Legislature(2007 - 2008)FAHRENKAMP 203

04/17/2007 03:30 PM Senate JUDICIARY


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03:34:50 PM Start
03:35:23 PM SB104
04:30:33 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held -- Location Change --
+= SB 104 NATURAL GAS PIPELINE PROJECT TELECONFERENCED
<Teleconference Listen Only>
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                         April 17, 2007                                                                                         
                           3:15 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Hollis French, Chair                                                                                                    
Senator Charlie Huggins, Vice Chair                                                                                             
Senator Bill Wielechowski                                                                                                       
Senator Lesil McGuire                                                                                                           
Senator Gene Therriault                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 104                                                                                                             
"An  Act   relating  to  the   Alaska  Gasline   Inducement  Act;                                                               
establishing   the  Alaska   Gasline   Inducement  Act   matching                                                               
contribution  fund; providing  for an  Alaska Gasline  Inducement                                                               
Act coordinator; making conforming  amendments; and providing for                                                               
an effective date."                                                                                                             
     HEARD AND HELD                                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 104                                                                                                                  
SHORT TITLE: NATURAL GAS PIPELINE PROJECT                                                                                       
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
03/05/07       (S)       READ THE FIRST TIME - REFERRALS                                                                        
03/05/07       (S)       RES, JUD, FIN                                                                                          
03/14/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/14/07       (S)       Heard & Held                                                                                           
03/14/07       (S)       MINUTE(RES)                                                                                            
03/16/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/16/07       (S)       Heard & Held                                                                                           
03/16/07       (S)       MINUTE(RES)                                                                                            
03/19/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/19/07       (S)       Heard & Held                                                                                           
03/19/07       (S)       MINUTE(RES)                                                                                            
03/21/07       (S)       RES AT 3:30 PM SENATE FINANCE 532                                                                      
03/21/07       (S)       Heard & Held                                                                                           
03/21/07       (S)       MINUTE(RES)                                                                                            
03/21/07       (S)       RES AT 5:30 PM SENATE FINANCE 532                                                                      
03/21/07       (S)       Heard & Held                                                                                           
03/21/07       (S)       MINUTE(RES)                                                                                            
03/22/07       (S)       RES AT 4:15 PM FAHRENKAMP 203                                                                          
03/22/07       (S)       Heard & Held                                                                                           
03/22/07       (S)       MINUTE(RES)                                                                                            
03/23/07       (S)       RES AT 1:30 PM BUTROVICH 205                                                                           
03/23/07       (S)       Heard & Held                                                                                           
03/23/07       (S)       MINUTE(RES)                                                                                            
03/24/07       (S)       RES AT 1:00 PM SENATE FINANCE 532                                                                      
03/24/07       (S)       Heard & Held                                                                                           
03/24/07       (S)       MINUTE(RES)                                                                                            
03/24/07       (S)       RES AT 3:00 PM SENATE FINANCE 532                                                                      
03/24/07       (S)       Heard & Held                                                                                           
03/24/07       (S)       MINUTE(RES)                                                                                            
03/26/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/26/07       (S)       Heard & Held                                                                                           
03/26/07       (S)       MINUTE(RES)                                                                                            
03/27/07       (S)       RES AT 3:00 PM BUTROVICH 205                                                                           
03/27/07       (S)       Heard & Held                                                                                           
03/27/07       (S)       MINUTE(RES)                                                                                            
03/28/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
03/28/07       (S)       Heard & Held                                                                                           
03/28/07       (S)       MINUTE(RES)                                                                                            
03/29/07       (S)       RES AT 5:00 PM BUTROVICH 205                                                                           
03/29/07       (S)       Heard & Held                                                                                           
03/29/07       (S)       MINUTE(RES)                                                                                            
03/30/07       (S)       RES AT 1:30 PM BUTROVICH 205                                                                           
03/30/07       (S)       Heard & Held                                                                                           
03/30/07       (S)       MINUTE(RES)                                                                                            
03/31/07       (S)       RES AT 12:00 AM BUTROVICH 205                                                                          
03/31/07       (S)       Heard & Held                                                                                           
03/31/07       (S)       MINUTE(RES)                                                                                            
04/01/07       (S)       RES AT 11:00 AM BUTROVICH 205                                                                          
04/01/07       (S)       Moved CSSB 104(RES) Out of Committee                                                                   
04/01/07       (S)       MINUTE(RES)                                                                                            
04/02/07       (S)       RES RPT CS  6AM   SAME TITLE                                                                           
04/02/07       (S)       AM: HUGGINS, GREEN, STEVENS, STEDMAN,                                                                  
                         WIELECHOWSKI, WAGONER                                                                                  
04/02/07       (S)       RES AT 3:30 PM BUTROVICH 205                                                                           
04/02/07       (S)       Moved Out of Committee 4/1/07                                                                          
04/02/07       (S)       MINUTE(RES)                                                                                            
04/04/07       (S)       JUD AT 2:45 PM BELTZ 211                                                                               
04/04/07       (S)       Heard & Held                                                                                           
04/04/07       (S)       MINUTE(JUD)                                                                                            
04/11/07       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
04/11/07       (S)       Heard & Held                                                                                           
04/11/07       (S)       MINUTE(JUD)                                                                                            
04/11/07       (S)       JUD AT 5:30 PM BUTROVICH 205                                                                           
04/11/07       (S)       Heard & Held                                                                                           
04/11/07       (S)       MINUTE(JUD)                                                                                            
04/12/07       (S)       JUD AT 3:30 PM BUTROVICH 205                                                                           
04/12/07       (S)       Public Testimony 5:30 pm to 7:00 pm                                                                    
04/13/07       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
04/13/07       (S)       Heard & Held                                                                                           
04/13/07       (S)       MINUTE(JUD)                                                                                            
04/13/07       (S)       JUD AT 5:30 PM BUTROVICH 205                                                                           
04/13/07       (S)       Heard & Held                                                                                           
04/13/07       (S)       MINUTE(JUD)                                                                                            
04/14/07       (S)       JUD AT 10:00 AM BUTROVICH 205                                                                          
04/14/07       (S)       Heard & Held                                                                                           
04/14/07       (S)       MINUTE(JUD)                                                                                            
04/15/07       (S)       JUD AT 11:00 AM BUTROVICH 205                                                                          
04/15/07       (S)       -- MEETING CANCELED --                                                                                 
04/16/07       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
04/16/07       (S)       Heard & Held                                                                                           
04/16/07       (S)       MINUTE(JUD)                                                                                            
04/17/07       (S)       JUD AT 3:30 PM FAHRENKAMP 203                                                                          
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Cathy Foerster, Commissioner                                                                                                    
Alaska Oil & Gas Conservation Commission (AOGCC)                                                                                
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Delivered the public summary for "Prudhoe                                                                 
Oil Pool Gas Offtake Reservoir Study"                                                                                           
                                                                                                                                
Larry Ostrovsky, Chief Assistant Attorney                                                                                       
Oil, Gas & Mining Section                                                                                                       
Department of Law                                                                                                               
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Described litigation regarding ExxonMobil                                                                 
and Pt. Thomson                                                                                                                 
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
CHAIR  HOLLIS   FRENCH  called  the  Senate   Judiciary  Standing                                                             
Committee meeting to order at 3:34:50  PM. Present at the call to                                                             
order  were   Senator  Huggins,  Senator   Wielechowski,  Senator                                                               
Therriault, and Chair French.                                                                                                   
                                                                                                                                
              SB 104-NATURAL GAS PIPELINE PROJECT                                                                           
                                                                                                                              
3:35:23 PM                                                                                                                    
CHAIR FRENCH announced  the consideration of SB  104, including a                                                               
presentation from the Alaska Oil  and Gas Conservation Commission                                                               
on gas offtake  and a briefing from the Department  of Law on the                                                               
Pt. Thomson litigation.                                                                                                         
                                                                                                                                
CATHY  FOERSTER, Engineering  Commissioner,  Alaska  Oil and  Gas                                                               
Conservation Commission (AOGCC),  explained that the commission's                                                               
role in  North Slope  gas sales  is to ensure  that sales  do not                                                               
result in  hydrocarbon waste.  To that  end AOGCC  determines the                                                               
allowable  gas offtake  rates for  North Slope  fields, but  most                                                               
notably from Prudhoe Bay and Pt. Thomson.                                                                                       
                                                                                                                                
3:37:46 PM Senator McGuire arrived.                                                                                           
                                                                                                                                
Although it  is quite  well known  that 35 tcf  of gas  have been                                                               
discovered at Prudhoe  Bay and Pt. Thomson, she said,  it is less                                                               
well  known that  hundreds  of  millions of  barrels  of oil  and                                                               
condensate  could be  lost  if  the gas  offtake  is not  managed                                                               
correctly. In  fact one  or two  alpine fields  are at  risk, and                                                               
AOGCC  is working  to ensure  that they  do not  get lost  in the                                                               
shuffle. Describing oil as  a bird in the hand and  gas a bird in                                                               
the bush, she said AOGCC is  working to ensure that the former is                                                               
not harmed while attempting to get at the latter.                                                                               
                                                                                                                                
MS. FOERSTER said that, as  a general rule, maintaining reservoir                                                               
pressure  increases  oil  recovery, but  producing  gas  depletes                                                               
reservoir pressure so  gas reserves in most  fields are typically                                                               
sold  only  after  the  liquid  hydrocarbon  reserves  have  been                                                               
depleted.  Until  then  the  gas  that is  produced  is  used  to                                                               
increase liquid  production in  a number  of different  ways. One                                                               
way is  to reinject  the gas  into the  reservoir to  provide the                                                               
needed  energy to  get the  liquid hydrocarbons  to the  surface.                                                               
Another  way the  gas  may be  used is  to  enhance oil  recovery                                                               
operations. North Slope  gas is being used both  those ways right                                                               
now, so the  charge that the gas is being  held hostage simply is                                                               
not correct. "They are using our gas  to get more oil and the gas                                                               
will still be there when we're ready to produce it."                                                                            
                                                                                                                                
MS. FOERSTER said the North  Slope gas sales project will involve                                                               
some  tradeoffs  between  oil  and  gas  recovery,  and  the  two                                                               
documents  on  establishing  allowable   gas  offtake  rates  for                                                               
Prudhoe Bay and  Pt. Thomson explain the  physics and engineering                                                               
of the tradeoffs. She suggested  that members read both documents                                                               
and contact her if they elicit any questions.                                                                                   
                                                                                                                                
She said the normal process is  for a gas field operator to apply                                                               
to AOGCC  for pool  rules. Those  are specific  rules stipulating                                                               
how  to develop  a reservoir  for maximum  oil and  gas recovery.                                                               
Prudhoe Bay is currently operating  under the original pool rules                                                               
that were established  shortly after the field  was discovered in                                                               
the early 1970s.  The rules have been modified a  number of times                                                               
to reflect necessary changes as  more was learned about the field                                                               
in terms of how it produces and how it should be managed.                                                                       
                                                                                                                                
MS. FOERSTER  noted that  AOGCC has  not received  an application                                                               
for pool rules  for Pt. Thomson, but Pool Rule  9 for Prudhoe Bay                                                               
was established in 1977, and it  set the allowable gas offtake at                                                               
2.7 bcf/day. She emphasized that  since then 30 years have passed                                                               
and  11  billion barrels  of  oil  have  been produced,  yet  the                                                               
Prudhoe Bay leaseholders  have not filed for a change  in the gas                                                               
offtake rate.  There has been  no need  to file for  an amendment                                                               
because there  is no  gas pipeline.  Nonetheless it  is important                                                               
for two reasons, she said.                                                                                                      
                                                                                                                                
The first  reason is that  a great deal  more is known  about how                                                               
the  reservoir  works  and  what  might  be  an  appropriate  gas                                                               
offtake.  Secondly,  most  gas  sales  under  public  discussion-                                                               
including  the  producer's  proposal-would  probably  require  an                                                               
increase  in the  allowable  Prudhoe Bay  gas  offtake. "So  it's                                                               
probably appropriate  that that  Rule 9  be rebooked,"  she said.                                                               
Normally AOGCC waits for the  operator to make application before                                                               
initiating necessary studies to make a rule change.                                                                             
                                                                                                                                
3:42:33 PM                                                                                                                    
MS. FOERSTER  said these studies can  delay decisions, especially                                                               
in complex reservoirs  like Prudhoe Bay. Pt.  Thomson is complex,                                                               
too, she  said. "In  the case  of Prudhoe  and Pt.  Thomson, this                                                               
kind  of  delay  could  disrupt the  timetable  for  a  potential                                                               
gasline project by  getting us out of sync with  an open season."                                                               
No one  wants that, she stated.  The AOGCC needs to  complete its                                                               
evaluations  and make  its rulings  for both  of them  before the                                                               
open  season, so  the  approved gas  offtake  allowables will  be                                                               
known in time for the open  season process that is required under                                                               
the Federal Energy Regulatory Commission (FERC).                                                                                
                                                                                                                                
MS.  FOERSTER said  the  AOGCC  has chosen  to  take a  proactive                                                               
approach in  one of two ways.  It can arrange for  consultants to                                                               
conduct independent reservoir studies  or it can participate with                                                               
the operators in their studies.  If adequate cooperation from the                                                               
operators can  be assumed, that  is the favored  approach because                                                               
it  has  a  lower cost  to  the  state  and  takes less  time  to                                                               
complete. Also, the  studies will include more data  and the best                                                               
reservoir evaluation tools will be used.                                                                                        
                                                                                                                                
3:45:03 PM                                                                                                                    
MS. FOERSTER noted  that in 2005 the commission  held hearings to                                                               
inquire whether the  gas offtake rate from Prudhoe  Bay should be                                                               
updated. The  commission decided  the offtake allowable  must now                                                               
be redetermined using  the 30 years and 11  billion barrels worth                                                               
of reservoir description and performance  information that is now                                                               
available. As  part of  that hearing  process, BP,  its partners,                                                               
and the  commissioners agreed on  principles on which  to perform                                                               
collaborative studies. "So that was  a very wonderful thing." The                                                               
report of  the inquiry  and the  resultant study  principles that                                                               
came of  those hearings was  issued by  the AOGCC in  December of                                                               
2005. It is on the Internet, she noted.                                                                                         
                                                                                                                                
3:46:11 PM                                                                                                                    
CHAIR FRENCH asked  where the AOGCC is now. "It  sounds like even                                                               
though  there's  been   no  formal  application  for   a  Rule  9                                                               
amendment-that's  the  amendment  that  sets  the  allowable  gas                                                               
offtake for  Prudhoe Bay-the AOGCC  is moving ahead with  a study                                                               
on that topic. Is that correct?"                                                                                                
                                                                                                                                
MS. FOERSTER said yes; the study began in January 2006.                                                                         
                                                                                                                                
CHAIR FRENCH asked what WIO refers to.                                                                                          
                                                                                                                                
CHAIR FOERSTER said  it is the working  interest owners-the three                                                               
producers: BP, ConocoPhillips, and ExxonMobil.                                                                                  
                                                                                                                                
3:47:05 PM                                                                                                                    
MS. FOERSTER  continued. She said the  AOGCC contracted reservoir                                                               
evaluation  consultants  to assist  its  technical  staff in  the                                                               
Prudhoe study. BP and partners  agreed to provide access to their                                                               
simulators,  including the  underlying  geologic and  geophysical                                                               
information for  their reservoir models. They  voluntarily set up                                                               
a data  room equipped  with computers and  software to  allow the                                                               
commission  to   review  their   simulator  results.   The  AOGCC                                                               
determined that the information given  to it met the standards of                                                               
statutes and regulations. The information  is entitled to be held                                                               
confidential during the study period.  The study process began in                                                               
January  of 2006  and was  completed  in late  2006. In  February                                                               
2007, "our technical staff and  consultant presented to the three                                                               
commissioners  a summary  report,  which is  in your  information                                                               
packet and  it is also available  to the public on  our website."                                                               
Some other information is confidential and not in the packet.                                                                   
                                                                                                                                
CHAIR  FRENCH  surmised   the  study  is  complete   and  in  the                                                               
commissioners' hands but not released to public.                                                                                
                                                                                                                                
MS. FOERSTER  said the details  of the study have  been described                                                               
to  the  commissioners,  but  those   details  are  not  publicly                                                               
available. At some  future time, prior to an  open season, either                                                               
BP  with its  partners will  submit an  application to  amend the                                                               
Prudhoe  gas offtake  allowable, or  the  AOGCC will  call for  a                                                               
hearing. In either case, there  will be public hearings to review                                                               
the development plans associated with  the proposed gas sales. BP                                                               
and  partners  will  be  required  to  submit,  for  the  record,                                                               
reservoir  studies  that  best  reflect  a  reasonable  range  of                                                               
offtake  options and  their effects.  The AOGCC  may request,  by                                                               
subpoena or  otherwise, any other pertinent  information that has                                                               
been  used  in   the  study  but  is  not   included.  Claims  of                                                               
confidentiality will  be determined during hearings  by the AOGCC                                                               
under the governing law at the  time. The AOGCC will require that                                                               
the public is comfortable with the process.                                                                                     
                                                                                                                                
CHAIR   FRENCH  summarized:   the  study   is  complete,   it  is                                                               
confidential, and you are assuming that  BP will request a Rule 9                                                               
amendment  in the  future.  Then there  will  be public  hearings                                                               
about the study.                                                                                                                
                                                                                                                                
MS. FOERSTER said that's correct.  If the state feels the hearing                                                               
is needed before BP does, we  can always call that hearing on our                                                               
own, and  our intent  is to hold  the hearing in  time for  BP to                                                               
include  a   new  gas  allowable   offtake  in  an   open  season                                                               
determination.                                                                                                                  
                                                                                                                                
CHAIR FRENCH  asked why  the AOGCC hasn't  asked for  the hearing                                                               
and for a rule amendment.                                                                                                       
                                                                                                                                
3:52:30 PM                                                                                                                    
MS. FOERSTER said  the AOGCC doesn't want it to  drag on too long                                                               
because the  data gets old.  But it  shouldn't be done  before it                                                               
knows  when, how  much,  and what  is  going to  be  done in  the                                                               
meantime. There  is not  a simple answer  with a  single variable                                                               
equation. The  amount of gas we  tell them that they  can produce                                                               
is going  to depend on when  the production starts and  what they                                                               
have done in  the meantime to get  as much oil out  of the ground                                                               
and to  protect the  oil that's  still in  the ground  from being                                                               
lost. So, until BP has a plan  for when the pipeline is coming on                                                               
line, "we can't give them a number."                                                                                            
                                                                                                                                
SENATOR  WIELECHOWSKI said  many studies  assume a  48-inch pipe,                                                               
and he asked  if there is enough gas on  the slope to accommodate                                                               
that size.                                                                                                                      
                                                                                                                                
MS. FOERSTER  said it is possible  that by the time  the pipeline                                                               
is built,  Prudhoe Bay gas  could fill  it. It is  possible there                                                               
won't  be enough  to fill  it. It  is possible  that Pt.  Thomson                                                               
could  fill the  remainder. It  is equally  possible that  either                                                               
there won't be  a determination at Pt. Thomson or  that AOGCC may                                                               
give a  low gas offtake  allowable. There is a  lot of gas  to be                                                               
discovered,  she said.  "When you  go looking  for oil,  you find                                                               
gas,"  but there  has  been no  benefit in  finding  gas at  this                                                               
point.                                                                                                                          
                                                                                                                                
SENATOR  WIELECHOWSKI asked  how many  bcf/day are  available for                                                               
offtake on the North Slope that could be put in a gas pipeline.                                                                 
                                                                                                                                
MS. FOERSTER said the studies should tell us that.                                                                              
                                                                                                                                
SENATOR  WIELECHOWSKI said,  "We have  no idea  what the  minimum                                                               
number is?" That is a frightening proposition, he added.                                                                        
                                                                                                                                
MS. FOERSTER  said, "Let me assure  you that by the  time we have                                                               
an open season…if we continue  to get cooperation from operators,                                                               
we  have plenty  of  time to  know the  answer  to that  question                                                               
before an open season."                                                                                                         
                                                                                                                                
SENATOR WIELECHOWSKI  said there are  people who are going  to be                                                               
submitting proposals within  the next six months.  They will need                                                               
to know what size of line to propose.                                                                                           
                                                                                                                                
MS. FOERSTER said she assumes they will need to do that.                                                                        
                                                                                                                                
3:56:16 PM                                                                                                                    
CHAIR FRENCH asked about Rule 9.  "Isn't there a ruling right now                                                               
that you could take 2.7 bcf/day off Prudhoe?"                                                                                   
                                                                                                                                
MS.  FOERSTER said  yes there  is that  allowable gas  offtake at                                                               
Prudhoe Bay, but  "if AOGCC felt any real threat  that anyone was                                                               
going to take gas from Prudhoe  Bay today, we would probably call                                                               
for a  hearing to re-evaluate  that allowable. And  it's possible                                                               
that we  would take  that allowable  to zero,  because of  what I                                                               
said to you earlier about every  bit of that gas being used right                                                               
now to  get more oil out  of the ground-oil that  [they] won't be                                                               
able to get if that gas is gone."                                                                                               
                                                                                                                                
CHAIR FRENCH  noted that AOGCC  did a study and  have information                                                               
on this topic. He asked who has the information-the governor?                                                                   
                                                                                                                                
MS.  FOERSTER said  not the  governor,  but only  the AOGCC,  its                                                               
consultants, and the Prudhoe Bay working-interest owners.                                                                       
                                                                                                                                
CHAIR FRENCH asked if that is set in statute.                                                                                   
                                                                                                                                
MS. FOERSTER  said they signed a  confidentiality agreement after                                                               
looking  at the  statutes  and determining  the information  fell                                                               
within the  requirements for confidentiality.  It is in  the best                                                               
interest of  the state to  make that  agreement and to  honor it,                                                               
"so  that  we  can  maintain the  working  relationship  that  is                                                               
allowing us to do the evaluations that we need to do."                                                                          
                                                                                                                                
SENATOR WIELECHOWSKI said he's concerned  that the information is                                                               
available  to  the  producers  but not  to  other  explorers  and                                                               
pipeline  builders. He  assumes those  entities really  need that                                                               
information.                                                                                                                    
                                                                                                                                
MS. FOERSTER said  she signed a confidentiality  agreement and "I                                                               
can't make  that information public."  She said she is  trying to                                                               
do her job.                                                                                                                     
                                                                                                                                
3:59:34 PM                                                                                                                    
CHAIR FRENCH said the committee is  just trying to figure out the                                                               
lay of  the land.  One comment  he has  heard frequently  is: "My                                                               
goodness,  we  haven't  even  gotten   to  the  place  where  the                                                               
producers have asked for a change  in this rule-this rule that we                                                               
know was set in 1977 and hasn't  been updated in a long time." He                                                               
said even though they haven't asked  for the change, he sees that                                                               
AOGCC at  least has fresh data  on what an offtake  rate could be                                                               
for Prudhoe Bay,  but he shares the concern  that the information                                                               
has only been shared with working interest owners.                                                                              
                                                                                                                                
MS. FOERSTER  said, "Even though  we have  data, we don't  have a                                                               
number." The amount  of gas that will be allowed  to be taken off                                                               
at Prudhoe Bay depends on when  the sale starts, how much oil has                                                               
been taken  out in the  interim, and what other  mitigating steps                                                               
the  operator  takes to  protect  that  oil from  future  losses.                                                               
Without those variables, there is no number.                                                                                    
                                                                                                                                
SENATOR  THERRIAULT asked  if  the  AOGCC can  make  a grid  with                                                               
different assumptions of the variables.  "If you do these things,                                                               
you can  start taking  off a particular  volume eight  years from                                                               
now,  nine  years from  now…with  certain  mitigating steps."  He                                                               
asked if she could do such a projection.                                                                                        
                                                                                                                                
MS.  FOERSTER said  the AOGCC  does that  kind of  thing all  the                                                               
time.                                                                                                                           
                                                                                                                                
SENATOR WIELECHOWSKI asked  if she has that  grid. People bidding                                                               
need to know what gas would be available, he said.                                                                              
                                                                                                                                
MS.  FOERSTER  said  some  of  those  analyses  have  been  done;                                                               
however, she cannot violate a confidentiality agreement.                                                                        
                                                                                                                                
SENATOR WIELECHOWSKI said he understands  that, but "this is just                                                               
absolutely unbelievable  to me that  we have absolutely  no sense                                                               
of how much  gas is available for offtake on  the North Slope for                                                               
this gas pipeline project. That's just unbelievable to me."                                                                     
                                                                                                                                
MS. FOERSTER said she doesn't know what to say.                                                                                 
                                                                                                                                
CHAIR  FRENCH said  she doesn't  have to  respond; the  statement                                                               
speaks for itself.                                                                                                              
                                                                                                                                
MS. FOERSTER  continued. In  spite of  all of  the uncertainties,                                                               
she feels  comfortable that, unless  a substantial  delay occurs,                                                               
the state has  enough of an analysis that it  will be prepared to                                                               
address  a Prudhoe  Bay gas  offtake allowable  amendment when  a                                                               
scenario is  proposed that  includes a start  date and  what will                                                               
happen  in  the  meantime.  "I'm confident  that…we  have  enough                                                               
background work done  that we can amend Rule 9  for Prudhoe Bay."                                                               
But for Pt. Thomson, "I have anything but confidence."                                                                          
                                                                                                                                
4:03:43 PM                                                                                                                    
MS. FOERSTER  said the commission  was encouraged because  of how                                                               
well things went with Prudhoe Bay.  But when it pursued a similar                                                               
process  with ExxonMobil  and its  partners, it  was delayed  and                                                               
then finally slated  to begin about the same time  that DNR found                                                               
ExxonMobil and  its partners  to be in  default on  their leases.                                                               
The AOGCC and  its consultants had one meeting with  them but got                                                               
only a very  small fraction of the necessary data  to perform the                                                               
study.  ExxonMobil put  the study  on hold  to take  care of  its                                                               
legal  issues. She  was told  in  February that  the study  could                                                               
resume, but then she was told  it wouldn't until all legal issues                                                               
are resolved, and  ExxonMobil estimated it to be  a 5-year delay.                                                               
The  commission has  been pleased  with  BP and  its partners  at                                                               
Prudhoe Bay but stymied by Pt. Thomson.                                                                                         
                                                                                                                                
4:07:30 PM                                                                                                                    
CHAIR FRENCH asked if the state  can proceed with the Pt. Thomson                                                               
study without the cooperation of ExxonMobil and BP.                                                                             
                                                                                                                                
MS. FOERSTER said  that the only way to proceed  would be to call                                                               
a hearing of  our own motion and subpoena  information, "and then                                                               
we'd end up  back in the courts in another  fight over whether we                                                               
had the rights to the information."                                                                                             
                                                                                                                                
CHAIR FRENCH said the state could, but it would be the hard way.                                                                
                                                                                                                                
MS. FOERSTER said yes, unless  ExxonMobil and its partners decide                                                               
to resume the study.                                                                                                            
                                                                                                                                
CHAIR FRENCH asked if there has ever been a Pt. Thomson study.                                                                  
                                                                                                                                
MS. FOERSTER said  the producers have done many  studies, but the                                                               
AOGCC  has  not  done  a full-blown  reservoir  study,  which  is                                                               
needed. There is none like the 1977 Prudhoe study, she added.                                                                   
                                                                                                                                
SENATOR  WIELECHOWSKI  asked if  there  is  anything keeping  the                                                               
state from doing its own Pt. Thomson study.                                                                                     
                                                                                                                                
MS.  FOERSTER said  the state  doesn't have  any of  the data.  A                                                               
reservoir  study  needs  the  information   that  Exxon  and  its                                                               
partners have.                                                                                                                  
                                                                                                                                
SENATOR WIELECHOWSKI asked if the state  will get that data if it                                                               
takes back the lease, and what might  be the cost to get the data                                                               
independently.                                                                                                                  
                                                                                                                                
MS.  FOERSTER said  she is  not a  lawyer, but  she guessed  they                                                               
would keep  their data  because they  paid for  it. The  data was                                                               
obtained  by drilling  multi-million dollar  wells-more than  the                                                               
state would be willing to spend.                                                                                                
                                                                                                                                
SENATOR WIELECHOWSKI  said, "If we've  got 8  tcf of gas  and 200                                                               
million barrels of oil, maybe we do want to spend the money."                                                                   
                                                                                                                                
MS.  FOERSTER said  the  data ExxonMobil  would  supply would  be                                                               
regional seismic study  that is worth "millions  and millions and                                                               
millions  of dollars."  Geologists would  need to  map that,  and                                                               
then several exploratory wells of  $15 million a piece would need                                                               
to be drilled. Then the wells  would be tested and millions would                                                               
need to be  spent to analyze and model the  information. It would                                                               
be a multiyear, high-risk process.                                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI asked if other  parties might take the lease                                                               
that the state takes back.                                                                                                      
                                                                                                                                
MS. FOERSTER said, in her opinion,  there would be a lot of them.                                                               
"If I were a billionaire, I would be one of them."                                                                              
                                                                                                                                
4:13:13 PM                                                                                                                    
LARRY  OSTROVSKY, Chief  Assistant  Attorney, Oil,  Gas &  Mining                                                               
Section, Department  of Law, said  the litigation at  Pt. Thomson                                                               
stems  from the  basic bargain  in an  oil and  gas lease  that a                                                               
lease  doesn't  exist  in   perpetuity  without  production.  The                                                               
"primary  term"  is  the  set  period to  bring  the  lease  into                                                               
production,  and it  can  only be  extended  if hydrocarbons  are                                                               
being produced from the  lease or if the lease is  part of an oil                                                               
and gas unit  in good standing. A unit is  an area where separate                                                               
leases overlap  and are consolidated  for joint  development. The                                                               
costs and  benefits are allocated  among the various  lessees, he                                                               
explained. All  of the oil  and gas development in  Alaska occurs                                                               
on units.                                                                                                                       
                                                                                                                                
MR. OSTROVSKY said units are  legal descriptions, but oil and gas                                                               
reservoirs are geologic. There are  different kinds of units, and                                                               
some  can be  created by  the AOGCC,  but all  the production  in                                                               
Alaska are in  units that are under DNR  authority. Lessees apply                                                               
to DNR,  which then can approve  the unit. To maintain  a unit in                                                               
good standing beyond its primary  term, lessees must submit plans                                                               
for  exploration or  development  to move  toward production.  He                                                               
said the  plans include long-range  proposed activities  to bring                                                               
the  reservoir into  production and  to maintain  it. It  ensures                                                               
that lessees  are taking appropriate  steps to bring the  unit to                                                               
production. Failure  to comply  is grounds  for unit  default, he                                                               
explained.                                                                                                                      
                                                                                                                                
4:16:35 PM                                                                                                                    
MR. OSTROVSKY  said that the  current Pt. Thomson  lawsuits arise                                                               
from decisions from the director of  Oil and Gas on the 22nd plan                                                               
of development  for the  Pt. Thomson unit  that was  submitted by                                                               
ExxonMobil  in 2005.  At  the  time of  that  unit decision,  Pt.                                                               
Thomson contained some leases issued  more than 40 years ago, and                                                               
all but two of the leases  are well beyond the primary terms. The                                                               
usual primary term is between 5  and 10 years, he stated. The Pt.                                                               
Thomson unit has  vast known reserves of liquids and  gas and has                                                               
never been put  into production. In mid-2005  Exxon submitted the                                                               
22nd plan  of development for  approval. Additional  studies were                                                               
proposed to  determine the possibility for  a commercially viable                                                               
project. "Amazingly  that plan also  included admission  by Exxon                                                               
that it could find no viable  way to put the unit into production                                                               
without  royalty and  tax concessions  in construction  of a  gas                                                               
pipeline." In  2005 DNR rejected  that plan "because it  does not                                                               
set out  a plan  to bring  the Pt.  Thomson unit  into commercial                                                               
production within  a reasonable timeframe." That  decision warned                                                               
Exxon that the unit would be  terminated if it failed to cure the                                                               
default  with  a  revised  plan, he  said.  Leases  are  property                                                               
rights, so DNR provides an opportunity to cure.                                                                                 
                                                                                                                                
MR. OSTROVSKY  said Exxon  later revised  the plan  and submitted                                                               
nearly  5,000  pages  to  Commissioner  Menge  who  affirmed  the                                                               
decision that  Exxon refused to  provide a commitment  to develop                                                               
the unit  and found it in  default. That led to  current actions.                                                               
Exxon and  the other  owners filed  an administrative  appeal and                                                               
the same  decision was  affirmed by  Rutherford last  year. Exxon                                                               
also  filed an  original action  of breach  of contract,  and the                                                               
state  has moved  to dismiss  that  action. In  February of  this                                                               
year, significantly, the director of  the Division of Oil and Gas                                                               
terminated the Pt. Thomson leases. The  leases were not held by a                                                               
unit and were  many years or decades beyond  their primary terms.                                                               
Working-interest   owners   are   appealing   that   within   the                                                               
administrative process. They recently filed  a motion to stay the                                                               
termination of the leases, and  that was in court this afternoon.                                                               
He doesn't yet know how that turned out.                                                                                        
                                                                                                                                
4:20:40 PM                                                                                                                    
MR. OSTROVSKY  said the state  is obviously interested  in moving                                                               
it forward  and getting a  judicial determination to  release the                                                               
leases. In  March the Superior  Court set a briefing  deadline of                                                               
June 1 for  them to file their opening briefs,  and the state has                                                               
until July  2 to respond. "We  intend to respond very  timely and                                                               
do whatever we can to drive  this towards a decision." He said it                                                               
is  hard  to  comment  on  the  representations  to  Commissioner                                                               
Forester;  "obviously if  you're  party  to litigation…you  might                                                               
tell the  other side [that]  this will  take many, many  years to                                                               
resolve, but  of course one has  to take that in  the spirit that                                                               
it's  given-it's  given by  the  party  that…is litigating;  they                                                               
control, to some degree, the pace  of the litigation, and plus it                                                               
would certainly be  in one's interest to persuade  the other side                                                               
that they'll  be tied up for  many decades." He said  he has done                                                               
many administrative  appeals, and "it  seems to me the  court has                                                               
indicated that they  want to hear this timely. I  would hope that                                                               
the judge  could make a  decision this fall  and I would  hope we                                                               
could persuade  the Supreme Court to  deal with this matter  in a                                                               
timely fashion."                                                                                                                
                                                                                                                                
CHAIR  FRENCH  asked  about the  procedural  posture;  "It's  the                                                               
decision  by the  director  of the  Division of  Oil  and Gas  to                                                               
terminate the leases  that's being appealed, not  the decision to                                                               
reject the project development plan."                                                                                           
                                                                                                                                
MR.  OSTROVSKY said  everything  that can  be  appealed is  being                                                               
appealed. There  is an  appeal of the  decision of  the director,                                                               
and affirmed by the commissioners,  to terminate the unit because                                                               
of  an inadequate  plan of  development,  and that  is in  court.                                                               
There  is  also  an  administrative  appeal  within  DNR  of  the                                                               
decision to terminate the underlying leases.                                                                                    
                                                                                                                                
4:23:30 PM                                                                                                                    
CHAIR  FRENCH asked  if  either appeal  is  dispositive. "If  you                                                               
eliminate the unit  development, does that pretty  much mean that                                                               
leases  have got  to come  back?"  He asked  if both  have to  be                                                               
litigated all the  way to the end  and if they will  always be on                                                               
separate tracks or will merge.                                                                                                  
                                                                                                                                
MR. OSTROVSKY  said there  are about  40 leases  in the  unit and                                                               
some have  different conditions. There  may be 2 leases  that are                                                               
not  beyond  primary  terms,  and  there  are  leases  within  an                                                               
expansion  area that  are a  "separate issue."  There are  leases                                                               
that had  certified wells that the  commissioner's decision found                                                               
were  no longer  certified, because  "they were  old plugged  and                                                               
abandoned wells." The  unit decision may be  dispositive for some                                                               
of the  leases, but  it's hard  to say, he  said. In  the state's                                                               
view,  plugged  and  abandoned wells  shouldn't  hold  leases  in                                                               
perpetuity,  "and we  believe that  the unit  decision should  be                                                               
dispositive of every well that's beyond the primary term."                                                                      
                                                                                                                                
CHAIR FRENCH asked  if Mr. Ostrovsky is hoping for  a decision on                                                               
the unit by year end.                                                                                                           
                                                                                                                                
MR. OSTROVSKY said  yes, and if that is upheld,  there is nothing                                                               
holding  the  leases beyond  their  primary  terms, except  there                                                               
might be  a question  with the certified  well leases.  "We don't                                                               
agree that those wells should  hold them but…the working interest                                                               
owners have a different view."                                                                                                  
                                                                                                                                
CHAIR  FRENCH said  the public  can't  help but  think about  the                                                               
Exxon  Valdez spill  case  and the  endless  delays. "What  makes                                                               
these types of actions different from that type of action?"                                                                     
                                                                                                                                
4:25:50 PM                                                                                                                    
MR. OSTROVSKY said this is in  state court, and there are limited                                                               
avenues. He noted  that, typically, if the Supreme  Court finds a                                                               
flaw in  an administrative  appeal, it won't  remand back  to the                                                               
Superior  Court,  but  it  will  remand back  to  the  agency  to                                                               
reconsider a portion  of its decision. There are  fewer levels of                                                               
review.  In  Alaska,  decisions  are  made  quicker  because  the                                                               
Superior Court  judge has  to issue a  decision within  180 days.                                                               
The  courts  have  been  sensitive  to  issues  of  great  public                                                               
importance where  time is  of the  essence. Everybody  agrees the                                                               
lease  issues have  to be  resolved quickly.  He said  not to  be                                                               
afraid of "these  tales" of lengthy litigation. The  state has to                                                               
be prepared to enforce the obligations made to it.                                                                              
                                                                                                                                
SENATOR WIELECHOWSKI asked  if the state can  obtain the research                                                               
data from the explorer if the state wins the litigation.                                                                        
                                                                                                                                
MR. OSTROVSKY  said he believes  that information belongs  to the                                                               
lessee. They would likely want to sell it.                                                                                      
                                                                                                                                
SENATOR WIELECHOWSKI asked about  modifying leases to obtain that                                                               
information. "Aren't there  provisions that we can  put in leases                                                               
to  cut back  on the  amount  of litigation  that we  have to  go                                                               
through. It seems we're always in court."                                                                                       
                                                                                                                                
MR. OSTROVSKY said to discuss  the first question with DNR. There                                                               
may be provisions one could add  to speed these things up, but it                                                               
must  allow  due   process.  The  state  is   sovereign  and  the                                                               
legislature can set appellate rights, he added.                                                                                 
                                                                                                                                
4:29:56 PM                                                                                                                    
                                                                                                                                
There being  no further  business to  come before  the committee,                                                               
Chair French adjourned the meeting at 4:30:33 PM.                                                                             
                                                                                                                                

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