Legislature(1995 - 1996)
05/07/1995 01:37 PM Senate RES
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE RESOURCES COMMITTEE
May 7, 1995
1:37 p.m.
MEMBERS PRESENT
Senator Loren Leman, Chairman
Senator Robin Taylor
Senator Georgianna Lincoln
Senator Lyman Hoffman
COMMITTEE MEMBERS ABSENT
Senator Drue Pearce, Vice Chairman
Senator Steve Frank
Senator Rick Halford
COMMITTEE CALENDAR
SENATE BILL NO. 176
"An Act relating to regulation of certain natural gas exploration
facilities for purposes of preparation of discharge prevention and
contingency plans and compliance with financial responsibility
requirements, and amending the duties of the Alaska Oil and Gas
Conservation Commission as they relate to natural gas exploration
activities; and providing for an effective date."
SJR 29 (REINDEER INDUSTRY ACT OF 1937) was scheduled, but not heard
on this date.
PREVIOUS SENATE COMMITTEE ACTION
SB 176 - No previous action to record.
SJR 29 - No previous action to record.
WITNESS REGISTER
Jack Phelps, Staff
Representative Williams
State Capitol
Juneau, Alaska 99801-1182
POSITION STATEMENT: Discussed SB 176.
Paul Craig, President
Z-Energy
Anchorage, Alaska
POSITION STATEMENT: Supported SB 176.
Dave Lappi
Lapp Resources, Inc.
4900 Sportsman Drive
Anchorage, AK
POSITION STATEMENT: Discussed coal bed methane and the economic
barriers such projects currently face.
Eric Opstead
E. A. Opstead & Associates
Anchorage, Alaska
POSITION STATEMENT: Discussed the financial barriers created by
the bonding statutes.
Dave Johnston, Chairman
Alaska Oil & Gas Conservation Commission
POSITION STATEMENT: Supported SB 176.
Kurt Fredricksson, Director
Division of Spill Prevention & Response
Department of Environmental Conservation
410 Willoughby Avenue
Juneau, Alaska 99801
POSITION STATEMENT: Had no objections to SB 176.
ACTION NARRATIVE
TAPE 95-58, SIDE A
SB 176 EXEMPT NAT.GAS FACILITY FROM BOND & PLANS
CHAIRMAN LEMAN called the Senate Resources Committee meeting to
order at 1:37 p.m. and introduced SB 176 as the only order of
business before the committee.
Number 030
JACK PHELPS, staff to Representative Williams, informed the
committee that he had been doing work on the companion bill to SB
176 in the House, HB 334. SB 176 reflects refinements that were
developed due to hearings about HB 334 last Friday. The
refinements were primarily done by the Department of Law; one
attorney who works for the Department of Environmental Conservation
(DEC) and one who works on oil and gas issues for the Department of
Natural Resources (DNR) worked in conjunction with the Alaska Oil
& Gas Conservation Commission (AOGCC).
SENATOR TAYLOR inquired as to what the House was doing. JACK
PHELPS explained that an Oil & Gas Committee Substitute has been
developed that is identical to SB 176, however he has not heard of
the bill being scheduled.
SENATOR TAYLOR supported the legislation, however, he seemed
disappointed that the bill had not yet been scheduled in the House.
CHAIRMAN LEMAN agreed with Senator Taylor. He explained that since
the House was not moving fast enough, he had decided to deal with
the legislation in the Senate and then send it to the House. He
indicated that the legislation should have come out of the House
committee today, been read across and on the floor of the House
tomorrow.
Number 078
PAUL CRAIG, President of Z-Energy, informed the committee that
Z-Energy is a newly formed independent oil and gas exploration and
production company. Z-Energy is in the process of putting together
some exploration plans in the Cook Inlet basin. He supported the
passage of SB 176 which is crucial to the business activities that
Z-Energy would like to pursue. Oil spill contingency planning and
financial responsibility for oil spills is good public policy that
should be maintained for oil wells not natural gas wells. Mr.
Craig indicated that continuing oil spill contingency bonding and
planning for wells certified by the AOGCC as having no likelihood
of encountering liquid hydro-carbons seems irrational. The oil
spill contingency bond poses nothing more than a financial barrier
if the structure being drilled into is well defined.
Mr. Craig reminded the committee that stratographic wells are not
required to submit an oil spill contingency plan or bond; natural
gas wells should be exempted on a similar basis. He informed
everyone that the current bonding requirement of $1 million for an
oil spill bond would require, as House committee testimony
indicated, that one have a net worth of $50 million in order to be
considered a candidate for this type of bond. Another manner in
which to secure an oil spill bond would be to place $1 million in
an escrow account which would be available to the bonding agent;
additional bonding fees would have to be paid as well. From an
economic perspective, doing business in Alaska is not feasible with
this economic barrier.
Mr. Craig stated that passage of HB 344 would benefit Z-Energy as
well as other companies, particularly those interested in
developing coal bed methane. He explained that the development of
coal bed methane around rural communities would provide a local
resource at a low cost with a significant environmental benefit to
the residents. He assured the committee that the majors are not
interested in the development of such projects, however, such
projects are attractive to small, independent operators.
Number 165
SENATOR TAYLOR agreed with Mr. Craig's testimony and expressed the
need to move this legislation. Senator Taylor asked Mr. Craig if
he was aware of any oil well that had blown out or spilled in
Alaska for which this contingency would serve useful. PAUL CRAIG
was unaware of any drilling projects that had oil spills. The
drilling mud technology and blow-out prevention equipment utilized
today takes care of the problem of spills. Mr. Craig explained
that he did not have a problem with continued oil spill contingency
planning with oil wells, however, such contingency plans do not
seem appropriate for natural gas reserves with virtually no
prospect of encountering liquid hydro-carbons or oil.
SENATOR LINCOLN suggested that the following language on page 2,
line 10 be deleted: "all other appropriate state agencies". She
felt that the notification should be left to the Department of
Natural Resources in order not to slow the process. That
responsibility could also be listed elsewhere in the bill.
CHAIRMAN LEMAN said that he did not have a problem with Senator
Lincoln's amendment. SENATOR TAYLOR supported the amendment.
DAVE LAPPI, President of Lapp Resources, informed the committee
that his company was interested in coal bed methane development and
not only in rural Alaska. He discussed an upcoming test project
for drilling in Houston, Alaska. If the technology can be
developed, then coal bed methane should be able to be economically
recovered in a fairly populated area. That technology could be
exported to Bush Alaska in order to afford rural Alaskans another
option besides diesel fuel. He explained that coal bed methane
wells usually produce less gas than a normal gas well. Therefore,
a bond or insurance requirement of $1 billion for every well would
pose a barrier to expediently do such projects economically. The
bonds often cost more than the drilling project itself due to the
multiple agencies that require bonds. The economic barriers
coupled with the small amount of gas produced by each well would
result in the termination of the project.
Number 261
ERIC OPSTEAD, owner and operator of Opstead & Associates, said that
Opstead & Associates, a consulting firm, had been operating in
Alaska for approximately a decade. Opstead & Associates provides
engineering geo-science consulting services. He noted that Opstead
& Associates owns and operates oil and gas production in the lower
48, mainly in California. He reiterated the problems due to the
presence of financial hurdles created by the bonding statutes.
Most gas projects are not tremendous revenue generators, they are
often generating heat and power for local consumption. If the
current bonding situation continues, the small gas projects would
not be continued or initiated.
DAVE JOHNSTON, Chairman of the Alaska Oil & Gas Conservation
Commission, said that the commission did not have any objection to
SB 176. He indicated that the fiscal note would be a fairly small
amount that would reflect the cost of the development of the
regulations to cover SB 176. The commission has the expertise to
do this. He said that the commission would support SB 176 as well
as the suggestion by Senator Lincoln.
CHAIRMAN LEMAN informed Mr. Johnston that if there is a fiscal note
other than zero, SB 176 would not make it through the process
because a money fiscal note would require that the bill be sent to
Finance. DAVE JOHNSTON suggested that the minimal fiscal note to
which he referred would be zero; the commission is in the middle of
a rewrite of their regulations currently and this would become a
portion of that rewrite.
Number 332
KURT FREDRIKSSON, Director of the Division of Spill Prevention &
Response for the Department of Environmental Conservation, had no
objection to SB 176. As Mr. Craig pointed out, the division is
concerned with the spillage of oil not natural gas. The
certification that AOGCC could provide would reasonably ensure that
they would not be running into oil. For DEC, SB 176 would create
a zero fiscal note. In regards to Senator Lincoln's amendment, Mr.
Fredriksson could not imagine what other agencies may be involved
besides DEC and AOGCC. He explained that DEC is required to notify
the Division of Fish & Game and DNR, if oil bearing sub-structures
are encountered; this is specified in the statutes for the
contingency review process. In response to Senator Taylor, Mr.
Fredriksson explained that the Division of Forestry would be
notified by the department at the time that the applicant would
provide the department with a contingency plan. Mr. Fredriksson
said that the amendment was fine.
The committee stood at ease from 2:02 p.m. to 2:04 p.m.
SENATOR LINCOLN moved Amendment 1 on page 2, line 10 deleting "and
all other appropriate state agencies;".
CHAIRMAN LEMAN clarified that ", and all other appropriate state
agencies" would be deleted and insert "and" on line 9 after
"department". Chairman Leman said that the drafters would deal
with that.
Hearing no objection, Amendment 1 was adopted.
SENATOR TAYLOR moved that CSSB 176(RES) be moved out of committee
with individual recommendations and the accompanying zero fiscal
notes. Hearing no objection, it was so ordered.
SJR 29 REINDEER INDUSTRY ACT OF 1937
CHAIRMAN LEMAN noted that SJR 29 had previously been announced as
before the committee, but the sponsor has decided not to have that
before the committee at this time.
There being no further business before the committee, the meeting
adjourned at 2:05 p.m.
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