Legislature(2021 - 2022)GRUENBERG 120
02/01/2022 11:00 AM House FISHERIES
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| Audio | Topic |
|---|---|
| Start | |
| HB82 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | HB 82 | TELECONFERENCED | |
| + | TELECONFERENCED |
HB 82-GAS LEASES; RENEWABLE ENERGY GRANT FUND
11:03:49 AM
CHAIR TARR announced that the only order of business would be
HOUSE BILL NO. 82, "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."
11:05:04 AM
AARON O'QUINN, Leasing Manager, Division of Oil and Gas,
Department of Natural Resources, provided a PowerPoint
presentation entitled, "HB 82 Supporting Document - DNR
Presentation - Gas Leases; Renewable Energy Grant Fund
2.1.22.pdf," [included in the committee packet] during the
hearing on HB 82. He noted that the main purpose of the bill
would allow for the division to lease and capture revenue from
state-owned resources. He shared that there exists a current
statute that prevents oil and gas leasing in the subsurface of
Katchemak Bay and the passage of HB 82 would allow for a
competitive lease process. He added that there would be no
change permitted on the surface of the Bay, and that access to
the petroleum would be from off-premises. He stated that that
an operator may drill on leased land sharing a border with
unleased land, the states resources could be drained of
resources without payment to the state unless an administrative
hearing through the Alaska Oil and Gas Conservation Commission
(AOGCC) takes place, which may take several years before
completion. He added that, should HB 82 pass, no surface
impacts such as [drill] rigs, drill ships, pipelines, and no
seismic drilling would occur in the Bay.
11:08:53 AM
MR. O'QUINN referred to slide 4 which depicts the affected area
and the potential allowable well bore. He added that there
exist very strict protections of the areas where surface
activities are currently allowed, and that the state conducts a
best interest finding every 10 years that includes public
testimony and scientific research to determine the states best
interest in leasing land and in which mitigation measures are
adopted. He explained that the findings restrict drilling
activity in buffer zones such as anadromous fish streams, among
other environmental protections. He added that surface
operations, such as pipelines for natural gas and oil and
[construction of] roads are subject to a permitting and bonding
process. He added that hydrocarbon resources exist without
respect to boundaries established by the government and HB 82
would allow the department to lease lands to operators, under
contractual agreement, to determine how the state should receive
revenue from that extraction based on a percentage basis.
11:13:32 AM
MR. O'Quinn explained that there exists an additional
complication with the AOGCC process that, when the Department is
not under a lease agreement with an operator, it may not enforce
mitigation measures that would exist under a lease agreement and
any measures are instead subject to AOGCC administrative ruling.
He suggested that HB 82 would bring certainty to both the state
and to operators [in a lease agreement.]
11:14:39 AM
REPRESENTATIVE ORTIZ stated that new technology allowing
operators to drill diagonally and asked how long the technology
had been in existence and asked about any known problems that
exist, such as leaks.
11:15:16 AM
MR. O'Quinn estimated that the drilling technology had been in
existence for 20 to 30 years. He stated that an operator on
the North Slope had a [horizontal] bore length of approximately
15 miles long. He added that AOGCC would regulate the drilling
process and the department would oversee the leasing process.
He further explained that the drill bore is encased in concrete
and operates in much the same way as a vertical well bore. He
added that he was not aware of any problems specifically
associated with horizontal drilling.
11:16:30 AM
REPRESENTATIVE ORTIZ asked, should HB 82 not pass, whether
operators would still be able to access resources in areas such
as in Katchemak Bay without paying royalties to the state.
MR. O'Quinn answered that, without a lease, an operator may not
place its well bore on to that specific arial land, but they may
approach the boundary, which creates a low pressure drain in
which hydrocarbons in the higher-pressure area migrate to the
lower pressure area. He added that the department would assert
property rights subject to the AOGCC process under AS 31.05.100.
He added that operators are allowed to keep oil that runs
through their well, even when the oil does not belong to the
operator. He noted the doctrine of the rule of capture had been
updated with language such as the doctrine of correlative rights
in which states have enacted legislation to protect operators
and allow for fair sharing of resources. He stated that HB 82
would contractually mandate how those royalties would be paid,
instead of being subject to the AOGCC process. He added that
operators are inclined to invest capital with the certainty of a
contract rather than the investment being subject to the AOGCC
administrative process and that, in some cases, operators may
choose to place the bore in a more optimal position, should HB
82 pass.
11:20:06 AM
REPRESENTATIVE ORTIZ stated that Mr. O'Quinn had referenced oil
and gas interchangeably and whether the discussion of Katchemak
Bay pertained to either oil or to natural gas.
11:20:20 AM
MR. O'Quinn referred to slide 9 of the presentation entitled,
"HB 82 Supporting Document - DNR Presentation - Gas Leases;
Renewable Energy Grant Fund 2.1.22.pdf" [included in the
committee packet] which depicted the area adjacent to the
Seaview unit, in the vicinity of Anchor Point, and were
primarily wells for natural gas utility extraction.
MR. O'Quinn stated that the passage of HB 82 would allow for
contracts to be consolidated and not subject to the AOGCC
process.
11:23:16 AM
REPRESENTATIVE KREISS-TOMKINS asked if HB 82 should pass whether
any oil and gas development would be affected outside of the
Cook Inlet basin.
MR. O'QUINN answered that none exist to his knowledge and
referred to the blue area depicted on slide 9 of the
presentation and that HB 82 would allow for subsurface leases in
that area, and it would also allow for leases on other surface
lands that had been closed [to drilling.] He noted that oil and
gas provinces, such as on the North Slope, are well developed
and not in an area that would be affected with the passage of HB
82.
11:24:42 AM
REPRESENTATIVE KREISS-TOMKINS asked, in Section 1 of the bill,
whether a new statewide default would be enacted regardless of
the immediate need outside of the Cook Inlet basin.
MR. O'QUINN affirmed Representative Kreiss-Tomkins statement and
added that in a case when there exists surface use restriction,
ambiguity may exist regarding the subsurface concerned.
REPRESENTATIVE KREISS-TOMKINS asked, should HB 82 pass, what
would be the financial magnitude of anticipated royalties
collected.
MR. QUINN answered that, at present, it is unknown what the size
of the resource would be, nor the price known that an operator
might get, and so was unable to accurately predict the amount of
anticipated royalties to the state. He referred to the fiscal
note associated with the bill as a possible source of additional
information and deferred to other department staff to address
Representative Kreiss-Tomkins' question.
11:26:51 AM
HALEY PAINE, Deputy Director, Division of Oil and Gas,
Department of Natural Resources, answered that there was no
mapped geologic structure to depict a reservoir that may or may
not exist. She added that, since the lands had not been
available for lease, the department had not evaluated what the
royalty rate would be [under a new lease] and that other land in
the Cook Inlet basin were at a 12 and a half percent royalty
rate; however, that may not be reflective of the rate on new
leases. She noted that other economic factors existed such as
rental fees and bonus bids at the time of lease. She stated
that, despite the lack of exploration on the lands concerned,
the department would expect economic benefit to the state. She
referred to a previously stated question by Representative Ortiz
regarding the differentiation between oil and gas, that HB 82
would pertain to natural gas leases on restricted surface areas
and would not pertain to oil.
11:28:58 AM
REPRESENTATIVE KREISS-TOMKINS offered that some scope of the
economic benefit could be ascertained since there existed
interest in opening the subsurface areas to lease, and that the
department could follow up with the committee to give a high-
level estimate of the anticipated economic benefit.
MR. O'QUINN agreed to seek additional information and provide it
to the committee. He added that the passage of HB 82 would open
interest from operators and that utility extraction would
contribute indirect economic benefits including energy security
in the area.
11:30:38 AM
REPRESENTATIVE MCCABE shared his experience with the horizontal
drilling technology in other states that had resulted in
protection of areas that may not have been closed. He noted
that his research of the technology had revealed no increased
risk and was a very safe technology. He suggested that other
areas in Alaska may benefit from the horizontal drilling
technology for increased environmental protection balanced with
energy security. He asked how far down and how long the drill
bore would be in the area depicted in the presentation.
MR. O'QUINN stated that, while he did not have specifics on the
area depicted in the presentation there did exist an analogous
drill rig north of the area, known as the Cosmopolitan Unit,
with the same horizontal drilling technology. He stated that
area was accessed entirely onshore. He noted on the map on
slide 9 of the presentation depicted the Cosmopolitan project in
red dots on the map. He cautioned that some of the requested
information my be proprietary or contain trade secrets but noted
that the operations were being executed safely.
REPRESENTATIVE MCCABE stated that there should be a public
process to reveal the horizon [parameters] of any proposed
drilling project and asked the department to confirm.
MR. O'QUINN stated that the public process pertaining to the
technical side of the permitting process for matters such as how
much flow and where operators may open wells was overseen by the
AOGCC, and that the department's role was to oversee the leasing
aspect of the exploration and drilling.
11:37:25 AM
DAN SEAMOUNT, Commissioner, Alaska Oil and Gas Conservation
Commission, Department of Commerce, Community & Economic
Development, summarized the permitting process, and explained
that other agencies are involved in conducting the public
process, and that the AOGCC received a permit application and
its role is to ensure that well bores are constructed so that
underground sources of drinking water are not negatively
impacted and correlative rights are ensured. He added that the
AOGCC ensures that production is enhanced to result in no waste
of the resource.
11:39:16 AM
REPRESENTATIVE ORTIZ asked, should HB 82 pass, whether the
ensuing resource extraction would serve the utility needs of the
Cook Inlet area, and whether there would be negative impacts
should the bill not pass, such as the area running out of
[natural] gas.
MR. O'QUINN noted that production from December 2020 to December
2021 had fallen by almost 10 percent. He noted that the
industry has undertaken mitigation measures including fuel
underground storage and increased production during the summer
months to avoid a shortage situation like the one that had
occurred in the 2010s.
MS. PAINE echoed Mr. OQuinns testimony that addressed the
decline in production and mitigation measures in place to meet
customer needs. She stated that there existed a study that had
been conducted in 2018 that investigated the gas supply for Cook
Inlet and offered to provide a link to the study for the
committee.
11:42:29 AM
REPRESENTATIVE VANCE expressed that the bill has direct impacts
to her district, and constituents had expressed concerns about
the potential for future drilling. She stated that Katchemak
Bay had been closed to drilling 30 years prior. She expressed
concern that, in the absence of a fiscal analysis of the
economic benefit to the state, other justification for the
passage of HB 82 was needed.
MR. O'QUINN stated that there exists a process for the state to
protect its correlative rights by integrating the land through a
"compulsory unit" procedure through the AOGCC, but that process
is not commonly used. He stated that there exists a local
market demand for the gas in the area, including to the Homer
Electric Association. He stated that allowing the producers to
enter into an agreement [should HB 82 pass] would provide
increased certainty for the producers and encourage capital
investment. He stated that it was understood by the division
that the Katchemak Bay area is a special and important area. He
noted that there is a provision in the bill to report the
revenues from the area specifically to the legislature each year
so that the legislature may appropriate that revenue for
renewable energy development, thus moving the state away from
reliance on hydrocarbon fuels. He stated that, should HB 82 not
pass, there would persist uncertainty for the state and
producers and the general public. He proposed that HB 82 would
provide increased public transparency. He stated that,
following the public process that will have taken place should
the bill pass, a lease contract would be entered into. He
restated that the compulsory unitization process was not optimal
and would lead to decreased public process and public
engagement.
11:48:49 AM
REPRESENTATIVE VANCE recalled previous hearings in which, should
HB 82 not pass, the state would be obligated to undertake the
compulsory unitization process and asked whether her
understanding was correct.
MR. O'QUINN stated that the division, as the keeper of the right
to the state's resources, and it would be obligated to go
through the [compulsory unitization] process with the AOGCC.
REPRESENTATIVE VANCE asked who the recipient of the proceeds for
the gas was currently.
MR. QUINN answered that the gas is not currently being extracted
from Katchemak Bay. He noted that Seaview 8 and Seaview 9 sites
are being drilled and consist of a combination of public and
private lands, and that the proceeds from those wells are
divided among the landowners. He stated that exploration is
anticipated following the passage of HB 82 to determine where
the resource exists and further define the land ownership to
ensure that revenue is given to the appropriate landowner.
11:50:31 AM
CHAIR TARR noted that there had been a public process that
designated Katchemak Bay as a critical habitat area. She asked
for the department's response to claims made by members of the
public that the public process designating the area as critical
habitat and limiting oil and gas development was being ignored.
MR. O'QUINN offered that the closure of the area had resulted
from an oil rig that became stuck. He stated that public alarm
was raised, and a law passed to close the area to drilling, but
that there was negligible environmental impact from that
incident. He stated that the department was not seeking to
materially change the status quo with the passage of HB 82, and
that drilling was taking place adjacent to the area in Anchor
Point. He stated that the passage of the bill would allow for
the contract to extract the subsurface resource in the area
following a best interest finding process. He stated that other
Cook Inlet extraction by producers was currently subject to very
strict mitigation measures.
11:54:14 AM
REPRESENTATIVE STORY asked, should HB 82 not pass, for the
department to explain the current status-quo of the drilling
that is already taking place. She asked whether the failure to
pass HB 82 would result in a lost opportunity for the state.
MR. O'QUINN referred again to the map on slide 9 and explained
that the Seaview areas were currently being drilled. He noted
that the red dots on the map were to wells that had been drilled
and were producing from both state and private lands. He stated
that the passage of the bill would likely result in another red
dot within the green, or possibly the blue, areas on the map.
He added that when a well is initially fully drilled, the rig is
removed and the well itself is much less disruptive once gas is
flowing either on its own or with the aid of a compressor. He
stated that noise and other mitigation permit standards exist.
11:57:43 AM
REPRESENTATIVE MCCABE stated his understanding that HB 82
contemplates that, when the blue hatched area of the map was
made off limits to drilling, asked whether the concern for the
area was limited to activities on the surface of the area, such
as spills or leakage. He asked how deep the designation under
the blue hatched area was off limits and how far down a well
would need to be drilled to reach the reserves under the area to
maintain the protection of the area.
11:58:59 AM
REPRESENTATIVE VANCE stated that the individuals who advocated
and achieved protection of Katchemak Bay were the same
individuals who passionately oppose even horizontal drilling in
the area and they had informed her of their concern. She
allowed that the waters are apparently not impacted [should HB
82 pass] but that there existed some public sentiment in which
they did not believe that there would be zero impact. She noted
that within the last couple of years there had been a gas leak
that had been characterized as minor but that it had occurred,
nonetheless. She shared her constituent's opposition to the
passage of the bill.
12:00:49 PM
CHAIR TARR stated that HB 82 was heard and held.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 82 Supporting Document - DNR Presentation - Gas Leases; Renewable Energy Grant Fund 2.1.22.pdf |
HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Sponsor Statement 1.28.21.pdf |
HFSH 4/6/2021 10:00:00 AM HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Version A 2.18.21.PDF |
HFSH 4/6/2021 10:00:00 AM HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Sectional Analysis - Version A 2.23.21.pdf |
HFSH 4/6/2021 10:00:00 AM HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Fiscal Note One - DNR-DOG 1.27.21.pdf |
HFSH 4/6/2021 10:00:00 AM HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Supporting Document - Gas Leases-Renewable Energy Grant Fund Presentation - DNR 4.6.21.pdf |
HFSH 4/6/2021 10:00:00 AM HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Supporting Document - Committee Followup by DNR 4.23.21.pdf |
HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Testimony Received by 5.4.21.pdf |
HFSH 5/4/2021 10:00:00 AM HFSH 2/1/2022 11:00:00 AM |
HB 82 |
| HB 82 Testimony Received by 1.31.22.pdf |
HFSH 2/1/2022 11:00:00 AM |
HB 82 |