Legislature(2021 - 2022)SENATE FINANCE 532
02/01/2022 01:00 PM Senate FINANCE
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| Audio | Topic |
|---|---|
| Start | |
| SB72 | |
| SB62 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 72 | TELECONFERENCED | |
| + | SB 62 | TELECONFERENCED | |
| + | TELECONFERENCED |
SENATE BILL NO. 62
"An Act relating to surface use restrictions for oil
and gas leases; relating to gas leases in Kachemak
Bay; relating to the renewable energy grant fund; and
providing for an effective date."
1:45:36 PM
AARON O'QUINN, PETROLEUM LAND MANAGER, DIVISION OF OIL AND
GAS, JUNEAU, discussed the presentation, "SB 62 Gas Leases,
Renewable Energy Grant Fund; Senate Finance Committee"
(copy on file). He discussed slide 2, "Main Purpose":
? Allow the Division of Oil and Gas (DOG) to lease and
capture revenue from State-owned resources underlying
lands restricted to surface use.
? Would only allow for drilling and development
from nearby unrestricted land.
? Would not grant any right to use the restricted
surface of the leased land.
? Increased revenue: Lands with surface-use
restrictions can still provide revenue in the form of
lease sale bids, annual rental payments, and royalties
if made available for subsurface-only development.
? Modern drilling technology enables oil and gas
to be developed from adjacent lands with no
impact to the surface of subject land, even
offshore.
? The State will benefit from the ability to
capture revenue through development of State
resources with no impact to the surface of
protected lands using established regulatory
methods.
Mr. O'Quinn pointed to slide 3, "What Happens if we can't
Lease":
? Leasing is the standard mechanism for establishing a
contractual relationship between the resource owner
(the State) and the developer.
? Main concern: Mechanism for collecting royalties
? If unleased land is drained from wells on adjacent
leases, royalties may not be paid to the State or that
revenue could be diminished.
? May require seeking remedy through the Alaska Oil
and Gas Conservation Commission (AOGCC), a separate
state agency.
? The Division of Oil and Gas can't exercise all its
regulatory authority over unleased acreage.
? The lease is the primary mechanism for requiring
compliance with mitigation measures, sharing of
drilling and reservoir data, etc.
1:50:19 PM
AT EASE
1:50:53 PM
RECONVENED
1:51:00 PM
Senator Wielechowski queried the estimated revenues in
Kachemak Bay.
Mr. O'Quinn replied that there was not a current estimate
because the land was unexplored, so therefore the revenue
expectation was unknown.
Senator Wielechowski wondered whether any companies had
adjacent leases who could stand to benefit from the policy.
Mr. O'Quinn replied that companies had leases in the area,
and stated that the land would go through an annual lease
sale process.
Senator Wielechowski wondered about instances where
adjacent leaseholders on nonstate land were extracting oil
and gas from the area.
Mr. O'Quinn replied with slide 5, "The Subject Area." The
slide outlined the exact details of the land.
Co-Chair Stedman asked for a detail of why the land had not
been leased in the past, and also information about
directional drilling.
Mr. O'Quinn replied with reasons that the area had not been
leased in the past, which were mostly related to statute.
1:59:16 PM
Mr. O'Quinn pointed to slide 4, "Correlative Rights":
? Rule of Capture Doctrine extract oil and gas from
a parcel without regard for adjacent parcels.
? Correlative Rights Doctrine a limit on the rule of
capture each owner of a common oil and gas pool is
allowed their fair share.
? DOG can protect its share in two ways:
? Unit/Participating Area through DOG Unit
Process (unavailable to UNLEASED land)
? Establish Unit via AOGCC requires public
hearing, AOGCC may compel the pooling of
interests (AS 31.05.100).
? Compulsory Unit via AOGCC is not common and results
in a costly administrative process to pool Kachemak
Bay acreage.
? AOGCC further implements the correlative rights
doctrine through the statutes/regs that govern well
spacings, production rates, injection rates, and other
technical aspects of the drilling process
Co-Chair Stedman asked about the potential offset in the
royalty collection.
Mr. O'Quinn stated that the statutes stated that leases
could be offered in multiple ways.
2:06:33 PM
HALEY PAINE, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS,
ANCHORAGE (via teleconference), offered more information
about Cook Inlet and Kachemak Bay. She shared that there
were studies about market potential in the area.
2:08:06 PM
DAN SEAMOUNT, COMMISSIONER, ALASKA OIL AND GAS CONSERVATION
COMMISSION, ANCHORAGE (via teleconference), gave a brief
history of oil and gas exploration in the state. He
remarked that there had not been a report of freshwater
contamination from oil and gas exploration in over 60
years. He explained the details of the well within the
Kachemak Bay.
Co-Chair Stedman asked whether enhancement of directional
drilling was a reach in the industry and whether the
Mr. Seamount said that they would drill three miles back
from shore to the proposed resource area. The drilling was
so accurate, like amazingly accurate.
Senator Wielechowski surmised that the likelihood of oil
and gas getting into Kachemak Bay was zero.
Mr. Dan Seamount agreed and stated that he would bet his
career on it.
2:16:00 PM
Mr. O'Quinn spoke to Slide 5, which showed a map of the
subject area. He said that the area was being developed for
discreet locations without surface impact.
Senator Wielechowski understood that if the bill passed it
would not allow for seismic activity or exploration.
Me. O'Quinn replied in the affirmative - the status quo of
the restrictions that were already in place would stand.
2:21:21 PM
Senator Wielechowski questioned the extreme depths. He
asked about a depth provision.
Mr. O'Quinn deferred to the experts on the matter.
2:22:51 PM
HALEY PAINE, DEPUTY DIRECTOR, DIVISION OF OIL AND GAS,
ANCHORAGE (via teleconference), thought that Commissioner
Seamount would be best to speak to the depth limits.
Commissioner Seamount spoke of 2200 feet constraints due to
the mechanics of the drilling well. He believed that there
were constraints in place simply through well mechanics. He
thought that there was a
Co-Chair Stedman hoped to hear from the Department of
Revenue on offsets or surprises in the structure. He also
hoped for an update on the basin itself. He thought that
Cook Inlet might have been overstimulated in the past.
2:26:32 PM
Senator Wielechowski agreed with Co-Chair Stedman. He
wanted an update on the basin. He asked whether fracking
would be allowed under the bill.
Mr. O'Quinn deferred to AOGCC.
Commissioner Seamount believed that the dangers of fracking
were overblown, and he had never seen issue with fracking.
He stressed that the issue was about not injecting
correctly.
Co-Chair Stedman asked how long fracking had been a
practice in Alaska.
Commissioner Seamount asserted that fracking had been
around for decades and had never been a problem with the 25
percent of the production wells that used fracking.
Mr. O'Quinn pointed to slide 6, "Section 1":
? Amends AS 38.05 to add a new section, AS 38.05.176.
? Specifies that a statute restricting the surface use
of an oil and gas or gas only lease area does not also
restrict leasing and development of the subsurface of
that area from unrestricted land.
? The purpose is to address future surface-use
restrictions that may be imposed on the State's
natural resources.
Senator Wielechowski queried the other areas with surface
use restrictions.
Mr. O'Quinn deferred to Mr. Clifton
2:31:11 PM
SEAN CLIFTON, POLICY AND PROGRAM SPECIALIST, DEPARTMENT OF
NATURAL RESOURCES, DIVISION OF OIL AND GAS, ANCHORAGE (via
teleconference), stated that there were no statutorily
designated areas with the types of restrictions in the
bill.
Co-Chair Bishop surmised that the bill would not be a total
fix to the statute, but stressed that it was specific to
Kachemak Bay.
Mr. Clifton replied that the purpose of the section was to
be an outline of future similar locations.
Senator Wielechowski felt that the section was extremely
broad.
Mr. Clifton disagreed, because there needed to be an
authorized area through multiple regulations.
2:35:29 PM
Mr. O'Quinn discussed slide 7, "Sections 2 and 3":
? Amends AS 38.04.184 by adding a new subsection (h)
? Authorized DNR to offer gas-only leases in an area
adjacent to Kachemak Bay within
Township 5 South, Range 15 West, Seward Meridian,
Alaska (see map).
? No right to use the surface of the land would be
authorized, honoring the spirit of the earlier law
prohibiting leasing in Kachemak Bay.
? Amends AS 38.03.184(b)
? Acknowledges the exemption created by the new
subsection (h) of this bill.
Co-Chair Bishop queried the number of public hearings in
the process.
Mr. O'Quinn replied that there was a preliminary best
interest finding which accounted for scientific records and
research released to the public, and solicited written
feedback. There would then be an informational meeting on
the best interest findings. He stressed that there would be
a robust public process.
Co-Chair Bishop wondered whether a public hearing would
occur if needed.
Mr. O'Quinn assumed so.
Co-Chair Bishop felt that public hearings may drive more
mitigation measures for the operator.
Mr. OQuinn agreed.
2:41:26 PM
Senator Olson wondered whether Native corporation interests
had contributed to the bill.
Mr. O'Quinn replied that Cook Inlet Region Inc. (CIRI) was
the subsurface shareholder, and had worked closely with the
department. He did not know the details of their specific
input on the bill.
Senator Olson wondered whether the mariculture groups had
weighed in the bill.
Mr. O'Quinn was not aware of whether the industry had been
involved in the process.
Mr. Clifton stated that the answer was no to both
questions. He stated that CIRI had no subsurface interest
in the subject area off the coast. He stated that since the
bill explicitly prohibited surface activities, so there was
no impact on mariculture activities.
Senator Olson noted that there was a recent major leak in
the area.
Mr. Clifton stated that the issue was related to a very old
pipeline, which was not permitted by the bill.
2:45:52 PM
Senator Wielechowski stressed that oil or gas must be
transported to land.
Mr. Clifton replied that the gas would be produced through
a wellbore, and the wells were strictly engineered and
regulated for safety.
Mr. O'Quinn asked that Mr. Seamount describe the production
process.
Mr. Seamount stated that the description was accurate.
Senator Olson stressed that it was a seismically active
region of the state, so there could be a major impact
potentially. He asked about safeguards.
Mr. Clifton deferred to AOGCC.
Mr. Seamount replied that it was a very remote possibility.
He recalled that the earthquake in 1964 earthquake had no
effect on production in Cook Inlet.
2:51:00 PM
Co-Chair Bishop wondered whether the production pad
required a permit.
Mr. O'Quinn replied in the affirmative.
Co-Chair Bishop surmised that the pad could reach the
subject area from the pad horizontally.
Mr. O'Quinn agreed.
Mr. O'Quinn pointed to slide 8, "Sections 4 through 6":
? Amends AS 42.45.045(b) to allow the legislature to
appropriate revenue from these leases to the Renewable
Energy Grant Fund.
? Revenue would come from the State's rentals and
royalties made possible by this bill.
? Such appropriations would occur after the required
deposit of any such revenue to the Alaska Permanent
Fund required under art. IX, sec. 15 of the Alaska
Constitution.
? Housekeeping: moves language about Department of
Revenue being manager of the fund that was displaced
by Section 4.
? Provides for the bill to be effective immediately.
Co-Chair Bishop asked for more detail about bullet three.
Mr. O'Quinn stated that oil and gas royalties were required
to be deposited at various percentages into various places.
He stated that 50 percent was deposited to the Alaska
Permanent Fund for investment, and another 0.5 percent to
the Alaska Education Fund. He stated that the 45.5 percent
remaining revenue would be used for legislative
appropriation.
Co-Chair Bishop discussed the following day's agenda.
SB 62 was HEARD and HELD in committee for further
consideration.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB072_Civics_Research_128-Test-Questions.pdf |
SEDC 3/10/2021 9:00:00 AM SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB072_Civics_Research_Forbes_NeglectingCivics_21Feb2020.pdf |
SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB072_Civics_Research_Links-to-Resources.pdf |
SEDC 3/10/2021 9:00:00 AM SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB072_Civics_Research_RAND_Focus-on-Civic-Ed_08Dec2020.pdf |
SEDC 3/10/2021 9:00:00 AM SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB072_Civics_Research_WSJ_02March2021.pdf |
SEDC 3/10/2021 9:00:00 AM SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB 72 Sponsor Statement Feb 2021.pdf |
SCRA 3/30/2021 3:30:00 PM SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB 72 Summary of Changes Version A to I.pdf |
SCRA 3/30/2021 3:30:00 PM SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB 72 Civics_Summary-of-Changes_Version i to N.pdf |
SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB 62 Sponsor Statement 1.28.2021.pdf |
SFIN 2/1/2022 1:00:00 PM SFIN 3/18/2022 9:00:00 AM SRES 3/10/2021 3:30:00 PM |
SB 62 |
| SB 62 SFIN DNR Gas Leases; Renewable Energy Grant 2.1.22.pdf |
SFIN 2/1/2022 1:00:00 PM SFIN 3/18/2022 9:00:00 AM |
SB 62 |
| SB 72 Civics_Sectional_version N.pdf |
SFIN 2/1/2022 1:00:00 PM |
SB 72 |
| SB 72 2.1.2022 (S) FIN Hearing DEED Follow-Up.pdf |
SFIN 2/1/2022 1:00:00 PM SFIN 2/8/2022 1:00:00 PM |
SB 72 |
| SB 62 DNR 2022-02-17_SB62_SFIN Response to Questions.pdf |
SFIN 2/1/2022 1:00:00 PM |
SB 62 |