Legislature(2003 - 2004)
04/14/2004 01:40 PM House RES
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* first hearing in first committee of referral
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+ teleconferenced
= bill was previously heard/scheduled
HB 395-SHALLOW NATURAL GAS/ OIL AND GAS [Also contains discussion of HB 69.] Number 2507 CO-CHAIR MASEK announced that the next order of business would be HOUSE BILL NO. 395, "An Act relating to shallow natural gas leasing and the regulation of shallow natural gas operations." Number 2488 CO-CHAIR DAHLSTROM moved to adopt CSHB 395, 23-LS1314\O, Chenoweth, 4/13/04, as the working document. There being no objection, CSHB 395, version O was before the committee. CO-CHAIR MASEK directed the members attention to written testimony included in their packets from a [Ms]. Wieland of Homer, as follows: [original punctuation provided] Thank you for hearing this bill and opening it to public testimony - glancing quickly at HB 395, there seems to be a number of good provisions. I'd like to see removal of use of fracturing fluids to protect our aquifers. I'm still concerned about the amount of power the DNR commissioner has, and I'd like to see that lessened. Please allow a second opportunity for public to testify. Although this bill provides several good provisions, I'd still like to see all the leases bought back so we don't have this sword hanging over our South Peninsula and Mat-Su heads. Then, consider starting over with a best interest finding and stay far away from private property unless owners want (indisc.). Thank you. Number 2469 RICK VANDERKOLK, Staff to Representative John Harris, Alaska State Legislature, testified on HB 395 on behalf of Representative Harris, sponsor. He told the members that in compliance with Co-Chair Masek's request a review has been done on comments by John Norman of the Alaska Oil and Gas Conservation Commission (AOGCC). A couple of housekeeping changes have been made with respect to that review. He pointed to page 3, line 23, the word "punitive" was removed and replaced with the word "actual", so it now reads as follows: (c) If a developer fails to give notice as provided in this section, the surface owner may seek any appropriate relief in the court of proper jurisdiction and may receive actual damages. MR. VANDERKOLK explained that the prior language was redundant because it is already covered under AS 38.05.130. MR. VANDERKOLK then referred to page 4, line [10 and] 11, as follows: (4) "oil and gas operations" means an activity for which a permit is required by AS 31.05.090 that requires entry upon the surface estate; MR. VANDERKOLK explained that the AOGCC was concerned that the language be very specific as to the definition of oil and gas operations so the reference to AS 31.05.090 was inserted which refers to permits and fees to drill wells. Mr. VanderKolk summarized that those are the only two changes made to version O. Number 2333 JEFF ARNDT, Friends of the Mat-Su, testified on HB 395. He said he likes that the 3,000-foot well depth limitation was reinserted in the bill, rather than the convoluted language about waivers. In Section 6, [page 5,] beginning on line 12, there is language which discusses the water well testing requirements which states it is limited to one-quarter mile radius around the drill site. He said he does not believes that even comes remotely close to taking into account how water travels. He stated he believes this is way to small an area. Section 10 still does not provide direct notification of property owners in leased areas. He asked that there be a certified letter to every landowner in the area. Mr. Arndt commented that he likes Section 11 where there is a repeal of the state's override policy. He told the members that he believes the committee should consider limiting DNR's discretion to reissue current leases. He reiterated that he would like to see the bill amended to include the buyback of the leases because none of the bills address the 230,000 acres of the Matanuska-Susitna valley that have already been leased. Number 2215 MARY BARRETT testified on HB 395. She told the members that she agrees with what was just said and wishes that HB 69 be repealed. Ms. Barrett emphasized that she believes a certified letter of notification to all landowners in the leased areas is appropriate. All wells should be tested, not just the one- quarter area around drill site, she said. People are very concerned about their wells being contaminated or their wells drying up. The property owners' bill of rights should be adopted because that would provide the protection the property owners' desire. It would remove the perception that industry's rights take precedence over property owners, Ms. Barrett stated. The bill doesn't address current CBM leases and urged the buy back of these leases. Please tax the companies on what is owed until the buy backs are done, she asked. Number 2131 MERLIN THOMPSON, Chairman, Ogan is So Gone Recall, testified on HB 395. He told the committee that he supports the comments made by the prior testifiers. Mr. Thompson referred to page 5, line 19, and said he believes that testing should be expanded beyond the drill site. He suggested that testing include conductivity as well as solvents. There should be extra concern and testing for any disposal well because of the amount of contaminants that are put in them, he emphasized. Mr. Thompson commented that he believes the $1 per acre cost in leasing is extremely low. He added that he believes that there should be a buyback provision included in the bill. The bonds that have been posted are outrageously low, he said. Mr. Thompson stated for the record that he received a copy of version O of the bill at 1:53 p.m., a copy of version U at 2:40 p.m., and this committee was scheduled to start at 1 p.m. He stated that it makes it tough to testify on the particulars of any bill if an individual does not receive the bill until after the meeting starts. Number 1977 ROBIN McLEAN, Sutton Community Council, testified on HB 395. She told the members that she spoke last week and gave a couple of specific suggestions, as did Mr. Norman from the AOGCC. It is troubling when hundreds of people have testified at meetings and workshops in the valley and the people speaking today are speaking for them. They unanimously agree on many things, but none of those suggestions that were made to the committee last week have been included in the new version, whereas the AOGCC representative's suggestions were addressed. Ms. McLean said she wanted to note that point. She emphasized that the people in the valley want actual notices for these leases before they happen. People want a letter, she stated. Ms. McLean said she hopes the subcommittee will include that element in the bill. There is concern about the vague language in the bill. For example on page [5, lines 27 through 29] which reads: ...the terms of the lease must require the lessee or lessee's agent to negotiate to meet the requirement of this paragraph, but the owner may not unreasonably withhold agreement; MS. McLEAN emphasized that the language is very vague and strongly urged the committee to revise it. This language creates an amazing feeling of insecurity with people. She urged the committee and subcommittee to add the buy back provision and a moratorium on the reissuance of leases of nonproducing (indisc.). She commented that Mr. Myers testified that 60 percent of the leases were bought on speculation. If the leases aren't valuable let the property owners have the weight off their mind that the leases will sunset in two and a half years. It would be a great relief to many property owners, she reiterated. Ms. McLean suggested that someone besides DNR testify on the buyback provision because hundreds of people in the valley want the buyback. Number 1763 MIKE McCARTHY, Kachemak Bay Property Owner's Alliance, testified on HB 395. He reiterated that he is in agreement with the prior testimony. Mr. McCarthy pointed to page 5, [lines 12 through 18], Section 6, subsection (2), which reads as follows: (2) a water well testing requirement for each lease that contains one or more wells that serve as a source of potable water; the testing requirement of this paragraph applies to each water well that is located within a square that bounds a circle with a radius of one-quarter mile around the drill site and the sides of which are parallel or perpendicular to the four cardinal directions and are tangent to the circle; under this paragraph, the lessee shall, before commencement of production testing and production activities on the lease, ... MR. McCARTHY commented that he does not believe that is equivalent when thinking about hydrologic fracturing pressure that can be as much as 10,000 pounds per square inch. He stated that is a phenomenal amount of pressure to contain in one- quarter mile and is not adequate. Mr. McCarthy reminded the members of the alliance's desire for all property owners to be notified by certified mail. He said that is the same standard by which Minerals Management Services operates and he said he believes the state should do no less. REPRESENTATIVE GUTTENBERG commented that he has not heard much in the way of testimony on setbacks, terminations, and abandonment's of exploration and development operations. He questioned what the position is of Kachemak Bay Property Owner's Alliance on these issues. Does the bill adequately address the alliance's concerns, Representative Guttenberg asked. Number 1615 MR. McCARTHY responded that he received the latest draft five minutes before testimony began so he cannot comment on the difference between this version and the prior one. The problem of abandonment and the possibility of companies going under, which in the typical lifespan of the lower 48 CBM business the initial companies that come in are the cream of the crop. They are the best of the CBM producers. As they draw down on the reserves the property gets passed down to less and less reputable companies. The potential for a company that is not financially solvent just walking off and leaving all sorts of potential danger to the property owner needs to be taken into account, he said. Mr. McCarthy summarized that he does not know if that point is addressed in the latest version of the bill. Number 1584 MARK MYERS, Director, Division of Oil & Gas, Department of Natural Resources (DNR), during bill hearing on HB 395, provided information and answered questions. He explained that what the state has adopted has been a policy of having bonded (indisc.), but recognizing that the transfer of the property that delves sinking funds or bonding mechanisms to get the significant bonding requirements. The problem that Mr. McCarthy mentioned is one that is commonly seen in conventional oil and gas leasing in places like Texas where companies will sell its property when it reaches the end of field life to smaller operators that are less financially secure and not capable of doing the reclamation work, he commented. The department has two mechanisms, he said. When leases are transferred it is required that there be bonding or sinking funds particularly for the financially weaker companies. Secondly, the liability does not go away with the transfer. The parent company of the original lessee is still held responsible, he explained. The division is very cognizant of the issue and has done a good job of avoiding the abandonment risk. It has been accomplished through the way the leases are written and the bonding process, he added. MR. MYERS told the members that DNR supports HB 395 as written. There are a lot of protections in HB 395. The department sees HB 395 as a companion bill to HB 531 which addresses the leasing issues, while HB 395 addresses the overall regulation of CBM activity, he said. Where there is CBM activity, no matter where it is in the state, these are the kinds of requirements that provide additional protections, he said. MR. MYERS commented that the water-testing requirement where there is a quarter-mile issue is not that clear. There is no magic number, he added. Mr. Myers explained that the quarter- mile was established because if there are effects from these activities these wells would be the first to experience problems. Mr. Myers pointed out that this does not preclude other testing. He reiterated that DNR supports this bill. The process is advancing in the [Matanuska-Susitna] valley and there will be a draft next week which will reflect the public's recommendation. Number 1246 REPRESENTATIVE KERTTULA asked what he said about next week. MR. MYERS replied that the division expects to have the draft report from the five meetings in the [Mat-Su] valley available next week. It will be available for a period of time and the division will accept public comment on the recommendations. Those comments will be finalized and final findings and regulations will be issued by the DNR commissioner. CO-CHAIR MASEK asked if Mr. Boyd would like to comment. Number 1186 MR. BOYD replied that he has no additional comments on HB 395. CO-CHAIR MASEK announced that HB 395 will be held in committee. The subcommittee will work on HB 531 and HB 395 and report back to the chair with revised bills, she said.
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