Legislature(2021 - 2022)BARNES 124
04/27/2022 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB349 | |
| HB171 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | HB 349 | TELECONFERENCED | |
| += | HB 171 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 349-HEARING ESTABLISH DRILLING UNITS/SPACING
1:07:14 PM
CHAIR PATKOTAK announced that the first order of business would
be HOUSE BILL NO. 349, "An Act relating to the establishment of
oil and gas drilling units and patterns." [Before the committee
was CSHB 349(CRA).]
1:07:43 PM
REPRESENTATIVE RAUSCHER, as prime sponsor, explained that the
proposed legislation was written because the way oil is searched
for and produced in the Twenty-First Century has changed since
the 1950s and 1960s when policymakers were worried that drilling
vertical wells too tightly together would leave oil in the
ground that could no longer be recovered. Today no one is
spending millions of dollars to drill unnecessary wells in
Alaska, he said, and advancements in drilling technology now
allow wells to be directionally drilled underground, sometimes
with multiple lateral wells from a single mother bore or parent
well. Holes can be a few thousand feet deep, yet tens of
thousands of feet long to recover greater amounts of oil and
gas, he advised.
REPRESENTATIVE RAUSCHER said Alaska's statutes are outdated
because they have not kept up with these advancements in the oil
and gas industry. The statutes being amended in [CSHB
349(CRA)], he related, were originally designed to provide
oversight by involving another step to provide assurance that
perforations in the ground would not be too close, jeopardizing
the structural integrity of the field or zone. This extra
oversight is no longer necessary, he stated, and it slows down
development and costs the state time and money. He said [CSHB
349(CRA)] would eliminate needless regulatory red tape given
that drilling and production processes have fundamentally
changed since the statute was written.
1:11:02 PM
RYAN MCKEE, Staff, Representative George Rauscher, Alaska State
Legislature, on behalf of Representative Rauscher, prime
sponsor, presented the sectional analysis for HB 349 [the
original bill version included in the committee packet, rather
than for CSHB 349(CRA), which was the official version before
the committee]. The sectional analysis read as follows
[original punctuation provided]:
Section 1: AS 31.05.100(a)
This section amends section 1-part a, starting on page
1 line 6 and 7. This would remove the hearing
requirement before the commission can establish the
drilling unit or units for each pool.
Section 2: AS 31.05.100(b)
This section amends section 2-part b, starting with
page 1 lines 14 and 15. This removes the notice and
hearing requirement exceptions to the rules and
spacing pattern. Meaning that the need for proof of
public notice of a hearing would no longer be needed.
The remaining changes on page 2 lines 3,4,5, and 8 is
legal language that was needed to update the bill to
reflect the changes made above.
1:12:22 PM
JEREMY PRICE, Commissioner, Public Member Seat, Alaska Oil and
Gas Conservation Commission (AOGCC), Department of Commerce,
Community, and Economic Development (DCCED), testified in
support of [CSHB 349(CRA)]. He stated that the purpose of the
proposed legislation is to reduce administrative barriers. He
specified that the AOGCC is tasked under AS 31.05.100(a-b) with
holding hearings for any changes to oil and gas pool unit
designations, rules, or spacing patterns, even if all relevant
properties within a given pool belong to a single owner. He
said this requirement for hearings in every instance causes
unnecessary delay to pool owners and generates unnecessary cost
for the state, as the AOGCC must engage in the protracted
process of issuing notice and holding hearings before taking
action. He advised that the bill would update the process,
reduce unnecessary delays to pool owners, and save the state
time and money that would otherwise be spent on superfluous
notice and hearing requirements.
MR. PRICE explained that when an explorer discovers oil or gas
the existing statute requires the AOGCC to hold a hearing on the
spacing of wells that will be drilled within the same pool and
establish a drilling unit or units for that pool; the default
drilling unit size is a governmental quarter section for oil.
He stated Section 1 of the bill would amend AS 31.05.100(a) to
remove the requirement to hold the hearing and the requirement
to establish a drilling unit. This change is necessary, he
said, because the current concept of establishing drilling units
as boxes on a map within which only one vertical well can be
drilled is completely outdated with horizontal drilling. He
stated Section 2 of the bill would amend AS 31.05.100(b) to make
it discretionary rather than mandatory for AOGCC to issue notice
and hold a hearing in each instance when exception is granted to
the rules or spacing patterns prescribed to a particular pool.
With this change, he said, AOGCC could allow the operator to
drill additional wells within the same pool without having to go
through 30 days of notice and comment followed by the issuance
of a conservation order. From 2016-2020, Mr. Price continued,
AOGCC public noticed 47 hearings on non-controversial well
spacing exceptions that no member of the public requested nor
submitted testimony.
MR. PRICE described how the proposed statutory change might
impact the AOGCC regulations. He drew attention to materials in
the committee packet and stated that the portion of language in
20 AAC 25.055(a)(1-2) regarding the creation of drilling units
would no longer be required, and that in 20 AAC 25.055(a)(3-4)
the default drilling unit size of governmental section and
quarter section would be repealed and the spacing restriction
between wells producing from the same pool would also be
repealed. However, he continued, the regulation on spacing
restriction of wells drilled close to property lines would
remain to protect the rights of owners of the resource.
1:16:05 PM
JESSIE CHMIELOWSKI, Commissioner, Engineering Seat, Alaska Oil
and Gas Conservation Commission (AOGCC), Department of Commerce,
Community, and Economic Development (DCCED), provided
information about [CSHB 349(CRA)] and a PowerPoint presentation
with examples of AOGCC well spacing exceptions. She explained
that the bill would modify a statute that has not been changed
since it was first adopted in 1955. She said the bill, if
approved, would not impact the AOGCC's ability to fulfill its
mission and would allow the AOGCC to be more efficient. She
pointed out that while the title of the bill refers to drilling
units, the proposed language modification has to do with inter-
well spacing exceptions - how far one well must be from another
in the subsurface within the targeted productive reservoir.
MS. CHMIELOWSKI related that in when the statute was written in
the 1950s, oil and gas fields were commonly developed with
vertical wells and at times operators would drill wells too
close together, resulting in waste or reduction of recoverable
hydrocarbons. She drew attention to a photo in the committee
packet of Spindletop, a first-come-first-served approach. There
were no controls on the developments then, she recounted, and
too many wells were drilled too close together, causing the
reservoir pressure to drop rapidly, resulting in stranded
reserves or waste. After the conservation act of the 1930s, Ms.
Chmielowski continued, agencies like the AOGCC were formed in
states across the U.S. to prevent the waste hydrocarbon
resources. One way to prevent waste was to set default drilling
units, she said, and in Alaska the default drilling units are
one governmental section for gas wells and one governmental
quarter section for oil wells. Only one well is allowed per
default drilling unit, she specified, unless the AOGCC grants a
spacing exception, which requires a hearing. The purpose of
establishing default drilling units and requiring the AOGCC to
hold hearings for spacing exceptions, she stated, was to prevent
waste of the resource or, alternatively, to encourage greater
ultimate recovery of the resource.
MS. CHMIELOWSKI discussed why allowing wells to be drilled
closer than the default spacing encourages greater ultimate
recovery. She explained that today's modern technology wells
are drilled based on geology and reservoir characteristics, so
default drilling units based on governmental sections are out of
date. It is common for wells to be planned and drilled closer
than the default spacing, she continued. For example, she said,
when Prudhoe Bay was started 44 years ago the estimated
recoverable reserves were nine billion barrels of oil, but today
with advancements in drilling and reservoir management the
estimated recoverable reserves are about 14 billion barrels of
oil. The updating to current best practices is to the benefit
of Alaska, she stated.
1:19:27 PM
MS. CHMIELOWSKI turned to four PowerPoint slides [hard copy
included in the committee packet] and reviewed two recent
examples of inter-well spacing exceptions, one in Cook Inlet and
one on the North Slope. She displayed slide 2, "AOGCC Well
Spacing Exception Example: BlueCrest," and said BlueCrest Energy
operates the Cosmopolitan Unit on the Kenai Peninsula. She
explained that the grid pattern across the map delineates the
governmental sections and the green lines extending from the
onshore pad depict where the wells extend within the subsurface
to the oil and gas reservoir under Cook Inlet. She further
explained that each green line is a well bore and each dot on
each green line depicts where a fishbone lateral comes off the
parent mother bore. She moved to slide 1, "AOGCC Well Spacing
Exception Example: BlueCrest," and said the diagram depicts the
side view of one of the fishbone wells drilled in the
Cosmopolitan Unit. The well begins at the right and drills left
across into the reservoir, with the total depth of the well
depicted at the left, she explained. The drilling rig is then
retracted to come back up hole, and then a bunch of laterals are
drilled upward, thereby cross sectioning the reservoir from
bottom to top. The spacing in between the individual fishbone
laterals in a single well is about 800 feet, which results in a
need for seven or more spacing exceptions per well because each
of the fishbone laterals required an inter-well spacing
exception, Ms. Chmielowski advised. BlueCrest tried several
ways to develop this field, she added, and found this to be the
best way to recover the most reserves. So, she added, modern
well designs like this are used to optimize and improve the
ultimate recovery.
MS. CHMIELOWSKI moved to the second example. She displayed
slide 3, "AOGCC Well Spacing Exception Example: ConocoPhillips,"
and noted the map depicts ConocoPhillips' planned developments
in the Rendezvous Oil Pool, which is part of the Greater Mooses
Tooth Unit in the National Petroleum Reserve-Alaska (NPR-A) on
the North Slope. She drew attention to the governmental
sections overlain on the map and the purple line delineating the
reservoir boundary and said the orange lines within the boundary
are the proposed well developments. She stated that the plan is
to drill a bunch of wells in a diagonal pattern from the drill
pad, marked MT 7, in the pattern depicted on the map. In this
case the wells are being angled diagonally, Ms. Chmielowski
explained, because as the company develops these fields it is
accounting for the reservoir characteristics like permeability
and porosity and positioning the wells to get the best
production out of the field. She noted that rock can have
different properties in different directions depending on how it
was deposited.
1:23:52 PM
REPRESENTATIVE FIELDS inquired about the difference between
permeability and porosity.
MS. CHMIELOWSKI replied that porosity is how many air gaps are
in the rock and permeability is how easily something can flow
through it. She specified that something could have a lot of
porosity in that it has a lot of air spaces, but the air spaces
are not connected to each other, which would be permeability.
1:24:20 PM
CHAIR PATKOTAK asked whether the orange well plan lines are the
extent of the reach of the lateral drilling from the well pad.
He further asked how far that reach is.
MS. CHMIELOWSKI replied that several thousand feet is deceptive.
She displayed slide 4, "AOGCC Well Spacing Exception Example:
ConocoPhillips," and said it is where they can reach reasonably
well with the rate from that location. The closeup of the wells
on slide 4, she stated, shows how all the wells originate at
that drill site and come out in different directions, but they
all are parallel. She said ConocoPhillips has this parallel
well design in several of its fields there are alternating
injectors and producers such that the injectors along the length
of the lateral push the oil towards the producers, which gets
good sweep and recovery. While the rigs could probably drill
farther, Ms. Chmielowski added, this is what the company thought
was optimal design. She displayed slide 3 and noted that the
entire pool is not being developed, only the section considered
the sweet spot of the reservoir oil pool is being developed.
1:25:36 PM
MS. CHMIELOWSKI resumed her presentation. She pointed out that
in these two examples each of the wells crosses multiple
governmental sections and there are multiple wells per
governmental section. She advised that every well would require
spacing exception, which is unnecessary to protect correlative
rights or prevent waste. This development, she further advised,
will yield a greater recovery than the conventional vertical or
slant well development with the default minimum spacing rules.
She stated that the technical review of drilling permits by
AOGCC engineers and geologists is robust and would not change
under [CSHB 349(CRA)]. With the passage of this bill, she
added, the AOGCC will continue to fulfill its mission to prevent
the waste of Alaska's valuable hydrocarbon resources.
1:26:30 PM
MS. CHMIELOWSKI next addressed two topics brought up in [the
House Community and Regional Affairs Standing Committee]. The
first topic, she related, is that the AOGCC also oversees
spacing exceptions dealing with how close a well can be drilled
to a lease boundary where the ownership is not the same on both
sides. For this, she specified, the AOGCC requires a minimum
distance of 1,500 feet for an oil well and 3,000 feet for a gas
well; the purpose being to protect correlative rights, which are
the rights of an owner of a resource to recover his or her share
of that resource. The spacing exception requirement to protect
correlative rights is not affected by [CSHB 349(CRA)], she
advised, the AOGCC would still be required to notice hearings
for any spacing exception of this type.
MS. CHMIELOWSKI then addressed the second topic, the question of
whether a spacing exception would have prevented the [3/4/22]
gas leak from the Alpine CD1 drill site. She said the answer to
that question is no, it would not have prevented the gas leak.
She stated that inter-well spacing exceptions like the ones
discussed in [CSHB 349(CRA)] address how far one well must be
from another in the subsurface, and not just anywhere below the
surface, but in the targeted productive reservoir. Regarding
the CD1 leak, she said the well being drilled targeted a deep
reservoir zone, and on its way, it drilled through a sand known
as Halo. Many wells have drilled through the Halo sand with no
issues, she stated, and because it was not considered a
productive hydrocarbon zone, cement was not placed across it
during that stage of the well completion. In this case the Halo
sand was unexpectedly productive and did start producing gas,
she explained. The gas migrated up the well and into the thaw
bulb, the area directly below the drill site where heat from
production in injection wells thaws out an area of the
permafrost. Once the gas migrated into this thaw area, Ms.
Chmielowski continued, it came to surface in various locations
via the path of least resistance. She advised that the source
of the gas has been identified and is in the process of being
cemented and isolated. She specified that the CD1 well would
not have required a spacing exception for the Halo sand because
it was not the targeted productive reservoir.
1:29:35 PM
REPRESENTATIVE HOPKINS, relative to keeping 1,500 away from the
boundary between different lease owners, asked whether the
boundary would be the curvy purple line depicted on the map on
slide 3 [or the squared line].
MS. CHMIELOWSKI replied that it would be to the lease boundary,
which is the squared-off boundary depicted on the map. She
stated that ConocoPhillips acquired leases to match the pool
boundary [curvy purple line] but the correlative rights issue
applies to the lease boundary, not the pool boundary. She noted
that all these wells are offset from both the lease boundary and
the pool boundary because the company doesn't want to drill
right up to the edge of the pool.
REPRESENTATIVE HOPKINS asked whether there would be 1,500 feet
between the right-angled lines and the pool boundary plus
another 1,500 feet between the pool boundary and the lease
boundary.
MS. CHMIELOWSKI responded that AOGCC statutes for minimum stand-
off relate only to the lease boundary line, which is the
squared-off boundary [on slide 3]. In this case, she continued,
the operator decided to stay within the pool boundary, which is
an additional offset that AOGCC doesn't require.
REPRESENTATIVE HOPKINS observed the gridlines on the map and
inquired about the mileage dimension of those gridlines.
MS. CHMIELOWSKI answered that a governmental section is 640
acres. She stated that these governmental sections are going to
be even smaller than what is being seen as outlines on the map.
1:32:38 PM
REPRESENTATIVE HANNAN inquired about the frequency of inter-well
spacing exemptions on North Slope leases versus Cook Inlet
leases.
MS. CHMIELOWSKI replied that between BlueCrest Energy and
ConocoPhillips, AOGCC most often gets requests for inter-well
spacing exceptions in the Cook Inlet. A main reason, she
explained, is the North Slope's remote location and high-cost
environment, so operators tend to fully plan their developments
before starting to drill their wells. For example, she said,
all the wells for the ConocoPhillips Rendezvous oil pool were
pre-planned and brought to the AOGCC before any drilling was
started. The operator comes to the AOGCC for pool rules - the
set of guidelines for how best to manage the field - and in a
pool rules application the AOGCC always writes a rule that the
inter-well spacing requirement is no longer needed within the
reservoir. Whereas on the Cook Inlet, Ms. Chmielowski
continued, the AOGCC gets a lot more exploration wells, smaller
pools, and smaller developments, and operators tend to drill
their wells one at a time rather than having a full plan of
development from day one.
1:34:54 PM
CHAIR PATKOTAK stated he is on board with ensuring there isn't
too much bureaucracy in the process, but that he also believes
checks and balances must be kept intact to ensure the public is
involved. He asked whether those checks and balances would be
skirted if [CSHB 349(CRA)] becomes law.
MR. PRICE responded that hearings on spacing exceptions are very
narrow, very targeted, very technical, and specifically focused
on this information. During the years he has been involved, he
related, the AOGCC has received very few questions, although on
occasion a homeowner has raised concern about noise. However,
he continued, noise is completely outside the scope of AOGCC's
authority and outside the scope of the hearing, so there is
nothing the AOGCC can do about that concern. Those issues, he
said, are raised during the extensive public process undergone
by the Department of Natural Resources (DNR) long before a
permit to drill is submitted to the AOGCC. He assured the
committee that the public process would not be skirted by
passing the proposed legislation.
1:36:58 PM
GRAHAM SMITH, Petroleum Land Manager, Division of Oil and Gas
(DOG), Department of Natural Resources (DNR), verified Mr.
Price's response. He stated that the public processes within
DNR are many and robust, and passage of [CSHB 349(CRA)] would
not affect those. He cited Article VIII, Section 10, [Alaska
State Constitution], which states, "No disposals or leases of
state lands, or interests therein, shall be made without prior
public notice and other safeguards of the public interest as may
be prescribed by law." He said this goes from the best interest
finding prior to a lease sale all the way until termination of
the lease of a unit with multiple public processes in the
middle. In addition to the constitutional obligation, Mr. Smith
continued, DNR does a lot of public notices because there is
text for an obligation to conduct public notices at various
stages and there is case law which dictates that each phase of
development has its own public process. He said DNR does not
have an official position on the proposed legislation, but that
the bill would not affect any of those processes.
1:38:21 PM
CHAIR PATKOTAK asked whether [CSHB 349(CRA)] would affect the
permitting authority of any municipality where these well
spacing exceptions may be permitted on the North Slope or in
Cook Inlet.
MR. PRICE answered that there would be no impact from the
proposed legislation on that issue.
1:39:09 PM
CHAIR PATKOTAK opened public testimony on CSHB 349(CRA), then
closed it after ascertaining that no one wished to testify.
1:39:40 PM
CHAIR PATKOTAK announced that CSHB 349(CRA) was held over.