Legislature(1995 - 1996)

02/13/1996 10:11 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
 HB 394 - GAS & COAL METHANE LICENSES & LEASES                               
                                                                               
 CHAIRMAN ROKEBERG said it was not the intention of the Chair to               
 move HB 394 today.                                                            
                                                                               
 Number 1900                                                                   
                                                                               
 REPRESENTATIVE OGAN, sponsor HB 394, said this bill spurs the                 
 development of coal bed methane gas.  He said this methane gas is             
 a high quality gas produced from high quality coal and is similar             
 to North Slope gas.  This gas has great potential, statewide, for             
 coal bed methane development, primarily in the bush areas.                    
 Currently, the state of Alaska spends $20 million on power cost               
 equalization in rural Alaska.  He said coal bed methane gas could             
 mitigate the state's expenditure for power cost equalization.                 
                                                                               
 REPRESENTATIVE OGAN said transportation of diesel fuel is hazardous         
 and expensive.  He mentioned the problem of leaking storage tanks             
 in the bush communities, an issue which has not been addressed.               
 Natural gas is a clean source of energy that could potentially                
 occur in many rural regions.  Locally occurring coal bed methane              
 gas could supply fuel for the production of electricity, as well as           
 heat, for rural community homes.  Legislation such as HB 394 could            
 help rural Alaska become energy independent.                                  
                                                                               
 REPRESENTATIVE OGAN said the development of coal bed methane gas              
 could stimulate the economy as it allows small, independent                   
 companies to enter the gas market.  He said HB 394, or a similar              
 version, makes environmental sense.                                         
                                                                               
 REPRESENTATIVE OGAN said HB 394 is not the final version as                 
 discussions with the private sector and the Administration have               
 unveiled problems with this version and it is undergoing revision             
 based on those discussions.  He said this is a first attempt and              
 would welcome discussion and suggestions to help resolve the                  
 hurdles to the ultimate passage of HB 394.                                    
                                                                               
 Number 2019                                                                   
                                                                               
 DAVID LAPPI, President, LAPPI Resource, Incorporated, was next to             
 testify.  He said LAPPI Resource is an independent oil and gas                
 exploratory (indiscernible due to pens near microphone).  He said             
 his company is very interested in developing coal bed methane gas,            
 especially in rural Alaska.  He referred to Representative Ogan's             
 testimony and reiterated the problems associated with diesel fuel             
 in the bush.  He said diesel fuel is expensive and can be messy to            
 handle and store.  He added that in certain areas, small gas                  
 developments can happen if aimed at local markets.                            
                                                                               
 MR. LAPPI said he is encouraged by the committees review of the               
 laws relating to oil and gas development, specifically as they                
 relate to coal bed methane gas development.  He encouraged further            
 work on HB 394 and said he would be in Juneau on Thursday and                 
 Friday to meet and assist with any questions.  He referred to a               
 letter, sent by fax, identifying four areas that need to be                   
 addressed in HB 394.                                                          
                                                                               
 Number 2107                                                                   
                                                                               
 REPRESENTATIVE BRICE asked if any coal bed gas was being used in              
 the state.                                                                    
                                                                               
 Number 2114                                                                   
                                                                               
 MR. LAPPI said no, there is no coal bed gas production in the state           
 of Alaska.  He said in the lower 48 states, there is a production             
 of one trillion cubic feet per year increasing on a yearly basis.             
 Most of the coal bed gas production is centered around the east               
 coast in the Appalachian Basin.  He then cited other areas of coal            
 bed gas production including, the Black Warrior Basin in Alabama as           
 well as the San Juan Basin in Colorado and New Mexico.  He                    
 predicted that coal bed gas production will be one of the growth              
 areas in the natural gas industry in the lower 48 states.                     
                                                                               
 MR. LAPPI said that in Alaska, with half of the United State's coal           
 reserve, an opportunity is available to build on successful                   
 enterprise in the United States which would supply gas to potential           
 markets.                                                                      
                                                                               
 REPRESENTATIVE BRICE asked for a brief overview of the four areas             
 where there might be marketable gas reserves, as mentioned in the             
 letter.  When it was clarified that the four areas were areas of HB
 394 that needed adjustment, Representative Brice asked for                    
 information regarding geographical areas and asked if this would be           
 the western coal reserve.                                                     
                                                                               
 Number 2190                                                                   
                                                                               
 MR. LAPPI said yes, and added that work done by the Division of Oil           
 and Gas (DO&G), over the last few years, identified the Upper Cook            
 Inlet Basin and western North Slope as having the greatest                    
 potential for large gas reserves.  He mentioned it is unknown                 
 whether the interior basins have quantities of coal and coal bed              
 methane gas.                                                                  
                                                                               
 Number 2214                                                                   
                                                                               
 REPRESENTATIVE BRICE asked for information regarding the                      
 transportation of this gas.                                                   
                                                                               
 Number 2225                                                                   
                                                                               
 MR. LAPPI said it could be transported through a pipeline by                  
 liquefying or pressurizing the methane gas.  He said the best                 
 method is to drill the well close to the local market.  He cited              
 the example of Fort Yukon, which has a vast resource of this gas              
 1200 feet below the streets of the town as identified by the                  
 drilling done in the summer of 1994.  He said a question remains as           
 to whether this gas is producible.  He said this type of situation,           
 where both gas and a market are available, is the most desirable.             
                                                                               
 MR. LAPPI said areas, which do no have local gas reserves, could be           
 served by small liquification plants with a up to 50 mile pipelines           
 in bush conditions.  It could also be served by compressed gas.               
                                                                               
 Number 2279                                                                   
                                                                               
 CHAIRMAN ROKEBERG asked for a description of the drilling project             
 currently being done in the Matunuska Valley and whether the                  
 drilling rigs had blow-up prevention.  He asked what other safety             
 materials and equipment would be used on those shallow gas rigs.              
                                                                               
 Number 2306                                                                   
                                                                               
 MR. LAPPI said the pilot project was derived from a well the DO&G             
 drilled in the Spring of 1994.  He said the well had identified and           
 quantified amounts of coal bed gas.  He said the state determined             
 that there were similar quantities of gas, as found in the lower 48           
 states.  He said the state left it up to the private sector to                
 commercialize that gas resource in the Upper Matanuska Valley.  He            
 said if this project is successful his company will attempt                   
 projects in rural areas which are currently served by high priced             
 equalized fuel.                                                               
                                                                               
 MR. LAPPI said his company uses the same type of drilling rigs and            
 similar types of equipment used by conventional oil and gas                   
 companies.  He said the main difference is due to the shallow areas           
 where the coal bed gas is located.  Currently the well is at 2,100            
 feet, as compared to the depth of standard oil and gas wells.  Due            
 to this factor, the equipment can be down-sized considerably.  He             
 said obtaining this small equipment has been a problem, but one               
 that they are working on to reduce the cost of coal bed gas                   
 extraction.  He said large rigs with a 20,000 foot capacity can do            
 the job, but it is an expensive, logistical problem to get them to            
 the site.                                                                     
                                                                               
 MR. LAPPI said his company would use the same types of blow-out               
 prevention equipment used on conventional oil and gas equipment.              
                                                                               
 Number 2400                                                                   
                                                                               
 REPRESENTATIVE OGAN asked what Alaska statutes and regulations are            
 obstacles to extracting the coal bed gas in a cost effect manner.             
 He then asked Mr. Lappi to describe the permit process which                  
 allowed his company to drill in Houston.                                      
                                                                               
 Number 2416                                                                   
                                                                               
 MR. LAPPI said there are three things that prevent coal bed gas               
 drilling in the state, they include access to the land at a                   
 reasonable price, cost of bonding because of the three bonds or               
 insurance policies the state of Alaska requires, and the third is             
 regulatory reform.                                                            
                                                                               
 TAPE 96-9, SIDE B                                                             
 Number 000                                                                    
                                                                               
 MR. LAPPI said the Houston site had five wells drilled in the late            
 1950s and early 1960s searching for oil deposits.  The wells vary             
 from a shallow well of 1,000 feet to a deeper well of 6,109 feet.             
 He said the wells were abandoned because there was no pipeline or             
 market for gas at that time.  He said LAPPI Resources applied to              
 the Alaska Oil and Gas Conservation Commission (O&GCC) in the                 
 summer of 1995, to establish a new gas field based on the presence            
 of gas which was demonstrated by the previous drill hole.                     
                                                                               
 MR. LAPPI said the O&GCC then established the Houston gas field and           
 set up a number of rules which govern the development of the                  
 Houston coal bed gas pool.  He said this is the first time a set of           
 rules was established pertaining to coal bed gas development.  He             
 said modifications in those rules will most likely be made, based             
 on other coal bed gas developments.  He said the new rules reduce             
 the bonding requirements on (indiscernible due to overlapping                 
 voices) bonds from $100,000 per well to $10,000 per well because              
 they are shallow wells in an acceptable area.                                 
                                                                               
 MR. LAPPI said another change is the (indiscernible due to                    
 overlapping voices) requirements that the Department of                       
 Environmental Conservation (DEC) has a bond or insurance policy for           
 $1 million for exploration wells drilled in the state.  He said gas           
 production wells are not required to bond under the DEC's rules.              
 Therefore, a couple of bonds have been reduced because the site had           
 an established gas pool in a developed area.                                  
                                                                               
 Number 082                                                                    
                                                                               
 MR. LAPPI said the requirement of a $1 million bond, when                     
 developing a shallow gas resource in a rural area will probably be            
 a disincentive.                                                               
                                                                               
 Number 138                                                                    
                                                                               
 REPRESENTATIVE OGAN asked how many independent gas companies there            
 were in Alaska, similar to LAPPI Resource, Incorporated.                      
                                                                               
 Number 145                                                                    
                                                                               
 MR. LAPPI said he could probably count the number on one hand and             
 probably have a finger or two left over.  He added that it is a               
 fledgling industry, but added that coal bed gas could lead to the             
 development of a number of new companies.                                     
                                                                               
 Number 177                                                                    
                                                                               
 REPRESENTATIVE OGAN asked how the number of companies compared to             
 other parts of the country.                                                   
                                                                               
 Number 185                                                                    
                                                                               
 MR. LAPPI said in the lower 48 states, the Department of Energy               
 estimated that there were about 8,000 oil and gas companies                   
 actively doing business.                                                      
 Number 195                                                                    
                                                                               
 JAMES HANSEN, Leasing/Evaluation, Division of Oil and Gas                     
 Department of Natural Resources, was next to testify on behalf of             
 the Administration.  He said the DO&G has been at the forefront of            
 efforts to encourage coal and methane developments in the state.              
 He referred to the well that was drilled in the Matanuska Valley              
 and the Governor's CIP proposal for $400,000 (indiscernible due to            
 paper ripping) 97.  The proposal was that a three year study be               
 done to further define coal bed methane development in the state.             
 The Administration encourages any promotion of state resources.  He           
 said coal bed methane is a resource that should be studied and                
 tapped for future development.                                                
                                                                               
 MR. HANSEN said currently all the authority that is necessary to              
 conduct (indiscernible due to paper rustling)...introducing a brand           
 new program to specifically provide exploration of coal bed                   
 methane.  This program would be one more program the DO&G would               
 have to deal with in addition to its current oil and gas leasing              
 (indiscernible due to paper shuffling.)" ...as we have to do by law           
 each year."  He stated concern about the concept of segregating the           
 gas resources below 3,000 feet because it would lead to                       
 complications with leasing and lead to extensive litigation by the            
 various companies wanting to extract their resources.  He said                
 there is a problem with combining shallow gas and the coal bed                
 methane gas in HB 394.  Cook (indiscernible due to microphone                 
 feedback) "a lot of the gas there is produced from conventional gas           
 reserves probably with resource from the coals."  So, it is a                 
 problem if you take a shallow gas and treat it differently than a             
 deeper gas.  He repeated that a study was being composed by the               
 Department of Geological and Geophysical Surveys to study coal bed            
 methane potential drilling.                                                   
                                                                               
 Number 368                                                                    
                                                                               
 MR. HANSEN stressed studying the issue before it is tapped.  He               
 said  coal bed gas has potential in the Cook Inlet and western                
 (indiscernible) Alaska, but it is an unknown potential in the                 
 interior basins.  The state need to study and determine facts about           
 the interior basin in Alaska before we press on.  Another question            
 needing to be resolved is who owns the coal bed methane in the                
 state.  Is it owned by the coal people or is it owned by the oil              
 and gas people.  In the lower 48 states, this question has been               
 addressed, with each state is treating it differently.  There is              
 also a question of who would oversee the leasing program.  He said            
 the Administration knows what needs to be done.                               
                                                                               
 MR. HANSEN said if it is only a question of bonding issues, then              
 legislation can handle this issue.  He said the addition of a new             
 program would answer that bonding issue.                                      
                                                                               
 Number 424                                                                    
 REPRESENTATIVE GARY DAVIS asked if the coal bed gas methane was a             
 subservice right of the state, and asked if there were provisions             
 granted to the coal companies that gave them this right.                      
                                                                               
 Number 424                                                                    
                                                                               
 MR. HANSEN said the question arises when you have a coal company              
 extracting coal who then discover gas.  At that point, does this              
 gas belong to the coal company or the gas company.  He said this              
 question has been addressed by various state supreme courts with              
 different conclusions.  He added that you can have leases for both            
 gas and coal in the same area.                                                
                                                                               
 Number 482                                                                    
                                                                               
 REPRESENTATIVE OGAN suggested that the Administrations's concerns             
 stem from several discussions about having a coal bed methane on a            
 coal type lease.  Ken Boyd, the director of DO&G, said that 3,000             
 feet and above would be an acceptable number as there are no coal             
 bed gas reserves in the Cook Inlet below that number.  He said                
 drilling above 3,000 feet would mitigate some of the environmental            
 concerns.  He applauded the Administration's efforts to study                 
 whether coal bed methane gas is cost effective.  He suggested that            
 government should provide incentives to the private sector to                 
 explore resources, rather than having the government do everything.           
 He concluded that HB 394 attempts to make land available, make the            
 leases simple, and make reasonable bonding requirements so that the           
 private sector is able to go out and explore these areas.                     
                                                                               
 Number 567                                                                    
                                                                               
 CHAIRMAN ROKEBERG received clarification that there were coal seams           
 below 3,000 feet in Alaska.  He then asked if DO&G broke down the             
 origins of coal bed methane gas and petroleum related gas in the              
 Cook Inlet.                                                                   
                                                                               
 Number 593                                                                    
                                                                               
 MARK MEYERS, Petroleum Engineer, Division of Oil and Gas,                     
 Department of Natural Resources, answered Chairman Rokeberg's                 
 question.  He said all natural gas is basically the same as it is             
 derived from hydrocarbons formed from many sources.  Lake deposits            
 and coal commonly produce natural gas.  Rocks that were produced              
 from marine and marine life (indiscernible due to overlapping                 
 voices) produce natural gas.  In addition, the same source rocks              
 that generate oil, generate natural gas in basins such as the North           
 Slope.  When the rock is subjected to heat and pressure, the oil is           
 actually destroyed, and the natural gas remains.                              
                                                                               
 MR. MEYERS said, in Cook Inlet, the coal is the primary source of             
 natural gas.  On the North Slope there are tremendous reserves of             
 natural gas in the fields at Prudhoe Bay, somewhere around the                
 figure of 44 trillion cubic feet located in depths less than 3,000            
 feet.  Some of the gas on the North Slope is frozen and some of it            
 is pre-gas.  He said this source is derived from the same oil                 
 source in the fields.  He said natural gas is a resource located in           
 the coal bed reservoir which serves as a  trapping mechanism for              
 certain types of gas reservoirs.  He said in the lower 48 states it           
 is common for gas to be produced along with coal in that coal bed.            
                                                                               
 MR. MEYERS said there is nothing magical about 3,000 feet.  He said           
 that depth is a mechanical or safety issue because at an increased            
 depth the pressures and the chance of encountering oil are more               
 likely to be an issue.  He said there is oil less than 3,000 feet             
 and cited examples where this is the case.  He said every area must           
 be looked at geologically to determine those types of separations.            
                                                                               
                                                                               
 MR. MEYERS concluded that from a technical perspective, segregating           
 out coal bed gases is very problematic.                                       
                                                                               
 Number 720                                                                    
                                                                               
 CHAIRMAN ROKEBERG asked if a majority of the gas was derived from             
 coal in the Cook Inlet.                                                       
                                                                               
 Number 740                                                                    
                                                                               
 MR. MEYERS said that was a debated issue, but current opinion is              
 that the gas in the Cook Inlet is derived from coal.                          
                                                                               
 CHAIRMAN ROKEBERG asked the estimated gas amount on the North                 
 Slope.                                                                        
                                                                               
 MR. MEYERS said the estimates in the Kuparuk and Prudhoe Bay Units,           
 for in-place, gas hydrates at shallow depths, to be 37 to 44                  
 trillion cubic feet of gas.  This translates into a recoverable 26            
 trillion cubic feet.                                                          
                                                                               
 Number 782                                                                    
                                                                               
 CHAIRMAN ROKEBERG asked what a gas hydrate was.                               
                                                                               
 MR. MEYERS said it is natural gas in a frozen state, some of it               
 being pre-gas and some of it remaining frozen beneath the                     
 permafrost.  He mentioned the North Slope reserves to point out               
 that there were other natural gas sources besides coal bed methane.           
 He mentioned a gas project in Barrow which will provide gas                   
 production from a well less than 2,000 feet deep.  He said they               
 have (indiscernible) exploring in that area for conventional gas.             
 In areas such as the western North Slope, there is conventional               
 gas, but it is not economic for the purposes of development.                  
 However, it might be economic to develop for a local, rural supply.           
                                                                               
 MR. MEYERS said he was hesitant about supporting HB 394 because it            
 segregates a specific type of gas.  He said if you are a small                
 rural community you want to produce all the gas that is available             
 in that well and you don't want to be limited to 3,000 feet                   
 especially in the first well.                                                 
                                                                               
 Number 863                                                                    
                                                                               
 CHAIRMAN ROKEBERG asked for clarification on coal bed methane and             
 shallow gas reservoirs.                                                       
                                                                               
 Number 882                                                                    
                                                                               
 MR. MEYERS said he would not differentiate gas found                          
 (indiscernible) versus gas found in more conventional sites such as           
 sandstone reservoirs.  He said they are all sources of gas.  One of           
 the advantages of coal bed methane is that there is less risk of              
 not finding coal then there is finding conventional gas resources.            
 He repeated that coal and coal bed gas are commonly found in the              
 same basin.  He said the rural areas need to produce all available            
 gas for economic reasons.  He said the 3,000 foot depth for bonding           
 requirements may be an issue, but from a geological standpoint                
 3,000 feet is not a magical depth at all.  He said HB 394 would               
 segregate the mineral state, under leases at a certain depth, which           
 is not a comfortable requirement in regards to the rural community            
 or in areas where you have conventional oil and gas production.               
                                                                               
 Number 975                                                                    
                                                                               
 CHAIRMAN ROKEBERG asked how long it would take a private company to           
 enter state land and develop coal bed methane exploration under               
 current law.                                                                  
                                                                               
 Number 1076                                                                   
                                                                               
 MR. HANSEN said under the (indiscernible-low, muffled voice)                  
 licensing program would be the fastest way.  An (indiscernible-low,           
 muffled voice) "under SB 308 you would have to go through an                  
 extensive public comment period."  He estimated that the whole                
 process would take a year and a half to two years, from the time              
 the public proposes to develop and area, to the actual licensing.             
 He said this time frame is based on Alaskan law.                              
                                                                               
 Number 1146                                                                   
                                                                               
 CHAIRMAN ROKEBERG asked what the cost, to the Department of Natural           
 Resources and related agencies, would be to put a best-interest               
 finding together for that type of license.                                    
                                                                               
 Number 1158                                                                   
                                                                               
 MR. HANSEN said it takes, a staff of four, six months to write a              
 finding.  After that it takes several months to incorporate public            
 comment into a revised finding for a total time commitment of eight           
 months.  In addition to that time period, the Division of Land's              
 needs time to do the title work.  He said the cost of the proposed            
 program, referring to the attached fiscal note, would be $386,000             
 for the first year and $352,000 each year after.  He said using               
 existing staff would create a problem scheduling existing oil and             
 gas lease sales.  He concluded that the current cost to produce a             
 best-interest finding would be $100,000, more or less.                        
                                                                               
 Number 1158                                                                   
                                                                               
 TOM CHAPPLE, Program Manager, Industry Preparedness and Pipeline              
 Program, Division of Spill Prevention and Response, Department of             
 Environmental Conservation (DEC), was next to testify.  He said his           
 division, as well as the Administration, supports HB 394.  He said            
 HB 394 could provide long term environmental benefits if gas                  
 development and coal bed methane gas is used to generate space                
 heating and rural electric needs of rural areas.  Replacing diesel            
 fuel with natural gas would (indiscernible due to paper shuffling.)           
                                                                               
                                                                               
 MR. CHAPPLE commented on the intention of HB 394 to avoid                     
 unnecessary bonding requirement from the DEC.  He said HB 394                 
 accomplishes this by limiting wells to less than 3,000 feet and the           
 requirement that the Oil and Gas Conservation Commission (O&GCC)              
 certifies whether there is any likelihood of encountering oil.  "We           
 encourage those types of provisions because we would like to see a            
 bill that did not require that level of bonding, if indeed the                
 mission of HB 394 is encourage gas development.  The DEC does not             
 regulate gas production as long as we know that (indiscernible)               
 because were not concerned about the spill impact.  Overall we                
 would like to see a way that type of objective could still be                 
 accomplished in the bill even if some of these concerns of DNR with           
 the particular well depth is of concern."                                     
                                                                               
 Number 1322                                                                   
                                                                               
 MR. CHAPPLE said the provision of HB 394, of concern to DEC, is if            
 well drilling is taking place for gas and oil is encountered.  The            
 way in which HB 394 is drafted, if this scenario happens, the                 
 driller is allowed to extract the oil during the time period in               
 which they are submitting an oil spill contingency plan.  He said             
 he assumed that this was written, so that the seasonal opportunity            
 would not be lost.  He added that there were a number of instances            
 where approval for this contingency plan would not result in a                
 delay.  He said putting oil into production would involve a                   
 rethinking of the production plan by the exploration company as               
 well as the need for additional geological information.                       
                                                                               
 MR. CHAPPLE said contingency plans for exploration oil wells are              
 completed in 60 days or less.  He said contingency plans in the               
 North Slope can be done in as few as 30 days because they can be              
 amended on existing plans.  He concluded that the provisions in HB
 394, allowing drilling to continue, is in conflict with most of the           
 permit requirements (indiscernible due to overlapping voices) Title           
 46 of Alaska law.  Most new activities must apply and obtain their            
 permits before the activity is undertaken, but HB 394 allows the              
 activity to be undertaken before the permits are acquired which               
 could leave some environmental protections on hold or not fully               
 met.                                                                          
                                                                               
 Number 1504                                                                   
                                                                               
 CHAIRMAN ROKEBERG referred to the section of HB 394 which excludes            
 the discharge or disposal of waste material or water from                     
 activities associated with coal bed methane exploration drilling              
 and asked if the DEC had any problem with that exclusion.                     
                                                                               
 Number 1547                                                                   
                                                                               
 MR. CHAPPLE said there was no problem if it is a shallow well.  He            
 said a shallow well does not use mud that would be toxic to the               
 environment.  There would be a concern about waste disposal for               
 deeper wells.                                                                 
                                                                               
 Number 1577                                                                   
                                                                               
 CHAIRMAN ROKEBERG asked if 3,000 feet defined a shallow well.                 
                                                                               
 MR. CHAPPLE said he did not know specifically if 3,000 feet is the            
 "magic number."                                                               
                                                                               
 Number 1607                                                                   
                                                                               
 CHAIRMAN ROKEBERG referred to a section of HB 394 which excludes              
 coal bed methane gas from the bonding requirements and asked if it            
 was acceptable to the DEC.                                                    
                                                                               
 Number 1644                                                                   
                                                                               
 MR. CHAPPLE said they found it acceptable because of the provision            
 that the O&GCC to say that no oil is likely to be encountered.  He            
 said bonding provides a financial purse in case of an oil spill               
 where the state needs to come in and clean up the spill.                      
                                                                               
 Number 1700                                                                   
                                                                               
 CHAIRMAN ROKEBERG said a concern was expressed that no geophysical            
 information might be available in frontier areas.                             
 Number 1736                                                                   
                                                                               
 MR. MEYERS said the geology of the interior basin of Alaska is                
 extremely complex and often in areas that are geologically                    
 disrupted.  He said there is very little well control because there           
 is little control over pressures.  He explained that over-pressure            
 can occur in conditions where you have normal pressure gradients,             
 but for some reason certain zones have higher than normal pressures           
 due to the geologic history.  He said in the North Slope they have            
 a lot of well control because of those conditions.  He added that             
 developing wells in a new areas creates different problems.  He               
 said you can take seismographic information and determine the                 
 layers of the rocks and possible faults, but doing this type of               
 seismic data is very expensive and cost prohibitive if these types            
 of wells are not commercially viable.  This development would be              
 prohibitive if the fuel was going to be used for local energy                 
 source.  He said until several wells are done in one area you will            
 not have sufficient data to make a determination, placing a heavy             
 burden on the O&GCC.  He said the O&GCC would probably need to                
 speak to their level of documentation required in order for them to           
 make that determination.  He said, as a geologist, he would find it           
 difficult if he didn't have any well control, especially in                   
 interior basins where there is not a lot of geological information.           
                                                                               
 MR. MEYERS repeated that the 3,000 foot level is not a magical                
 number.  He said oil and gas producers should address their                   
 drilling programs and what mud is used where.  He said a well                 
 drilled 4,000 to 5,000 feet, under different geological conditions,           
 could use the same kind of mud as wells drilled at 3,000 feet.                
                                                                               
 MR. MEYERS said it is very hard in law to regulate these factors              
 when you are dealing with an unknown geologic quantity of reserves            
 and unknown geology.  He said to obtain data about these unknowns             
 is very expensive.                                                            
                                                                               
 CHAIRMAN ROKEBERG said testimony on HB 394 was closed for today.              
 He repeated that it takes over two years, if we know a resource is            
 in place, for any company to go to an area and produce gas.  The              
 main purpose of HB 394 is assisting business and rural areas in               
 developing their natural resources to provide energy near their               
 communities.  He said current state leasing hinders this                      
 development.                                                                  
                                                                               
 Number 2056                                                                   
                                                                               
 REPRESENTATIVE OGAN said he wanted to associate himself with                  
 Chairman Rokeberg's comments.  He said HB 394 benefits rural                  
 Alaskans.  He would like to see the $20 million power cost                    
 equalization mitigated as well as addressing the diesel tank                  
 storage unit problem.                                                         

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