04/28/2006 03:30 PM Senate RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| HB395 | |
| HB420 | |
| Pt. Thomson Unit Update | |
| Michael Menge, Commissioner, Department of Natural Resources | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 395 | TELECONFERENCED | |
| + | HB 420 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
April 28, 2006
3:35 p.m.
MEMBERS PRESENT
Senator Thomas Wagoner, Chair
Senator Ralph Seekins, Vice Chair
Senator Ben Stevens
Senator Fred Dyson
Senator Bert Stedman
Senator Kim Elton
MEMBERS ABSENT
Senator Albert Kookesh
COMMITTEE CALENDAR
CS FOR HOUSE BILL NO. 395(FIN)
"An Act relating to the period of the fire season; and providing
for an effective date."
MOVED CSHB 395(FIN) OUT OF COMMITTEE
CS FOR HOUSE BILL NO. 420(FSH)
"An Act relating to riparian protection standards for forest
resources and practices; and providing for an effective date."
MOVED CSHB 420(FSH) OUT OF COMMITTEE
Point Thomson Update
Confirmation Hearing - Department of Natural Resources
Commissioner: Michael Menge
CONFIRMATION ADVANCED
PREVIOUS COMMITTEE ACTION
BILL: HB 395
SHORT TITLE: FIRE SEASON DATES
SPONSOR(s): REPRESENTATIVE(s) OLSON
01/25/06 (H) READ THE FIRST TIME - REFERRALS
01/25/06 (H) RES, FIN
02/06/06 (H) RES AT 1:00 PM CAPITOL 124
02/06/06 (H) Moved Out of Committee
02/06/06 (H) MINUTE(RES)
02/08/06 (H) RES RPT 6DP 1NR
02/08/06 (H) DP: GATTO, ELKINS, LEDOUX, CRAWFORD,
OLSON, RAMRAS;
02/08/06 (H) NR: SAMUELS
02/14/06 (H) FIN AT 1:30 PM HOUSE FINANCE 519
02/14/06 (H) Heard & Held
02/14/06 (H) MINUTE(FIN)
03/02/06 (H) FIN AT 1:30 PM HOUSE FINANCE 519
03/02/06 (H) Moved CSHB 395(FIN) Out of Committee
03/02/06 (H) MINUTE(FIN)
03/06/06 (H) FIN RPT CS(FIN) NT 5DP 2NR 1AM
03/06/06 (H) DP: HAWKER, FOSTER, KELLY, MEYER,
CHENAULT;
03/06/06 (H) NR: JOULE, HOLM;
03/06/06 (H) AM: WEYHRAUCH
03/22/06 (H) TRANSMITTED TO (S)
03/22/06 (H) VERSION: CSHB 395(FIN)
03/24/06 (S) READ THE FIRST TIME - REFERRALS
03/24/06 (S) CRA, RES
04/10/06 (S) CRA AT 1:30 PM BELTZ 211
04/10/06 (S) Moved CSHB 395(FIN) Out of Committee
04/10/06 (S) MINUTE(CRA)
04/12/06 (S) CRA RPT 4DP
04/12/06 (S) DP: STEDMAN, WAGONER, STEVENS G,
KOOKESH
04/28/06 (S) RES AT 3:30 PM BUTROVICH 205
BILL: HB 420
SHORT TITLE: FOREST RESOURCES & PRACTICES STANDARDS
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
02/01/06 (H) READ THE FIRST TIME - REFERRALS
02/01/06 (H) FSH, RES
02/15/06 (H) FSH AT 8:30 AM CAPITOL 124
02/15/06 (H) Moved CSHB 420(FSH) Out of Committee
02/15/06 (H) MINUTE(FSH)
02/17/06 (H) FSH RPT CS(FSH) 5DP
02/17/06 (H) DP: HARRIS, WILSON, ELKINS, THOMAS,
LEDOUX
03/22/06 (H) RES AT 1:00 PM CAPITOL 124
03/22/06 (H) Moved CSHB 420(FSH) Out of Committee
03/22/06 (H) MINUTE(RES)
03/24/06 (H) RES RPT CS(FSH) 5DP 2NR
03/24/06 (H) DP: SEATON, ELKINS, LEDOUX, CRAWFORD,
RAMRAS;
03/24/06 (H) NR: GATTO, OLSON
04/11/06 (H) TRANSMITTED TO (S)
04/11/06 (H) VERSION: CSHB 420(FSH)
04/12/06 (S) READ THE FIRST TIME - REFERRALS
04/12/06 (S) RES, FIN
04/28/06 (S) RES AT 3:30 PM BUTROVICH 205
WITNESS REGISTER
REPRESENTATIVE CURT OLSON
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Sponsor of HB 395.
CONRAD JACKSON, Staff
Representative Curt Olson
Alaska State Capitol
Juneau, AK 99801-1182
POSITION STATEMENT: Introduced HB 395 on behalf of the sponsor.
SCOTT WALDEN, Coordinator
Office of Emergency Management
Kenai, AK
POSITION STATEMENT: Supported HB 395.
MARTY WELBOURN FREEMAN, Program Manager
Forest Resources
Division of Forestry,
Department of Natural Resources (DNR),
POSITION STATEMENT: Presented HB 420.
JAMES DURST
Office of Habitat Management & Permitting
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Supported the process and the outcome of HB
420.
BILL VANDYKE, Director
Division of Oil & Gas
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Participated in the Point Thompson update.
MIKE MENGE, Commissioner
Department of Natural Resources
400 Willoughby Ave.
Juneau, AK 99801-1724
POSITION STATEMENT: Presented Point Thompson update;
Commissioner designee - Department of Natural Resources.
ACTION NARRATIVE
CHAIR THOMAS WAGONER called the Senate Resources Standing
Committee meeting to order at 3:35:11 PM. Present at the call to
order were Senators Ben Stevens, Fred Dyson, Kim Elton and Chair
Thomas Wagoner. Senators Bert Stedman and Ralph Seekins arrived
shortly thereafter.
CSHB 395(FIN)-FIRE SEASON DATES
CHAIR THOMAS WAGONER announced HB 395 to be up for
consideration.
REPRESENTATIVE CURT OLSON, sponsor of HB 395, introduced Conrad
Jackson.
3:35:58 PM
CONRAD JACKSON, staff to Representative Curt Olson, said that HB
395 would move the start and end dates of the fire season back
one month. He explained that moving the start date back is
particularly important so that fire fighting personnel and
equipment will be in place to fight early-season fires.
More early fires are seen around the state because spruce bark
beetle infestations have resulted in increased fuel sources.
Without the proper equipment and personnel in place, these early
fires have the potential of growing and becoming much more
difficult to contain and extinguish.
3:37:09 PM
SENATOR BERT STEDMAN joined the committee.
SENATOR KIM ELTON asks if the season starts one month earlier
and ends one month earlier.
Mr. Jackson replied yes. Initially the idea was to start the
season one month earlier to deal to pre-green up fires, but that
resulted in a fiscal note that approached $1 million. Moving the
end date back one month made it possible to zero the fiscal note
so that's what was done.
CHAIR WAGONER commented that on the Kenai Peninsula the rainy
season begins in early August. By the end of August the dew
point is usually down so this wouldn't be a problem for that
area.
3:39:54 PM
SCOTT WALDEN, Coordinator, Kenai Peninsula Borough Office of
Emergency Management, stated support for the amended version of
HB 395. In the Kenai area the spring fires are of greater
concern than in the late season and it's prudent to mobilize
resources early. He noted that if a fire were to overlap past
August, there is the opportunity for supplemental help.
CHAIR WAGONER closed public testimony.
3:42:01 PM
Senator Dyson moved to report CSHB 396(FIN) from committee with
individual recommendations and zero fiscal note. No objection
was stated, and it was so ordered.
3:42:35 PM at ease 3:43:51 PM
HB 420-FOREST RESOURCES & PRACTICES STANDARDS
CHAIR WAGONER announced HB 420 to be up for consideration.
MARTY WELBOURN FREEMAN, Forest Resources Program Manager,
Division of Forestry, Department of Natural Resources (DNR),
explained that HB 420 updates the riparian management standards
in Region II in Southcentral Alaska. Specifically that is the
area along streams, particularly salmon and other high-value
fish streams. Riparian standards have already been updated for
Regions I and III so this is the last in a long process.
MS. FREEMAN said the process began with a science and technical
committee composed of fisheries biologists, forest ecologists,
soil scientists, and hydrologists that looked at relevant
information and made recommendations. The recommendations were
given to an implementation group, which was composed of
representatives of the people potentially affected including
forest land owners, the timber industry, the fishing industry,
environmental groups, and the agencies that would implement the
bill. The idea was to develop practical ways to make the
scientists' recommendations work on the ground. Those
recommendations are reflected in HB 420.
MS. FREEMAN noted that the Board of Forestry worked on and
endorses the broadly supported bill. Significant landholders in
Region II have been contacted and have expressed a comfort
level, she said.
HB 420 is specifically tailored to Region II conditions, which
are different than the other regions. In particular it has more
dynamic rivers that overlap with areas that have potential for
commercial forestry. In Region II the volume of timber is lower
than other regions, but the fishery values are high. For
instance, Region II represents just 11 percent of the land area
in the state and it has between 30 percent and 50 percent of the
recreational sport fishing.
3:47:10 PM
MS. FREEMAN related that the bill broadens the buffers on large
dynamic rivers and narrows the buffers on smaller streams. This
was a concern to the timber industry because small streams are
numerous and difficult to plan around. She described this as a
specifically tailored balance.
SENATOR BEN STEVENS recalled the rewrite for Region III and
asked if the set backs are similar.
MS. FREEMAN replied the buffers are different in each region to
accommodate specific conditions. Region II is quite different
from Region III because of the number of large rivers that
overlap with timber that has commercial potential. She said
wider buffers are needed on those stream types because the way
they recruit wood into the stream to form islands and side
channels is by eroding the banks as the channels shift. The side
channels are particularly important for fish habitat.
SENATOR BEN STEVENS asked if the percentage of wide buffers is
greater in Region II than in Region III.
MS. FREEMAN responded Region II has more large and small rivers,
but it's an overall package that is reasonable in terms of
protecting the resources and the impact that would have on
landowners.
3:49:20 PM
JAMES DURST, Office of Habitat Management (OHM), Department of
Natural Resources (DNR), Fairbanks, said DNR/OHM fully supports
the process and the outcome.
CHAIR WAGONER closed the public hearing.
SENATOR BEN STEVENS asked where he could find definitions for
the different stream and river types.
MS. FREEMAN replied the last section of the bill contains the
specific definitions for the water bodies that are specific to
Region II. Each region has its own classification system based
on the stream type, the topography, and the distribution of fish
in the particular stream.
SENATOR BEN STEVENS asked if she was referring to Section 6 on
page 8.
MS. FREEMAN said yes.
3:51:11 PM
SENATOR BERT STEDMAN moved to report CSHB 420(FSH) from
committee with individual recommendations and attached fiscal
note. No objection was stated, and it was so ordered.
3:51:49 PM at ease 3:52:45 PM
^Pt. Thomson Unit update
CHAIR WAGONER announced the next order of business was a Pt.
Thomson update. He recapped a conversation he had with
Commissioner Menge some months ago when Exxon was given an
additional six-month extension. At that time the commissioner
indicated that was the last extension Exxon was entitled to.
Noting that the process had taken years, he asked if there was
an end in sight.
MICHAEL MENGE, Commissioner Designee, Department of Natural
Resources (DNR), said next year would mark 30 years since Pt.
Thomson was unitized and it has yet to show benefit to the State
of Alaska. Describing Pt. Thompson as pivotal and integral under
the current negotiations for a gas pipeline, he said that
without that piece there would be no pipeline. The reason is
that Prudhoe Bay is still actively producing oil so the gas that
is taken from the Prudhoe Bay reservoir will be strictly
monitored to ensure that it doesn't impact oil production. As
oil production declines more gas will be taken from Prudhoe Bay,
but initially Pt. Thompson will provide much of the gas going
into the system.
3:54:54 PM
SENATOR SEEKINS arrived.
COMMISSIONER MENGE said it's time to take definitive steps to
bring this process to an end and last November he took the step
to delay execution of the faultfinding date to May 31. Doing so
did not diminish the State's authority either to compel
development of the resource or to take the leases back.
He presented four possibilities open to Exxon relating to the
upcoming deadline.
1. Ask for another extension.
2. Provide an acceptable plan of development.
3. Appeal the director's decision.
4. Do nothing.
COMMISSIONER MENGE outlined four possibilities that are open to
the Department of Natural Resources.
1. Take the draconian step of ordering the unit into
production.
2. Find the unit in default and initiate dissolution
procedures on the unit.
3. Order the currently held leases with certified wells into
production.
4. Provide another extension.
COMMISSIONER MENGE said although he has the authority to order
the leases into production, doing so would be a very challenging
step for him to take, but in any event he would not barter away
the State's tremendous leverage.
COMMISSIONER MENGE said that each of the options at his disposal
comes with a definable series of reactions that would benefit or
hinder the State's effort to commercialize North Slope gas.
These critical issues must and will be resolved to benefit the
people of the State of Alaska, he vowed.
4:01:05 PM
CHAIR WAGONER questioned how much longer Exxon would be allowed
to delay drilling exploration wells because without them it is
difficult to know what kind of plan-to-develop to enter into.
COMMISSIONER MENGE agreed and described the gas reserves in
terms of a pie. Two thirds of the reserves have been proven and
the existence of the final third will be proven or not proven
based on the additional drilling. The gas that is proven by
virtue of the certified wells and the additional drilling
defined the 9 Tcf of gas. That 9 Tcf of gas coupled with Prudhoe
Bay will be used in the negotiations for a gas pipeline
contract.
CHAIR WAGONER asked how much oil Point Thompson has.
BILL VANDYKE, Director, Division of Oil & Gas, Department of
Natural Resources (DNR), answered gas condensate is probably the
bulk of the liquid that will come out of Point Thompson, but the
limited data available indicates a fairly viscous oil leg under
parts of the unit. In all likelihood, he said, the gas liquids
amount to a couple hundred million barrels.
CHAIR WAGONER asked if 17 percent or 18 percent of the
production is liquid.
MR. VANDYKE replied the liquid content is similar to Prudhoe Bay
gas.
4:04:24 PM
CHAIR WAGONER questioned whether Exxon would ask for another
extension.
COMMISSIONER MENGE replied based on legislative proceedings in
the next several weeks it would be reasonable to assume they
would.
CHAIR WAGONER asked if they would request a change in the lease.
COMMISSIONER MENGE said he wasn't aware of any changes. He
elaborated that Point Thompson is a very high-pressured
reservoir and a liquids only production would be a costly
operation. He noted that given that Exxon is in default the
State is at a significant advantage. Everyone, including Exxon,
recognizes the leverage the State has and given the performance
of the courts on unit lease issues, the State is in a pretty
good position.
4:06:26 PM
SENATOR RALPH SEEKINS asked what benefit Alaskans would receive
in granting another extension.
COMMISSIONER MENGE replied it might give the legislature time to
contemplate the gas contract.
SENATOR SEEKINS asked how long it would take to develop Point
Thompson.
COMMISSIONER MENGE replied the gas would be developed contiguous
with the gas into the system, which is eight years or so.
SENATOR SEEKINS said with that in mind, how long would the
extension be.
COMMISSIONER MENGE responded he could defend granting an
extension until the legislature was finished with its
considerations. Beyond that there is no reason to extend the
current 30-year process, he said.
SENATOR SEEKINS cited constituent concerns related to a gas
pipeline contract without a date-certain construction or
delivery agreement. People are getting tired of the foot-
dragging, he said.
CHAIR WAGONER agreed that people are getting impatient and
that's why he asked for the update.
4:10:38 PM
SENATOR KIM ELTON cited page 9 of the October 27, 2005 amended
decision that says DNR won't accept Exxon's proposal to amend
the expansion agreement by tying it to the Stranded Gas
Development Act. He asked if DNR's plans have changed and
whether any of the previously mentioned possibilities for Exxon
or the State have become part of the discussion on the Stranded
Gas Development Act.
COMMISSIONER MENGE replied Point Thompson is an integral part of
the North Slope commercialization project and on May 10 he hopes
to be able to elaborate.
SENATOR ELTON asked him to outline what led him to change the
department's direction since July 27, 2005 when he said he
wouldn't accept Exxon's proposal to negotiate these things under
the Stranded Gas Development Act.
COMMISSIONER MENGE said he would defer to Mr. Vandyke to review
the chronology and then he would explain the actions he took.
MR. VANDYKE said it's fair to say that Pt. Thomson has always
been in the forefront of the gas line negotiations. When the
unit operator asked to tie Point Thompson development or
drilling commitments to the gas line negotiations, DNR did not
believe that was the way to go. The people in charge a year ago
wanted those authorities to remain independent and separate from
any Point Thompson commitments and that's what was done at the
time. As yet there has been no deviation from that position, he
said.
4:15:46 PM
COMMISSIONER MENGE clarified that is a director's decision and
if it were appealed it would be appealed to him, as
commissioner. He would then make a decision and the will of the
legislature and the governor would help him shape that decision.
4:16:24 PM
SENATOR ELTON said he suspects that foot-dragging may be
beneficial for the unit operator if the PPT passes in close to
its present form - particularly with regard to the credits. He
questioned whether that is correct. If so, he asked the extent
of the financial benefit to the unit operator.
COMMISSIONER MENGE replied his role is to preserve the State's
options and not undercut the quality of the legislature's
deliberations. He opined it is probably in the State's best
interest to let the 30-year long process drag on for weeks or
months longer, but not years. The answer, he said, depends on
the final actions the legislature takes and the governor takes.
SENATOR ELTON said assuming that the governor's 20/20 bill
passes, what financial benefits would the operator have accrued
by dragging its feet.
COMMISSIONER MENGE said he wasn't trying to duck the question,
but he really couldn't answer because the 20/20 and the contract
are still soft on that issue.
SENATOR BEN STEVENS remarked the easy answer is that they have
benefited by the fact that the price of oil has risen to $70 per
barrel and the state didn't do that.
SENATOR ELTON said true, but there are wells that should have
been drilled that haven't been and he believes Exxon would
receive a credit.
SENATOR BEN STEVENS cited page 22 of the findings and asked for
an explanation for why the owners and operators stated that the
gas cycling project wasn't commercially viable.
COMMISSIONER MENGE replied because the reservoir is very high
pressured and so a great deal of gas energy and hardware will be
needed to bring the gas up, strip the liquids out, and put the
gas back down in the well. That coupled with the need for a
pipeline and the unknown risk factors lead Exxon and perhaps BP
to say it is not economic. DNR may have a different view, but
the economics do hinge on a balance and even the State's
economists differ as to the economic viability of the Point
Thompson liquids.
4:22:40 PM
SENATOR BEN STEVENS asked if the claim that the gas cycling
project would not be commercially viable relates to the expense
of recycling the extremely high-pressure gas.
COMMISSIONER MENGE said he believes that is the BP and Exxon
position. Ultimately, the economic benefit is defined by adding
total costs versus the price of the product that is taken to
market.
SENATOR BEN STEVENS noted that 18 wells have been drilled in and
around the unit. He asked if there are accurate estimates for
the Point Thompson reserve at this time.
MR. VANDYKE explained there is an unknown area in the northwest
part of the unit, but the core of the gas pool is well
delineated. There are two pods of gas, but the extent to which
they are connected is an unknown.
4:25:05 PM
SENATOR BEN STEVENS asked if the unit is accurately delineated
for oil production.
MR. VANDYKE responded it is likely that 50,000 to 70,000 barrels
of marketable liquid could be produced per day and then 1 Bcf to
2 Bcf of gas would be reinjected into the ground.
SENATOR BEN STEVENS again asked whether Point Thompson is
delineated enough to produce an economic oil field.
COMMISSIONER MENGE restated the question and asked Mr. Vandyke
what the volume of liquids is in the area that is known to
exist.
MR. VANDYKE answered it's in the range of 8 Tcf or 9 Tcf of gas
and 2 Mcf or 3 Mcf of liquids would be produced. The oil
production would not be significant if the effort was to only
produce the oil leg because the gas must be cycled to get the
bulk of the liquids.
SENATOR BEN STEVENS said he understands that, but he doesn't
know enough to agree or disagree with the statement that a gas
cycling project at Point Thompson is not commercially viable. He
too is frustrated by the delay, but if Exxon is forced to a duty
to produce the production has to be within the current
infrastructure because there's nowhere to go with the dry gas.
CHAIR WAGONER pointed out that the document was written before
PPT and that will have a large bearing on the economics once
they get the credits.
4:30:04 PM
SENATOR BEN STEVENS said even if PPT passes with an incentive
for development, he wouldn't think there would be production
from that area until there's an outlet for the high-pressure dry
gas.
SENATOR ELTON directed attention to page 2 of the amended
decision, which says Point Thompson is commercial and can be
produced without a gas pipeline. As Senator Stevens pointed out,
on page 22 the owners disagree with that decision. That point is
the nut that has elicited argument for the last 2 or 3 decades,
he said.
SENATOR BEN STEVENS commented, the owners did not write page 22;
it was part of the decision so the question remains.
SENATOR SEEKINS said he was seeking assurance from DNR that the
delay is not because the leaseholder is waiting for the optimum
time to develop the product.
COMMISSIONER MENGE pledged that the State's best interest is the
driving force behind his decisions.
4:34:06 PM
CHAIR WAGONER read a portion of a July 27, 2005 letter from
former Director Meyers to Richard Owens that stated the punitive
action the State would take if Exxon modified the 22nd plan-of-
development, but failed to drill by June 15, 2006. What punitive
action would the State take to force the unit owner to do what
should have been done 15 years ago, he asked.
COMMISSIONER MENGE said the director's decision holds the unit
owner in default and if Exxon appeals that decision to me, "we
will do the analysis and will come down with a final
administrative action in that regard." Exxon has the right to
appeal the commissioner's decision to the courts, but the State
generally wins those decisions.
CHAIR WAGONER closed the hearing on Point Thompson.
^Confirmation Hearing
^Michael Menge, Commissioner, Department of Natural Resources
4:36:31 PM
CHAIR WAGONER announced the committee would take up the
confirmation hearing for Michael Menge as commissioner of the
Department of Natural Resources.
MICHAEL MENGE, Commissioner designee, Department of Natural
Resources (DNR) highlighted his 30-year state and federal career
and pledged to always give honest opinions and forthright
suggestions. We may not always agree, he said, but our common
interest is the people we serve.
4:39:21 PM
SENATOR DYSON moved to advance the name of Michael Menge as
commissioner of the Department of Natural Resources for
consideration by the full legislature. He noted that agreeing to
advance the confirmation does not indicate an intention to vote
either for or against the appointee. No objection was stated,
and the confirmation was advanced.
There being no further business to come before the committee,
Chair Wagoner adjourned the meeting at 4:39:57 PM.
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