Legislature(1995 - 1996)

05/07/1995 01:37 PM RES

Audio Topic
* first hearing in first committee of referral
+ 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                                                         
 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               
 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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