Legislature(2001 - 2002)
03/21/2001 03:48 PM Senate RES
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SB 125-LAND ENTRY UNDER STATE RESERVATION OF RT.
CHAIRMAN JOHN TORGERSON called the Senate Resources Committee
meeting to order at 3:48 p.m. and announced SB 125 to be up for
consideration. He explained that it sets up procedures to handle
damage to land owners' property.
SENATOR HALFORD said that his intern, Alex Kopperud, has long-term
roots in the Mat-Su Valley and came up with this situation, which
concerns the way the state deals with subsurface values as they
apply to surface values. He explained, "It is clear the subsurface
estate is paramount in the mineral values that are leased and
developed, but when you get to major activities and you find that
the surface estate is much more developed, as it is in the Mat
Valley now and as it is in the Kenai Peninsula, you start to get
potential conflicts. The preference for subsurface values isn't
without limitation."
He noted this bill tries to put those limitations on the table. It
deals with the questions of damage to the surface estate, of what
the legal authorities are between surface and subsurface owners, of
notice and how it's provided, of how damages are assessed, and of /
how bonds are dealt with.
SENATOR HALFORD said, "It has raised quite a bit of objection from
some of our friends in the subsurface industry…. I think some of
those objections are reasonable." The surface estate, in some
cases, has been substantially abused by the owners of the
subsurface estate. He thought the issue would get bigger in the
future.
MR. ALEX KOPPERUD, staff to Senator Halford, explained that Section
1 makes stylistic changes to AS 38.05.130. Section 2 prescribes a
definition of damages, which comes from the model Surface Use and
Mineral Development Accommodation Act from the National Conference
of Commissioners on Uniform State Laws in 1990.
MR. KOPPERUD explained that there are two primary areas in the
definition of damage: (1) loss of or injury to the value of the
owner's property, improvements or personality; or (2) interference
with or interruption of the owner's access to or use of the
property or improvements. The bill provides the means to measure
those two definitions of damages in (d), which attempts to provide
a meaningful remedy for subsurface lessee and surface owner, by
trying to provide a reasonable deterrent that says before you enter
surface estate, you should really comply with AS 38.05.130, settle
the damages up front with the owner and, if you can't do that, post
a surety bond.
MR. KOPPERUD explained that the damages in Mat-Su were laid out by
the Alaska Supreme Court in a similar case regarding this issue in
Hays vs. AG Associates. Subsection (2)(a) and (b) gives the surface
owner the option of pursuing the lessee for punitive damages.
Subsection (e) provides recognition that the surface owner and a
subsurface lessee are allowed to come to a different measure of
damages and agree on it by themselves. Subsection (f) describes the
bond to be either the assessed value of the entire parcel or
$100,000. Currently, DNR takes the assessed value of the property,
identifies the areas that will be impacted and uses the value of
that. The assumption is that all portions of the property are worth
the same. There is a problem with that rationale in the Mat-Su
Valley where it's not uncommon to have a 10-acre parcel of record
and find that only one or two acres are really developable. If, for
some reason, the subsurface lessee chooses to enter onto those one
or two acres, those are the most valuable acres in the entire
parcel.
The lessee needs some kind of reasonable assurance that they are
going to have enough room to take on the matter and cover the costs
that may go as far as the Superior Court. MR. KOPPERUD said that
typically, you don't get bond money just by asking for it. $100,000
is what they determined to be the minimum [bond amount] necessary
to take the issue seriously. Some areas don't have an assessed
value and those are determined on page 4, line 6. Some boroughs
have cycles for assessed values and a property owner has the room
to get an appraisal done. The basic liability provision in (g) says
that a surface owner should not be liable for the actions of a
subsurface lessee.
MR. KOPPERUD said that Section 3, page 4, contains the notice
provisions. He explained that he has found that not every one
understands the law in Alaska and many people don't know that they
are even entitled to discuss damages with a subsurface lessee. As a
surface owner, one needs to know what kind of damages to expect and
that is covered in this section.
Number 1000
SENATOR ELTON said he was concerned that the words "immediately
preceding the entry" on page 2, lines 29 and 30, may not cover the
situation of a summer cabin or Boy Scout camp use.
MR. KOPPERUD agreed and said he thought that language could be
delineated further.
MR. MARK MEYERS, Director, Division of Oil and Gas, DNR, said that
oil and gas and mining activities are increasing in areas with
significant private surface ownership. This is particularly true in
the Mat-Su Valley. DNR estimates that about 75 percent of the
approximately 300 outstanding shallow gas leases have privately
held surface estates. He said that Mr. Bill Van Dyke, as hearing
officer, has dealt directly with these issues. He turned the
discussion over to him.
MR. BILL VAN DYKE, Petroleum Manager, Division of Oil and Gas, DNR,
said his home is subject to a mineral reservation similar to what's
described in SB 125, so he is aware of the potential conflicts that
can arise. He noted that Mr. Meyers and Mr. Loeffler [wrote] memos
with comments on the issue and proposed amendments, which would
reduce the cost of implementing the bill. The fiscal note reflects
the costs that would occur if the bill is enacted as currently
written. He said DNR does not have to issue a lease or license for
someone to shoot seismic operations. He explained that once an
agreement has been reached or a bond has been set, the mineral
developer can enter onto the private surface.
Under existing law, DNR is not the body that ultimately determines
damages; that would be done in court. DNR believes that is where
the authority should stay. The owner of the subsurface estate has
the right, with some limitations, to enter onto some privately held
surface to explore and develop the underlying minerals. This
concept is pretty foreign to people in the Mat-Su Valley, although
it is common practice in the Lower 48. He stated, "All the mineral
reservations are in the people's deeds and they really do mean
something." The surface owner is entitled to damages, if damages do
occur, but defining those damages through legislation or regulation
will start DNR "down a slippery slope."
MR. VAN DYKE said he didn't think that any state had actually
adopted the model act that Mr. Kopperud had talked about. They have
found that just occupying unimproved land with a drill rig usually
does not constitute damages. He noted, "It's not what a surface
owner wants to hear, but it's the law and it's the practice in
other jurisdictions." He said that one has to proceed with caution
when giving either the surface owner or the mineral owner more
rights, because you can't give one party rights without taking some
rights away from the other. He advised, "In this case they are
discussing the state's mineral estate and we do derive substantial
value from that mineral estate." He thought expanding the
definition of damages to be too inflexible would impose an
additional burden upon the subsurface owner or their agents.
MR. VAN DYKE highlighted three points in his memo.
· A $100,000 [bond] is too high because it uses a one-size-fits-
all approach. He proposed a tiered approach that also reflects
the differences between mining and drilling for oil and gas.
· This bill would cover seismic operations so a $100,000 [bond]
to walk on someone's property is too high. There are hundreds
of properties in a given seismic survey. They don't think that
certain activities require a bond at all, like surveying
activities.
· They also believe the lessee should be required to notify
surface owners.
He said their proposal takes more of a "meat cleaver" approach to
the defining damages section. This is the point at which the
surface owner can't be compensated without taking something from
the subsurface owner or vice versa. He didn't think either one of
those actions were justified. He gave an example of a lessee who is
not supposed to work between the hours of 10 p.m. and 6 a.m., but
gets in the middle of cementing casings and can't get it done by 10
p.m. The lessee would then be subject to punitive damage claims.
DNR does not think that should happen. It's a perceived value
question. He maintained:
Entry by a mineral developer on to any privately held
surface estate is going to be a traumatic experience for
the surface owner. We try to make that experience
understandable and trouble-free. The surface owner
regardless of whether you follow existing law or the law
that would be in place if this bill is enacted, the owner
is still not going to be happy. That issue we have to
work through. Mineral reservations are real and they're
binding and the state derives substantial revenue from
those mineral reservations. We hope to be able to work
with Senator Halford and the committee to craft solutions
that will work for all parties involved.
Number 1700
SENATOR TAYLOR said it seemed to him that Alaskans are in a very
difficult position with the reservation of subsurface rights as
compared to the citizens of Oklahoma, Louisiana, Georgia and Texas
or any citizens of this state who may have received patented title
to their lands prior to statehood, who may very well own their
subsurface rights. He noted, "Apparently, if you go on a person's
property in Texas and want to drill for oil under his land, you
enter into an agreement with him on how much you're going to give
him as far as a royalty coming out of his land." He bet there isn't
much of a problem with surface owners in Texas, because they get a
piece of the same action. However, in the Mat-Su Valley, a
developer can run roughshod over the owner; the developer doesn't
have to tell the owner a thing about what is taken out of the
ground underneath his house or his property. He maintained, "He
gets no interest in it. So his only concern then is the impact and
effect upon his surface estate. I can certainly understand how that
conflict is not only continued, but as we sell more state land and
as we expand and ask the industries to expand both in mineral and
oil and gas development, we're going to be setting up those
additional conflicts and the state is going to be the person
sitting at the table getting a piece of the action while the home
owner gets run off the property." He didn't think an oil company
would be encountering these problems if it was talking to the
landowner about giving them 10 percent.
SENATOR ELTON asked how the lessee is supposed to notify the
surface landowner and whether that is part of the lease or license
agreement with the lessee. He questioned whether they are
compelled to notify by some other means or method.
MR. VAN DYKE answered that AS 38.05.130 and provisions in the
leases require notification. He said,"We won't issue a permit until
we know those notifications have been made."
SENATOR TAYLOR asked about the form of notification: how many days
prior to the issuance of the permit it is required; whether
notification must be sent via certified mail or whether a notice is
placed in the newspaper.
MR. VAN DYKE answered, "Right now it is the responsibility of the
person who is going to do the seismic operations or the drilling
activity to notify the owners. We would require some sort of
certification or notice that all those notifications have been
made. If a surface agreement has been entered into, we could have a
hearing to post a bond, if they don't have a damages agreement or
surface use agreement."
SENATOR TAYLOR asked what a state agency does when someone doesn't
comply.
MR. VAN DYKE replied that in the Valley they had an instance where
two people had the same name and the wrong person got notified. A
second instance was a surface agreement that was entered into, but
there was a disagreement about what that surface agreement meant
and in that case, they don't bond after the fact.
SENATOR TAYLOR said the department said it is the responsibility of
the permit applicant to provide notice to the landowner. He asked
if DNR requires that it receive a copy of a particular form.
MR. VAN DYKE replied, "No. The proof would be either a surface
entry agreement or having a bond hearing. The notice has to get
done one way or the other in order to get to the next step, but we
don't have a specific procedure right now on notice."
Number 1900
SENATOR HALFORD said he thought an exemption for seismic or
diminimous activity makes sense.
MR. LOEFLER, Director, Division of Mining, Land and Water, DNR,
told members the division has experience working with mineral
values on shales and subsurface and surface. In most cases, the
division expects to work with a borough, although in some cases it
is a private developer. He thought the bill worked quite well, but
his memo laid out his three significant comments.
MR. LOEFFLER said if the legislature decides to require notice for
diminimous activities, DNR had an instance in which a surface owner
got notice that a subsurface owner was going to do exploration. The
surface owner either went or threatened to go stake it himself,
which would deprive the subsurface owner access to the minerals. He
thought a $100,000 bond would be too much for any realistic placer
operator. He also thought the Division of Land and Water had a
regulation procedure that works reasonably well for split estate
situations. He said for the most part, the bill is consistent with
that, but the Division does require the developer to make the
contact.
SENATOR LINCOLN said that Mr. Loeffler and Mr. Meyer's memo made
sense to her and asked if the sponsor was going to work with the
different divisions to address some of their concerns.
SENATOR HALFORD responded that the criticisms were well taken. He
suggested, with regard to prospecting and mineral activities, they
might want to simply require a notice provision and no bonding
provision. He stated, "This is a case where one side of the
equation is traditionally a giant and the other side of the
equation is a very small property owner. So you've got to try and
balance that as best you can. Yes, I intend to work with the
departments, because most of their criticism is pretty well taken."
SENATOR TAYLOR asked, under conveyances with land claims, if the
subsurface fell within a category where they had to be shared with
the other corporations. He asked if the subsurface is conveyed
then.
MR. HALFORD responded that the profits of the subsurface are shared
between regional corporations, but the regional corporations own
subsurface under land owned by the village corporations. So they
also have a split ownership and may have a split in terms of what
they want to do with it.
SENATOR TAYLOR said he understood the dispute as to the utilization
of the land, but he asked if that landownership got its mineral
rights. He asked, "So if you're going to drill for gas underneath a
certain village's property, do they have the rights to that and
it's just a dispute as to how that was going to be divvied up?"
SENATOR HALFORD responded, "That 44 million acres included mineral
rights, as did federal transfers before statehood."
SENATOR LINCON added, "To the regional corporations."
SENATOR TAYLOR said that wouldn't be a problem on their land,
because they were going to negotiate it probably.
SENATOR HALFORD responded, "Probably."
MR. JOHN RODDA said he is the son of a property owner in the Big
Lake area. He told members, "Something has to be done to protect
us. We homesteaded on this property 45 years ago. Our intent from
the beginning was that our property held our family's future…" He
thought the issue boiled down to lack of interest in a surface
owner's rights beginning with a lack of notice when a subsurface
lease is offered. He asked if a subsurface lease is offered to the
surface owner or whether it is only offered to oil, gas and mineral
developers.
MR. RODDA said he had been dealing with two separate operations for
10 years: an ARCO oil exploration process (the lease has expired);
and with Ocean Energy that has a gas exploration operation. He
pointed out, "Once there has been an approved plan, the plans do
not always get adhered to." He noted a buried waste reserve pit on
his property about 100 ft from Big Lake Road is about 1/3 the size
of a soccer field and six to eight feet thick mixed with concrete.
He said DEC permitted that without his family's knowledge.
MR. RODDA said the owner needs to have the opportunity to object
before a full and complete plan is approved. Modifications need to
be disclosed and the opportunity to concur or object to those
modifications should be provided.
TAPE 01-23, SIDE B
MR. RODDA said a solution to specifically address the damages that
can't be seen needs to be found. He noted that complaints and
letters need to be addressed in a timely manner. He noted he hadn't
received any decision from Mr. Van Dyke on a bond hearing that had
been held 10 months ago. Also, Mr. Rodda said he has to appear at
his own cost to defend his position. He said he also paid for 68
pages of transcription and monitoring of the site since it is not
secured. When the gate protecting the entrance to his property was
torn down, it took a phone call from him to Matt Raider, who works
for Mr. Van Dyke, to get Ocean Energy to fix it. He remarked,
"That repair constituted taking a piece of cable and wrapping it
around the poles and leaving it hanging there in another dangerous
situation."
He said that Mr. Van Dyke knows about the gate, the problems with
the waste, the unevenness on the land and the unsafe condition. His
family has spent hundreds of hours to protect the property that has
been theirs for 45 years.
CHAIRMAN TORGERSON said he thought the Division of Oil and Gas
should give Mr. Rodda a call and, "get some of this stuff worked
out." He announced that they would hold the bill so Senator Halford
could work on it.
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