a full-scale cycling project was not viable.                                                                          
Commissioner  Foerster  noted  that   both  of  the  offtake                                                                    
allowables had  been granted. She  reiterated that  once gas                                                                    
production  started, oil  began  to be  lost.  If oil  could                                                                    
continue to produce  while gas was deferred,  more oil would                                                                    
come  out of  the ground.  The  less gas  was produced,  the                                                                    
slower the losses would occur.                                                                                                  
9:47:03 AM                                                                                                                    
Co-Chair Stedman asked for an  explanation of field rules as                                                                    
they might pertain to Point Thomson.                                                                                            
Commissioner  Foerster explained  that there  were statewide                                                                    
rules  and  standard  regulations that  every  operator  was                                                                    
required to comply with to  protect fresh groundwater, human                                                                    
safety,  and protect  rights. She  noted that  fields always                                                                    
had special  circumstances. She used the  example of Prudhoe                                                                    
Bay,  where  it was  heavily  faulted  and complicated.  The                                                                    
rules pertaining  to how far  wells must be would  result in                                                                    
oil left in the  ground. Operators requested exemptions from                                                                    
statewide  field rules  and provided  technical reasons  for                                                                    
the exception.                                                                                                                  
Commission Foerster continued  to address Co-Chair Stedman's                                                                    
question. For  every new field, the  operator (and sometimes                                                                    
the  commission) would  identify areas  where special  field                                                                    
rules  were needed.  Usually  the operator  did  a good  job                                                                    
demonstrating rationale for an exception.                                                                                       
9:50:16 AM                                                                                                                    
Co-Chair  Stedman  asked  about  the timing  of  the  5-year                                                                    
program that Point Thomson was  participating in, and how it                                                                    
related to gas offtake.                                                                                                         
Commissioner Foerster noted that  the wells at Point Thomson                                                                    
were oil  wells based  on the  gas to  oil ratio.  There had                                                                    
been enough condensate in the  gas at Point Thomson that the                                                                    
wells qualified as oil wells,  which meant the gas needed to                                                                    
be  reinjected. Thereby  AOGCC had  required  five years  of                                                                    
cycling to demonstrate that  greater ultimate recovery would                                                                    
not be achieved by a  cycling project. Exxon had experienced                                                                    
great technical difficulty  establishing the cycling volumes                                                                    
that were  required. She was  concerned whether  Exxon would                                                                    
have five years of performance to show by 2025.                                                                                 
Co-Chair Stedman asked if the timing was in calendar years.                                                                     
Commissioner   Foerster   stated  that   the   demonstration                                                                    
required five years of performance.                                                                                             
Co-Chair Stedman  asked how  to take gas  off the  field and                                                                    
get around the ruling.                                                                                                          
Commissioner  Foerster  stated  that   if  Exxon  could  not                                                                    
provide five years of performance  data to AOGCC by 2025, to                                                                    
get the gas it would have to  reapply for a new set of rules                                                                    
that excluded the requirement.                                                                                                  
9:53:29 AM                                                                                                                    
Co-Chair Stedman understood that  there was a fairly precise                                                                    
target  date   of  2025  for  natural   gas  production.  He                                                                    
mentioned attending presentations on  the Liquid Natural Gas                                                                    
(LNG)  marketplace,  and  thought  it  was  clear  that  the                                                                    
marketplace  would  be  expanding.   He  pondered  that  the                                                                    
projects that would not be  built would sit on the sidelines                                                                    
until  there was  another space  within  the marketplace  to                                                                    
renegotiate.  He asked  if  the state  was  facing a  window                                                                    
considering  a potential  gas line.  He  wondered about  the                                                                    
feasibility of AKLNG  and the offtake decision  by AOGCC. He                                                                    
wondered  if the  state should  reconsider  its analysis  to                                                                    
make  sure  it was  maximizing  the  monetary value  of  the                                                                    
Commissioner Foerster did not  feel qualified to address the                                                                    
question, and LNG  sales was not her area  of expertise. She                                                                    
referenced  an earlier  slide that  indicated that  oil loss                                                                    
was inevitable. She thought it  was important to continue to                                                                    
produce oil  and use gas to  get oil out of  the ground. She                                                                    
affirmed that there  would be those at the  AOGCC that would                                                                    
take a second look at the issue.                                                                                                
Co-Chair Stedman asked if AOGCC  would take a second look at                                                                    
the AKLNG project.                                                                                                              
Commissioner Foerster pondered that  orders might have to be                                                                    
Co-Chair  Stedman explained  that the  economics of  the gas                                                                    
line appeared  to be marginal,  which did not leave  a great                                                                    
deal of room for error.                                                                                                         
9:57:28 AM                                                                                                                    
Senator  Wielechowski asked  about a  Point Thomson  offtake                                                                    
well. He asked if the  gas was being stripped of condensate,                                                                    
reinjected, or  shipped to Prudhoe  Bay. He wondered  if the                                                                    
state  was getting  royalties or  production taxes  from the                                                                    
1.1 BCF/D mentioned on the slide.                                                                                               
Commissioner  Foerster stated  that the  1.1 BCF/D  shown on                                                                    
slide 9 signified  the total gas offtake  from Point Thomson                                                                    
that  would be  allowed  starting in  2025.  At that  point,                                                                    
assuming that  Exxon had demonstrated  that cycling  was not                                                                    
viable,  whatever condensate  came  out with  the gas  would                                                                    
likely be  stripped off and  sold down  an oil line  and the                                                                    
rest of the gas would go to  a gas sales line. The 1.1 BCF/D                                                                    
would be  whatever went down  the sales line,  plus whatever                                                                    
was needed to fuel the field.                                                                                                   
Senator Wielechowski asked about  the current offtake of Pt.                                                                    
Commissioner  Foerster stated  that the  offtake did  not go                                                                    
into effect  until 2025, assuming  that Exxon  had completed                                                                    
the five years of pilot  performance. If after five years of                                                                    
cycling  the economics  and technical  aspects were  proven,                                                                    
all  the gas  from Point  Thomson would  be used  either for                                                                    
reinjection or fuel  to keep the field running.  If prior to                                                                    
2025 the data  proved cycling would not work,  the gas would                                                                    
be sold.                                                                                                                        
Senator Bishop referenced  the conclusions on page  8 of the                                                                    
document "AOGCC Conservation Order  no. 719 Corrected" (copy                                                                    
on  file), and  asked about  what pool  was being  discussed                                                                    
when talking about stripping liquids off the gas.                                                                               
Commissioner  Foerster  emphasized  that the  Point  Thomson                                                                    
field  was  very  complicated.  The  gas  cap  was  rich  in                                                                    
condensate, with  a base of a  thin oil rim that  was highly                                                                    
viscous  and reluctant  to flow.  The cost,  technology, and                                                                    
risks to extract the oil were prohibitive.                                                                                      
Senator Bishop asked about the CO2 level at Point Thomson.                                                                      
Commissioner Foerster  agreed to provide the  information at                                                                    
a later time.                                                                                                                   
10:01:30 AM                                                                                                                   
Senator Shower asked for an  explanation of the commission's                                                                    
administrative  appeals  process.  He  asked  about  general                                                                    
solvency  stipulations for  smaller companies  and mentioned                                                                    
environmental issues  and liability  for wells left  in West                                                                    
Texas.  He wondered  if there  were  any stipulations  other                                                                    
than bonding that were required for companies.                                                                                  
Commissioner Foerster  explained the appeal  request process                                                                    
for a hearing to consider  a proposed change in field rules.                                                                    
She noted  that a hearing  required a 30-day  notice period.                                                                    
Operators  would present  technical data  for consideration,                                                                    
after which  the AOGCC would  generally meet  a self-imposed                                                                    
requirement of  submitting a ruling within  an additional 30                                                                    
days. Usually within 3 to 4  months after a request, a final                                                                    
ruling  was issued.  She estimated  that  the requests  came                                                                    
approximately every 1.5 months.                                                                                                 
10:03:54 AM                                                                                                                   
Senator  Shower  asked  if  there  were  other  stipulations                                                                    
besides   bonding  for   the   bill  Commissioner   Foerster                                                                    
mentioned earlier in the meeting.                                                                                               
Commissioner Foerster  reiterated that AOGCC met  with every                                                                    
operator  annually to  do  a  well by  well  review of  idle                                                                    
wells. The  agency encouraged operators to  plug and abandon                                                                    
certain  wells  each year.  She  could  not think  of  other                                                                    
regulations that  were in  place. If  an operator  wanted to                                                                    
suspend a well,  AOGCC questioned the future  utility of the                                                                    
well  and could  grant the  suspension for  future use.  She                                                                    
gave  an example  of  a  well that  could  be suspended  for                                                                    
future use.                                                                                                                     
Commissioner Foerster continued  to address Senator Shower's                                                                    
question. She explained  that if idle Prudhoe  Bay wells had                                                                    
been  plugged  15 to  20  years  previously, operators  that                                                                    
developed  additional  drilling  capability would  not  have                                                                    
been able to  implement the new technologies  to get greater                                                                    
oil recovery  from the fields.  She stressed  the importance                                                                    
of making judgement calls.                                                                                                      
10:06:30 AM                                                                                                                   
Commissioner Seamount showed slide  10, "Alaska Oil Activity                                                                    
and Production." He noted that  subsequent slides would show                                                                    
the decline  in Alaska  oil production, permitting,  as well                                                                    
as  development and  potential  discoveries.  He noted  that                                                                    
development and discoveries added  to the workload of AOGCC.                                                                    
He thought it  would be better to talk with  the Division of                                                                    
Oil and Gas or the  operators with regard to development and                                                                    
Commissioner Seamount  reviewed slide 11,  "Alaska's Average                                                                    
Daily  Oil and  NGL  Production Rate:  1960  - 2018,"  which                                                                    
showed  a line  graph depicting  historic oil  production in                                                                    
Alaska. He noted a peak in  the graph in 1970 that indicated                                                                    
Cook  Inlet oil  discoveries that  increased production.  He                                                                    
mentioned  the  five  discoveries  in 1965  in  Cook  Inlet.                                                                    
Swanson River  had been discovered  in 1957. He  pointed out                                                                    
the drop  off in  exploration in  Cook Inlet  that coincided                                                                    
with  a   dramatic  increase  in   Prudhoe  Bay.   He  noted                                                                    
exploration  had went  up  to 2.2  million  barrels per  day                                                                    
around  1990 and  had declined  by  approximately 6  percent                                                                    
since  that time.  He  highlighted  discoveries in  Colville                                                                    
River  and Alpine.  He thought  the  production decline  had                                                                    
flattened out. The previous year  the decline 3 percent, and                                                                    
the  two  previous  years  there  had  been  an  incline  in                                                                    
Commissioner  Seamount continued  discussing  slide 10,  and                                                                    
thought  if  press releases  were  to  be believed,  it  was                                                                    
possible to  go up to one  million barrels per day  by 2024,                                                                    
which  he thought  was an  aggressive prediction.  He stated                                                                    
that a later slide would  show that the average time between                                                                    
discovery and development was nine years.                                                                                       
10:09:53 AM                                                                                                                   
Commissioner   Seamount  turned   to  slide   12,  "Alaska's                                                                    
     Permits to Drill since 1901: 9,302                                                                                         
     Wells with Completion Dates: 8,614                                                                                         
     Hydraulically Fractured Wells: 2,026                                                                                       
     Hydraulically Fractured Wells: 23.5%                                                                                       
     Oil Production for Nov 2018 (bbls): 14,918,869                                                                             
     NGL Production for Nov 2018 (bbls): 1,691,188                                                                              
     Oil Production for Nov 2018 (bbls/d): 497,296                                                                              
     NGL Production for Nov 2018 (bbls/d): 56,374                                                                               
     Total (bbls/d): 553,670                                                                                                    
Commissioner Seamount  commented on the  contentious subject                                                                    
of fracking, which had been going on since the 1960s.                                                                           
Commissioner   Seamount   reviewed   slide   13,   "Alaska's                                                                    
Statistics - Alaska  Oil and NGL Production  - November 2016                                                                    
to  November 2018,"  which showed  a bar  graph. The  dashed                                                                    
line showed  a rolling average  that began in  November 2016                                                                    
and ended in November 2018.  He was optimistic that the flat                                                                    
average line would start to incline in the future.                                                                              
Commissioner  Foerster noted  that  the  dips of  production                                                                    
were in the summer  and explained that production facilities                                                                    
operated best when cold. She  added that planned maintenance                                                                    
was often done in the summer.                                                                                                   
Senator  Micciche referenced  slide 12  and asked  about the                                                                    
nearly 15 million barrels listed  as "Oil production for Nov                                                                    
Commissioner   Foerster   affirmed   that  the   slide   was                                                                    
misleading and should actually show  that the cumulative oil                                                                    
production as of November 2018 was 14,918,869.                                                                                  
10:13:25 AM                                                                                                                   
AT EASE                                                                                                                         
10:13:59 AM                                                                                                                   
Co-Chair Stedman noted that slide  12 had numerics that were                                                                    
appearing  in  millions,  while  actual  production  was  in                                                                    
Commissioner   Seamount   affirmed   he   would   edit   the                                                                    
information  on  slide  12,  and  that  the  cumulative  oil                                                                    
production as  of November 2018  was near 15  billion rather                                                                    
than 15 million.                                                                                                                
Commissioner  Seamount   showed  slide  14,   "Alaska  2018:                                                                    
Permits  to Drill  Approved by  AOGCC," which  showed a  pie                                                                    
chart  depicting  Alaska statewide  -  all  well types.  The                                                                    
chart  broke  down  the  types  of  wells  drilled.  It  was                                                                    
observable  that   by  far  the  most   wells  drilled  were                                                                    
producers of oil  on the Arctic Slope. He  looked at figures                                                                    
showing exploratory  wells in  Cook Inlet  and on  the North                                                                    
Slope. He  pointed out  service wells  on the  Arctic Slope.                                                                    
There  were  15  exploration  permits  outstanding  for  the                                                                    
remainder of  the winter. The  winter of  2019 had a  lot of                                                                    
exploration activity.                                                                                                           
Commissioner  Seamount  turned  to  slide  15,  "EXPLORATORY                                                                    
(WILDCAT   /  DELINEATION)   WELLS  AND   WELL  BRANCHES   -                                                                    
Statewide, Oil  and Gas:  Completed, Suspended  or Abandoned                                                                    
(2004     2018*),"  which  showed   a  bar  graph  depicting                                                                    
statewide conventional  oil and gas only.  He commented that                                                                    
oil price  was shown  in light green,  which showed  a great                                                                    
deal  of   fluctuation.  Various  colors   depicted  various                                                                    
operators that had drilled exploration  wells. The winter of                                                                    
2018-2019 would show an extra 15 exploratory wells drilled.                                                                     
10:16:42 AM                                                                                                                   
Commissioner Seamount  displayed slide 16,  "DEVELOPMENT AND                                                                    
SERVICE WELLS  AND WELL BRANCHES  - Statewide, Oil  and Gas:                                                                    
Completed,  Suspended or  Abandoned  (2003    2017),"  which                                                                    
showed a bar graph  depicting statewide conventional oil and                                                                    
gas  only.  By  far  BP  and  ConocoPhillips  had  the  most                                                                    
Commissioner  Foerster  referenced  an earlier  question  by                                                                    
Senator Shower pertaining to abandoned  wells and noted that                                                                    
the same rigs that did well  work and drilling would also do                                                                    
the abandonment work. She asserted  that there was a balance                                                                    
of how  much of rig  resource was  wanted to devote  to work                                                                    
that did not generate production.                                                                                               
Commissioner   Seamount  moved   to   slide  17,   "Workover                                                                    
Activities  (2003    2017) Statewide:  Conventional Oil  and                                                                    
Gas  Only," which  showed a  bar  graph. He  noted that  the                                                                    
purpose  of  workovers  was  to   make  repairs  or  enhance                                                                    
production.  In  2017 there  were  close  to 1,000  workover                                                                    
activities.  Industry was  spending a  lot of  money keeping                                                                    
the wells in good shape.                                                                                                        
Commissioner Seamount  turned to  slide 18, "Alaska  Oil and                                                                    
Gas Activity  - AOGCC Oversight (1958-2018*),"  which showed                                                                    
a line  graph. The  blue line showed  the number  of permits                                                                    
that AOGCC  had processed. He discussed  peak periods, which                                                                    
had levelled  out to  between 150 to  200 permits  per year.                                                                    
The  number of  wells  over which  AOGCC  had oversight  had                                                                    
steadily  risen  to  between  5,000  and  6,000  wells  that                                                                    
inspectors and  staff were watching  closely. The  number of                                                                    
pools was shown by the fuchsia  line and had risen to almost                                                                    
10:20:37 AM                                                                                                                   
Commissioner  Seamount showed  slide  19, "Announced  Alaska                                                                    
North Slope  "Discoveries,  which  showed a map  of Northern                                                                    
Alaska. He reiterated  that AOGCC did not  have expertise in                                                                    
the   recent  discoveries,   although  the   activity  would                                                                    
increase the agency's workload.  He mentioned development at                                                                    
Moose's  Tooth,   Willow,  and   the  Pica  and   Smith  Bay                                                                    
Discoveries. He thought the Division  of Oil and Gas as well                                                                    
as  the  operators  could  provide  more  expertise  on  the                                                                    
subject. He  thought if  the announcement  in the  news were                                                                    
true, the  new wells  could add  another 500,000  barrels of                                                                    
oil to  the pipeline.  There had been  mention of  plans for                                                                    
development in 2024, which he thought was very aggressive.                                                                      
Commissioner  Seamount  displayed  slide 20,  "Major  Recent                                                                    
Brookian Discoveries," which showed  a table. He thought the                                                                    
slide was put  together by Paul Decker from  the Division of                                                                    
Oil and Gas.  The slide showed what  the expected production                                                                    
would be  from the discoveries and  developments. He pointed                                                                    
out estimated production levels in Willow and Smith Bay.                                                                        
Co-Chair Stedman asked  about the timeline and  if AOGCC was                                                                    
to expect development in 2025.                                                                                                  
Commissioner Seamount  answered in  the affirmative.  He was                                                                    
skeptical but hoped that the operators were correct.                                                                            
Senator Shower asked about the  average time for development                                                                    
of wells.                                                                                                                       
Commissioner  Seamount  turned  to  slide  21,  "Development                                                                    
Timeline for  North Slope  Oil Fields,"  which showed  a bar                                                                    
chart.  He   directed  attention  to  the   discoveries  and                                                                    
developments,  which  took an  average  of  nine years  from                                                                    
discovery to regular production.                                                                                                
Commissioner Foerster  noted that  the advantage of  many of                                                                    
the major  recent discoveries was the  proximity to existing                                                                    
infrastructure, which  would have  a positive impact  on the                                                                    
time to production.                                                                                                             
10:24:47 AM                                                                                                                   
Commissioner   Seamount  showed   slide   22,  "Cook   Inlet                                                                    
     Exploration Immaturity                                                                                                     
          ? Cook Inlet is similar in size to lower 48                                                                           
          ? 14,000 square mile area is same as San Juan                                                                         
          ? <400 exploratory wells & <1400 total wells                                                                          
          vs 28,000+ wells in San Juan Basin                                                                                    
     Cook Inlet Basin: No 1980s Drilling Boom                                                                                   
Commissioner  Seamount emphasized  that the  Cook Inlet  was                                                                    
under-explored.  The  United  States Geological  Survey  had                                                                    
estimated  that only  2  percent  to 4  percent  of the  oil                                                                    
generated in Cook Inlet had  been identified. There had only                                                                    
been 52 penetrations of the  Jurassic, which most of the oil                                                                    
came from.  He considered  that the  state and  the industry                                                                    
had been remiss  in not going deeper to  look for additional                                                                    
Commissioner Foerster  wanted to  ensure she  had a  list of                                                                    
information requested by the committee.                                                                                         
Co-Chair Stedman  affirmed that the committee  would provide                                                                    
a list of questions in letter format.                                                                                           
Commissioner  Foerster  thanked   the  legislature  for  its                                                                    
respect and interest in AOGCC's work.                                                                                           
Co-Chair Stedman asked  for a reminder of the  role of AOGCC                                                                    
in allowing offtake and controlling  the balance between oil                                                                    
and gas.                                                                                                                        
Commissioner Foerster  explained that  it was  the statutory                                                                    
obligation of  AOGCC was to  prevent hydrocarbon  waste, and                                                                    
also to encourage greater  ultimate recovery of hydrocarbon.                                                                    
In  granting  offtake allowables  of  gas  from oil  fields,                                                                    
AOGCC considered its statutory  obligations. She pointed out                                                                    
that it was a  law of physics that if gas  was taken from an                                                                    
oilfield before  all the  oil was  produced, there  would be                                                                    
oil losses. When  an operator requested to take  gas from an                                                                    
oil  field, AOGCC  had to  ensure  that by  taking the  gas,                                                                    
greater ultimate recovery of oil  and gas would be achieved.                                                                    
The decision  was not economic, convenience,  or politically                                                                    
based; but  rather in  order to  ensure greater  recovery of                                                                    
Commissioner Seamount referenced  the distance between wells                                                                    
in the state.  He discussed the close proximity  of wells in                                                                    
the San  Juan Basin, where  in some fields well  spacing was                                                                    
down to  one acre. There  were 53  pads in Prudhoe  Bay, and                                                                    
with the latest  technology it could be  possible to develop                                                                    
the bay with  only five pads, which had  implications on the                                                                    
opening of Alaska National Wildlife  Refuge (ANWR). He could                                                                    
not believe how wide open and clean Prudhoe Bay was.                                                                            
10:30:40 AM                                                                                                                   
Senator  Wilson  asked  for   a  discussion  of  spills  and                                                                    
recovery efforts in Prudhoe Bay.                                                                                                
Commissioner   Foerster   noted   that  spills   and   spill                                                                    
prevention were  not within  the purview  of AOGCC  but were                                                                    
within the  jurisdiction of the Department  of Environmental                                                                    
Conservation (DEC).                                                                                                             
Senator Wilson  asked about  the number  of capped  wells in                                                                    
the state.                                                                                                                      
Commissioner Foerster  agreed to provide the  information at                                                                    
a later time.                                                                                                                   
Senator  Shower  asked  where  most  of  the  remaining  oil                                                                    
Commissioner  Seamount  had  mentioned  in  Cook  Inlet  was                                                                    
Commissioner   Seamount   thought    there   was   potential                                                                    
throughout  Cook Inlet.  He mentioned  Swanson River,  North                                                                    
Cook  Inlet, and  other areas.  There  had been  interesting                                                                    
tests showing  permeability. He stated  that south  of Homer                                                                    
there had been  oil saturated cores pulled  from the ground.                                                                    
He thought the area was  under-explored and that there was a                                                                    
lack of information.                                                                                                            
10:32:59 AM                                                                                                                   
Senator   Bishop   asked   if  Commissioner   Foerster   had                                                                    
jurisdiction over some aspects of the drilling rigs.                                                                            
Commissioner   Foerster   stated   AOGCC  had   a   lot   of                                                                    
jurisdiction over drilling operations.                                                                                          
Senator  Bishop  asked  if rig  safety  jurisdiction  helped                                                                    
prevent spills.                                                                                                                 
Commissioner  Foerster   clarified  that  spills   were  not                                                                    
reported to the  commission, nor did it  regulate clean ups.                                                                    
She stated  that preventing spills  was part of  the purview                                                                    
of AOGCC but monitoring and regulating was not.                                                                                 
Commissioner  Seamount  thought   that  Senator  Bishop  was                                                                    
referencing blowouts,  which were releases  during drilling.                                                                    
There had been  less than 15 blowouts in the  history of the                                                                    
state,  14  of which  were  shallow  gas blowouts.  One  had                                                                    
contained a bit  of oil. One of the primary  duties of AOGCC                                                                    
was to  prevent well blowouts.  He added that  corrosion and                                                                    
leakage were under the purview of DEC.                                                                                          
Co-Chair   Stedman  thanked   the  testifiers.   He  thanked                                                                    
Commissioner Foerster for her  work in providing information                                                                    
to the  legislature. He thanked  her on behalf of  the state                                                                    
and  lauded  the   safety  record  in  the   oil  basin.  He                                                                    
congratulated her on her retirement.                                                                                            
10:36:44 AM                                                                                                                   
The meeting was adjourned at 10:36 a.m.                                                                                         

Document Name Date/Time Subjects
012419 AOGCC Order - Prudhoe Bay.pdf SFIN 1/24/2019 9:00:00 AM
012419 AOGCC SFC Presentation .pdf SFIN 1/24/2019 9:00:00 AM
012419 AOGCC Order - Pt. Thompson.pdf SFIN 1/24/2019 9:00:00 AM
012419 AOGCC - Pt Thompson.pdf SFIN 1/24/2019 9:00:00 AM
012419 AOGCC - PB Gas Offtake.pdf SFIN 1/24/2019 9:00:00 AM
012419 AOGCC - North Slope Gas Sales.pdf SFIN 1/24/2019 9:00:00 AM