Legislature(1995 - 1996)
05/07/1995 01:37 PM RES
* first hearing in first committee of referral
= bill was previously heard/scheduled
= 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.