Legislature(2021 - 2022)BUTROVICH 205
03/10/2021 03:30 PM Senate RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| SB61 | |
| SB62 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 61 | TELECONFERENCED | |
| *+ | SB 62 | TELECONFERENCED | |
SB 62-GAS LEASES; RENEWABLE ENERGY GRANT FUND
4:02:48 PM
CHAIR REVAK announced the consideration of 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."
4:03:20 PM
HALEY PAINE, Deputy Director, Division of Oil and Gas,
Department of Natural Resources, Anchorage, Alaska, explained
her presentation will provide the committee with an overview of
SB 62 including its purpose, any potential challenges if not
permitted, and a sectional analysis.
4:03:52 PM
MS. PAINE referenced slide 2 and stated the purpose of SB 62 is
to allow the Division of Oil and Gas to lease and capture
revenue from state-owned resources underlying lands restricted
to surface. The bill does not open Kachemak Bay or any other
closed area to surface development, the bill simply aims only to
capture royalty revenue from geology drained through adjacent
development on nearby unrestricted lands. With the use of modern
drilling technologies, oil and gas may be safely developed from
adjacent lands with no impact to the surface of the restricted
areas, to include the offshore.
MS. PAINE stated that the primary benefit of SB 62 is increased
state 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. The state will be able to protect the land using
established regulatory methods while still maximizing the
economic recovery of its resources.
MS. PAINE turned to slide 3 and said the main concern is the
mechanism for collecting royalties if unleased land is drained
from wells on adjacent leases where the state does not realize
royalty payment and possible diminished revenue. For instance,
the wellhead may be located on private land; this may prevent
the state from realizing the royalty revenue unless the remedy
is sought through [Alaska Oil and Gas Conservation Commission]
(AOGCC) for correlative rights.
She explained leasing is the standard mechanism for establishing
a contractual relationship between the state and the developer.
The state exercises its authority through the lease for
mitigation measures compliance. The state also requires the
sharing of drilling and reservoir data, data integral to the
state understanding the extent of its resources.
4:06:21 PM
MS. PAINE said bill Section 2 addresses the subject area. The
bill seeks to allow gas-only leasing of the subject area while
maintaining the surface use restrictions that are currently in
place. The offshore state lands in Township 5 South, Range 15
West are shown both within the context of the Greater Cook Inlet
with more detail in addition to a closeup of the subject area
illustrated in the blue-hashmark region.
MS. PAINE detailed the subject area is adjacent to active
development on the Kenai Peninsula, including the Seaview Unit
which was recently approved by the division in October 2020. The
Cosmopolitan Unit to the northdepicted in olive colorare all
being developed from the onshore Hansen padlocated on private
landabout halfway up the unit along the coastline. The
Cosmopolitan Unit provides an example of successful access of
offshore resources without impacting the surface-use of the
waters.
SENATOR STEVENS asked how far the pipelines reach out into
Kachemak Bay.
MS. PAINE replied they are all accessed from the Hansen pad for
the Cosmopolitan Unit but she would follow up with the actual
distance to the wellbore.
SENATOR STEVENS said he assumed pipelines are able to extend
farther and farther from shore.
MS. PAINE answered yes, modern drilling technologies continue to
improve for safely accessing resources. The distance from shore
would depend on the variety of factors including the pool depth
within the geologynoting current examples. The blue-hash
subject area should be well within current technologies for
access via unrestricted surface land.
4:09:30 PM
MS. PAINE provided the following sectional analysis for SB 62:
Section 1 - Amends AS 38.05 to add a new section, AS
38.05.176 to specify that a statute restricting the
surface use of an oil and gas or gas-only lease area
does not also restrict drilling of the subsurface of
that leased area from an adjacent leased area not
subject to restrictions on surface use, unless
specifically provided.
Section 2 - Amends AS 38.03.184(b) to acknowledge the
exemption (created by Section 3 of this bill) to the
statute prohibiting the Department of Natural
Resources or any other state agency from issuing
leases for oil exploration or development on state
owned land and waters in and around Kachemak Bay and
extending to the three-mile offshore limit of state
ownership.
Section 3 - Amends AS 38.04.184 by adding a new
subsection (h) specifically authorizing the director
of the Division of Oil and Gas to offer gas-only
leases in an area adjacent to Kachemak Bay
specifically, within Township 5 South, Range 15 West,
Seward Meridian, Alaska. Such leases would carry no
right to use the surface of the land and would allow
only natural gas exploration or production drilling
from adjacent leased lands.
Section 4 - Amends AS 42.45.045(b) to allow the
legislature to appropriate to the Renewable Energy
Grant Fund the state's rentals, royalties, royalty
sale proceeds and net profit shares generated pursuant
to oil and gas, or gas-only leases issued pursuant to
AS 38.05.180(f) and (g), as well as such revenue
generated by gas-only leases issued pursuant to AS
38.05.184(h) (authorized by Section 3 of 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.
Section 5 - Amends AS 45.45.045(c) requiring
investments funds to be managed by the Department of
Revenue, which shall be the fiduciary of the fund
under AS 37.10.071.
Section 6 - Provides an immediate effective date.
4:12:48 PM
SENATOR STEVENS noted Senator Micciche passed him a note saying,
"We are talking about extending out to 7.5 miles." He asked if
drilling from shore eliminates the need for the big platform
sites in the ocean.
MS. PAINE answered that [drilling from shore] may not be a full
replacement for any offshore development. Locations would depend
on where the resource is accessed. Locations primarily in the
Upper Cook Inlet are not near shore reach. SB 62 is looking to
direct specific leasing areas that are close enough for safe and
modern drilling technology to access from adjacent unrestricted
surface land.
SENATOR STEVENS remarked that drilling from shore seems like a
great goal.
4:14:26 PM
SENATOR KIEHL noted the focus on the Kachemak Bay area and asked
if the bill would apply to subsurface leases on all state land
with a surface restriction. For example, a critical habitat area
like in Gustavus, a state park, or a piece of state land that
has a private lease for a lodge.
MS. PAINE replied the intention of SB 62 is to provide a general
framework that would allow for specific designations in the
future should there be a specific lease-by-application (LBA)
that closes or restricts that. Consideration will always depend
on whether the state has the mineral estate and whether it can
be safely accessed from a nearby piece of unrestricted state
land. At this time, the bill is only contemplating the access of
the subject area.
SENATOR KIEHL asked her to confirm that the bill applies
everywhere, not just the Kachemak Bay area.
MS. PAINE answered yes, the bill is looking at addressing future
surface-use restrictions that may be imposed. At this time, the
Kachemak Bay oil and gas closure is a very unique location in
terms of its authorization through statute and the bill would
create the opening in case there are future opportunities.
4:16:27 PM
SENATOR VON IMHOF read the following from slide 3:
If unleased land is drained from wells on adjacent
leases, royalties may not be paid to the state or that
revenue could be diminished.
She said she looks at this as a revenue enhancement bill. She
offered her understanding that horizontal drilling technology is
becoming more capable and it could occur without the state
knowing.
MS. PAINE replied the state currently does not contemplate that
drilling from adjacent leases is actively occurring, but the
bill sets the stage for the state to not have to go through
AOGCC to maximize revenue for those lands.
SENATOR VON IMHOF recapped that the bill prepares for what could
happen and it ensures the state maximizes the revenue. She read,
"To allow the legislature to appropriate revenue from these
leases to the Renewable Energy Grant Fund." in Section 4 and
asked if some of the money will go to a designated fund.
MS. PAINE answered yes, the legislature may choose to
appropriate revenues from the leases to the Renewable Energy
Grant Fund.
4:18:50 PM
SENATOR VON IMHOF asked her to confirm that legislative
appropriation to the Renewable Energy Grant Fund is currently
not happening, but this would change that.
MS. PAINE answered yes.
SENATOR MICCICHE asked her to confirm that only funds from
projects that are associated with the specified type of lease
would be deposited into the Renewable Energy Grant Fund.
MS. PAINE answered yes, the bill would only authorize leases
from the specified area to have monies allocated to the
Renewable Energy Grant Fund.
SENATOR MICCICHE pointed out the bill only affects Township 5
South, Range 15 Westan area of interest because of the
[Cosmopolitan Unit] and other developments. He asked her if the
state has seismic [data] in that particular area that looks
interesting.
MS. PAINE replied the noted areas are currently under
development with their pools and being delineated. The state
does not have a specific reason at this time to say that the
development is going to occur. However, the bill simply allows
for departmental preparation to move forward with land leasing
should development occur within the Kenai Peninsula and Anchor
Point area.
SENATOR MICCICHE asked if separate legislationincluding a
"Section 3" that identifies the specific township and range
would occur if an additional area in Alaska at some point has
some potential or interest by someone.
MS. PAINE offered her understanding that with the general
provision in place the department would need to find out if
there is a specific closure area that is already enshrined for
that particular location, and then that particular statute would
require modification.
4:21:25 PM
SENATOR STEVENS asked her to confirm that appropriations are
currently deposited into the Alaska Permanent Fund and the bill
would allow for appropriations to the Renewable Energy Grant
Fund. He asked what the funds from the Renewable Energy Grant
Fund are used for.
MS. PAINE replied that from a broad perspective the Renewable
Energy Grant Fund has been used to fund projects in different
communities throughout Alaska that are in the research and
development stage. She offered to follow up with a more detailed
explanation.
SENATOR KIEHL said his question goes back to the general
applicability of directional drilling under lands that are
otherwise not open for oil and gas leasing, specifically parks
and some state marine parks that include both surface and
subsurface waters. He asked if her sense is that should the bill
pass, the state will not have to worry about some of the
incompatible use restrictions currently in the state management
plans for parks or other special areas. For example, things like
noise and lights associated with industrial development for oil
and gas extraction.
4:23:29 PM
MS. PAINE explained that imbedded in the current formal lease
contract is all the regulatory authority and protection for
mitigation measures and other authorization that dictates how a
development may occur in a particular area. The bill does not
set aside any plans or agreements that have been set out in any
way.
MS. PAINE said the department will continue to do successful and
safe resource development in areas throughout the state where
there are other management plans using the best interest
findings process as well as the mitigation measures for a
specific lease. The department addresses those and ensures those
aspects are only authorized in a manner that is compatible with
a plan of operations.
4:24:45 PM
CHAIR REVAK opened public testimony on SB 623; finding none, he
closed public testimony.
4:25:10 PM
CHAIR REVAK held SB 62 in committee.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 61 CS (RES) Work Draft 32-GS1706.B.pdf |
SRES 3/10/2021 3:30:00 PM |
SB 61 |
| SB 61 DNR Response to Committee Questions 2.17.21.pdf |
SRES 3/10/2021 3:30:00 PM |
SB 61 |
| SB 61 LAA Legal Opinion 2.19.21.pdf |
SRES 3/10/2021 3:30:00 PM |
SB 61 |
| SB 62 Sectional Analysis Version A 2.2.2021.pdf |
SRES 3/10/2021 3:30:00 PM |
SB 62 |
| 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 61 AOGA Letter of Support- 3.9.21.pdf |
SRES 3/10/2021 3:30:00 PM |
SB 61 |
| SB 62 DNR Presentation- Gas Leases; Renwable Energy Grant.pdf |
SRES 3/10/2021 3:30:00 PM |
SB 62 |