Legislature(1995 - 1996)

03/13/1996 08:10 AM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
 HB 394 - GAS & COAL METHANE LICENSES & LEASES                               
                                                                               
 Number 0089                                                                   
                                                                               
 REPRESENTATIVE SCOTT OGAN, sponsor of HB 394, offered to answer any           
 questions before addressing amendments.  The committee was working            
 from version M, dated 3/7/96.  Representative Ogan moved                      
 Amendment1 to CSHB 394, which read:                                           
                                                                               
      Page 2, line 24:  Delete "at the drill site"                             
      Page 3, line 27:  Delete "at the drill site"                             
      Page 5, line 26:  Delete "at the drill site"                             
                                                                               
 REPRESENTATIVE OGAN explained this was a technical amendment                  
 recommended by the Department of Natural Resources, Division of Oil           
 and Gas.  He said, "They felt that `at the drill site' was not                
 appropriate language because right before that, it talks about ...            
 within 3,000 feet of the surface at the drill site.  The problem is           
 sometimes that the casing doesn't go straight down.  If they                  
 deviate the casing somewhat, it could be interpreted that 3,000               
 feet from the drill site might not be 3,000 feet down."                       
                                                                               
 CO-CHAIRMAN GREEN asked if there were any comments about the                  
 proposed amendment.  There being none, Amendment 1 passed.                    
                                                                               
 Number 0231                                                                   
                                                                               
 REPRESENTATIVE OGAN moved Amendment 2 to CSHB 394, which read:                
                                                                               
      Page 9, line 5 & 6:  Delete "of the facility"                            
              line 5:  Insert "owner or" following "the"                       
                                                                               
      Page 9, line 11:  Delete "of the facility"                               
              line 11:  Insert "owner or" following "the"                      
                                                                               
      Page 10, line 7:  Delete "of the facility"                               
               line 7:  Insert "owner or" following "the"                      
                                                                               
 REPRESENTATIVE OGAN believed this was a recommendation of the Oil             
 and Gas Conservation Commission.  "Of the facility", which was not            
 clear language, was being changed to "owner or operator".                     
 Basically a technical amendment, it would cover anybody associated            
 with the drilling operation, Representative Ogan said.                        
                                                                               
 CO-CHAIRMAN GREEN asked if there were questions or objections.                
 There being none, Amendment 2 passed.                                         
                                                                               
 Number 0320                                                                   
                                                                               
 REPRESENTATIVE OGAN offered Amendment 3 to CSHB 394, which read:              
                                                                               
      Page 3, line 19:  Substitute "more" for "less"                           
                                                                               
 He explained, "What we'd like to do is put a very linear process in           
 the public comment period, here.  This was a drafting mistake, a              
 request of the drafter to change this. ...  We'd like the public              
 comment period not to exceed 60 days, so when an operator will                
 know, for example, that if he applies for a lease in the fall of              
 one year, that in so many days, by the spring of next year, he'll             
 be able to go into the area and set up and operate."                          
                                                                               
 CO-CHAIRMAN GREEN asked if there were questions or objections to              
 Amendment 3.                                                                  
                                                                               
 REPRESENTATIVE JOHN DAVIES objected.  He asked:  "Would you object            
 to just making it 60 days, period?"                                           
                                                                               
 REPRESENTATIVE OGAN replied 60 days would be fine.                            
                                                                               
 Number 0443                                                                   
                                                                               
 REPRESENTATIVE DAVIES moved to amend Amendment 3 to read, "a                  
 comment period of 60 days".                                                   
                                                                               
 CO-CHAIRMAN GREEN said, "Just deleting `not less than'."                      
                                                                               
 REPRESENTATIVE DAVIES concurred.                                              
                                                                               
 CO-CHAIRMAN GREEN noted that was a friendly amendment to                      
 Amendment3.                                                                   
                                                                               
 REPRESENTATIVE OGAN agreed he perceived it as a friendly amendment.           
                                                                               
 Number 0479                                                                   
                                                                               
 REPRESENTATIVE GREEN stated, "We're making it a 60-day specific,              
 rather than `more' or `less'."  He asked if there was an objection.           
 There being none, Amendment 3 passed.  Co-Chairman Green noted that           
 it would read, "comment for a period of 60 days."                             
                                                                               
 REPRESENTATIVE OGAN moved Amendment 4 to CSHB 394, which read:                
                                                                               
      Page 5, Lines 26-29:                                                     
           Delete:  "If the lessee's operation under the lease                 
      results in the production of oil or of gas in violation of               
      this subsection, the director shall immediately suspend the              
      lessee's operation under the lease and may terminate the                 
      lease."                                                                  
           Insert:  following "surface"   ".  If an                            
      onshore well drilling for natural gas under a lease authorized           
      by AS 38.05.177 penetrates a formation capable of producing              
      gas below 3,000 feet of the surface, the owner or operator               
                (1) shall notify the department and the Alaska Oil             
      and Gas Conservation Commission; and                                     
                (2) may not conduct further operations in the                  
      drilled well until the facility complies with all applicable             
      laws and regulations relating to oil and gas production;                 
      however, this paragraph does not prevent the owner or operator           
      from conducting activities that may be required by the Alaska            
      Oil and Gas Conservation Commission to plug or abandon a                 
      well."                                                                   
                                                                               
 Number 0489                                                                   
                                                                               
 REPRESENTATIVE OGAN explained there was a similar provision in the            
 bill that when an operator entered a formation capable of producing           
 oil, that operator had to cease operation and notify the                      
 department.  Further operations could not be conducted until the              
 facility complied with applicable laws and regulations.                       
 Representative Ogan said, "What we're attempting to do with this is           
 to put some further parameters.  The legal experts and DNR [have]             
 shared some concern about ... who owns the gas below 3,000 feet.              
 And if the operator enters into a gas formation [where] gas is                
 possibly produced below 3,000 feet, ... we would like them to cease           
 operations and enter into the normal oil and gas lease process."              
                                                                               
 REPRESENTATIVE OGAN mentioned there had been subsequent discussion,           
 not reflected in Amendment 4, where someone would possibly be able            
 to plug the well at 3,000 feet and produce the gas above that.  He            
 said he would not put that on the table currently.                            
                                                                               
 REPRESENTATIVE OGAN stated, "What I've been told by the experts is            
 if a person enters a formation, ... for example, if its a gas cap             
 on an oil formation, the pressures will be much greater and they'll           
 be able to tell that they're into this formation that possibly                
 produces gas from below 3,000 feet.  Because we're making a lot of            
 accommodations to put this program in place, we'd like to make this           
 as bullet-proof as possible, so we don't end up in litigation and             
 problems further on down the line."                                           
                                                                               
 Number 0642                                                                   
                                                                               
 CO-CHAIRMAN GREEN referred to page 2, line 20, and said "SHALLOW              
 NATURAL GAS LEASES" applied to a lease within 3,000 feet of the               
 surface.  He asked:  "How, then, would a well produce gas below               
 3,000 feet in this amendment?"                                                
                                                                               
 REPRESENTATIVE OGAN replied, "Only if ... the gas that they hit               
 above 3,000 feet ... possibly comes from below 3,000 feet.  In                
 other words, if they hit the top of a gas cap that extends below              
 3,000 feet, we'd like them to enter into a conventional oil and gas           
 lease."                                                                       
                                                                               
 Number 0777                                                                   
                                                                               
 REPRESENTATIVE ALAN AUSTERMAN indicated there was no competitive              
 leasing at that point in time, as would normally occur.  He asked             
 what prohibited people from drilling 3,000-foot wells without                 
 having to get permits until they found a gas pocket.                          
 Representative Austerman understood that an operator could complete           
 the paperwork afterwards, without going through a competitive bid.            
 He asked if that was how it was set up, with the amendment.                   
                                                                               
 Number 0828                                                                   
                                                                               
 REPRESENTATIVE OGAN suggested someone on teleconference might be              
 better qualified to answer that.                                              
                                                                               
 CO-CHAIRMAN GREEN asked:  "Is your question that they can go                  
 anywhere and punch holes?  They're only going to be drilling holes            
 on their lease.  Their lease is just limited to 3,000 feet.  Or are           
 you thinking maybe there'll be some 3,000-foot leases and not                 
 anything leased below that?"                                                  
                                                                               
 REPRESENTATIVE AUSTERMAN replied, "Well, obviously, this bill is              
 for everything above 3,000 feet.  And everything above your                   
 demarcation line ... is a competitive-type leasing, whereas this              
 new bill is not a competitive-type leasing program."  He suggested            
 a person could pick a place to drill; if everybody said it was all            
 right, that person could go ahead and drill there above 3,000 feet.           
 Representative Austerman asked if that was correct.                           
                                                                               
 CO-CHAIRMAN GREEN responded, "If a lease is granted."                         
                                                                               
 REPRESENTATIVE OGAN agreed.                                                   
                                                                               
 CO-CHAIRMAN GREEN said, "So, it's what's happened below that, in              
 this area that has not been leased, below 3,000 feet."                        
                                                                               
 REPRESENTATIVE AUSTERMAN concurred.                                           
                                                                               
 CO-CHAIRMAN GREEN stated, "It's my understanding there would be               
 nothing to preclude the driller of the 3,000-foot well, who had               
 special compensation because he doesn't have to have as big a bond            
 and all these other ramifications for the likelihood it's not                 
 there.  If he then says, `hey, I think there's a mother lode below            
 here, I'm going to go get a lease of a different kind', then he               
 would be subject to all the other ramifications of a lease, the big           
 bond, the whole nine yards, just as he would be now."                         
                                                                               
 Number 0937                                                                   
                                                                               
 REPRESENTATIVE AUSTERMAN asked if that would have eliminated the              
 competition that would normally occur.                                        
                                                                               
 CO-CHAIRMAN GREEN replied, "Well, no, he has to get the lease.  And           
 the owner of the land, if it's Native land or if it's state land,             
 may say, `I'm sorry, Charlie, that's not going to be on the lease             
 schedule for five more years.'  So, you ... can't drill in the                
 lower until you get a lease, and that's not going to be up for                
 awhile.  The only exception that I can think of is if there was               
 [an] exploration licensing area, that the shallow gas entity wanted           
 to come in and say, `look, there's a Native village on this large,            
 sub-surface lease and we think we can find some shallow gas', that            
 might be an exception.  But, then, that would already be leased to            
 someone else who has the rights to drill deeper.  So, I don't think           
 that would be a problem."                                                     
                                                                               
 REPRESENTATIVE AUSTERMAN asked:  "But what if at 2,995 [feet] he              
 finds oil?  Then he has to cap it?"                                           
                                                                               
 CO-CHAIRMAN GREEN said yes.                                                   
                                                                               
 REPRESENTATIVE AUSTERMAN continued:  "He can't go any further with            
 it?"                                                                          
                                                                               
 Number 1002                                                                   
                                                                               
 REPRESENTATIVE OGAN said that was covered in another portion of the           
 bill.  An operator who encountered a formation capable of producing           
 oil had to cease operations and notify the department and the                 
 Alaska Oil and Gas Conservation Commission (AOGCC), as well as                
 comply with all applicable laws.  Representative Ogan noted that              
 operations would cease except for whatever was instructed by the              
 AOGCC.                                                                        
                                                                               
 CO-CHAIRMAN GREEN stated, "Then you get into a correlative rights             
 situation.  And that's where the Conservation Commission comes in,            
 because then, in effect, you have a 3,000-foot lease but you're               
 trying to drain ... oil from a 3,001-foot lease, which is a                   
 different entity."   He added, "You can't drain oil from someone              
 else's lease, unless it's unitized."                                          
                                                                               
 Number 1072                                                                   
                                                                               
 REPRESENTATIVE OGAN pointed out that Section 7, page 9, relating to           
 onshore well drilling for gas that penetrated a formation capable             
 of producing oil, had the same stipulations.                                  
                                                                               
 REPRESENTATIVE DAVIES said he understood the concern and noted they           
 were talking about the "hinterlands," where little geophysical                
 exploration had occurred.  He wondered how a person would know, at            
 2,900 feet, where gas was coming from.                                        
                                                                               
 Number 1138                                                                   
                                                                               
 REPRESENTATIVE OGAN replied he had been told by Tuckerman Babcock             
 of the AOGCC that if they hit a natural gas formation not                     
 associated with the characteristics of methane, which was low-                
 pressure and low-volume, chances were it could be associated with             
 another type of gas.  Representative Ogan suggested if committee              
 members had reservations about the Amendment 4, he would withdraw             
 it for later discussion.                                                      
                                                                               
 Number 1192                                                                   
                                                                               
 REPRESENTATIVE DAVIES stated the amendment was better than the                
 existing language.  However, he was seeking clarification.  He                
 asked if an adjacent leaseholder or the AOGCC would trigger it.               
                                                                               
 CO-CHAIRMAN GREEN replied, "In order to drill the well, to get the            
 permit, you have to have an Oil and Gas Conservation Commission               
 permit.  And in that permit, the requirements are that you will               
 provide the geological information you find - if you're going to              
 log it, all copies of the logs, any cuttings, any cores that are              
 taken - so that the Conservation Commission engineering and                   
 geological staff would be privy to the information that the                   
 operator gets on the well. ... Let's assume ... at 2,990 you                  
 encounter a gas sand that might be a part of a dome that extends              
 below 3,000 feet, which would come under this operation.  At that             
 time, you would have to follow this amendment, as I understand your           
 suggestion."  Chairman Green added that the AOGCC would then have             
 authority.  "You then get into a situation of either draining                 
 unleased or other leased interests below 3,000 feet," he said,                
 indicating that addressed Representative Austerman's question.                
                                                                               
 Number 1384                                                                   
                                                                               
 CO-CHAIRMAN GREEN continued, "So, then, you either have to ... go             
 to a unitization or get permission of the owner of the lower gas-             
 hold," he said.  "That gets sticky, and so, I would imagine what              
 would happen is you'd be tangled up in a unitization effort, which            
 would actually work against the concept here, because those things            
 probably take a year, at minimum.  But, on the other hand, it might           
 not take that much, because whoever has the sub-surface lease,                
 then, is assured of at least finding some gas."  He noted this was            
 all speculative.  He suggested it would be handled not in this bill           
 but by the AOGCC and the Department of Natural Resources (DNR), as            
 far as leasing was concerned.                                                 
                                                                               
 Number 1411                                                                   
                                                                               
 CO-CHAIRMAN GREEN noted there were several methods for determining            
 that the condition existed.  For an unleased area, the situation              
 would be stickiest, he suggested, because the operator or someone             
 else might want to take out a conventional lease.  And the lease              
 for the lower interval would not be on the lease schedule.                    
                                                                               
 REPRESENTATIVE AUSTERMAN said that was his question.                          
                                                                               
 CO-CHAIRMAN GREEN said, "Then, you get a situation where, at this             
 person's detriment, they have discovered a gas reservoir at the               
 very, very edge of their lease area and that's an unfortunate                 
 situation, because they would be in a correlative rights problem."            
                                                                               
 Number 1444                                                                   
                                                                               
 JAMES HANSEN, Leasing/Evaluations, Division of Oil and Gas,                   
 Department of Natural Resources (DNR), testified via teleconference           
 from Anchorage.                                                               
                                                                               
 CO-CHAIRMAN GREEN asked:  "Would you be willing to take this                  
 situation on?  Did you understand the concern that was registered?"           
                                                                               
 MR. HANSEN replied he had written down the same concern that                  
 morning.  "You pretty much have pointed out all the problems," he             
 said.  He referred to the question of what would happen if gas were           
 struck that extended below 3,000 feet.  He suggested the operator             
 would have to hold back and DNR would have to go through the                  
 competitive process in order to lease below 3,000 feet.  "That                
 would be a stumbling block to producing any of that gas, even above           
 the 3,000 feet," he said.                                                     
                                                                               
 Number 1484                                                                   
                                                                               
 REPRESENTATIVE DAVIES asked Mr. Hansen, "In a relatively unexplored           
 area, ... how would we know that you'd penetrated a formation                 
 capable of producing gas below the 3,000 feet?  What kinds of                 
 information would be available out of single hole to know that kind           
 of information?"                                                              
                                                                               
 MR. HANSEN replied there were several ways to tell.  If a bed was             
 dipping down-slope, away from the well, it was fairly certain that            
 gas existed further down.  "If you drill down to 3,000 feet, stop             
 at that point, and you hit gas, and you still have gas at 3,000,              
 chances are pretty good you've got gas below 3,000," he said.  "But           
 you're right, without a geophysical survey to be able to `see'                
 what's down there or ... how thick the formation is ..., it would             
 be hard to tell."  He said if there were other signs, it could be             
 assumed gas extended further down, however.                                   
                                                                               
 Number 1546                                                                   
                                                                               
 CO-CHAIRMAN GREEN explained that surface geology would create the             
 desire to drill there in the first place.  He asked why a person              
 would want to drill a 3,000-foot well just on speculation.                    
 "They're going to try to find that area that gives the most                   
 likelihood of finding gas," he said, indicating magnetometers,                
 seismic indications, or surface geology could be used to make that            
 determination.                                                                
                                                                               
 REPRESENTATIVE DAVIES referred to a concern raised by Dave Lappi at           
 an earlier hearing and asked:  "Suppose that you encountered gas at           
 2,000 feet and the well went on down, and then you got into a                 
 situation where this paragraph would be triggered and you had to              
 plug it.  Within this language, is it possible for AOGCC to allow             
 them to plug the bottom of the hole and back up to the 2,000-foot             
 horizon and just produce the low-pressure methane from that level?"           
                                                                               
 CO-CHAIRMAN GREEN replied, "I would certainly think so."                      
                                                                               
 Number 1640                                                                   
                                                                               
 MR. HANSEN agreed it was a definite possibility that the gas could            
 be plugged and left there.                                                    
                                                                               
 REPRESENTATIVE DAVIES asked:  "So, when it says `plug the well',              
 that doesn't imply plug the whole thing, but just plug that portion           
 of it.  Is that right?"                                                       
 MR. HANSEN replied that the wording may need to be more specific.             
                                                                               
 REPRESENTATIVE DAVIES asked:  "So, could we put some language in              
 like `plug a portion or all of', or something like that?"                     
                                                                               
 MR. HANSEN agreed that should work.                                           
                                                                               
 CO-CHAIRMAN GREEN thought it was covered.  He said the paragraph              
 did not prevent the owner or operator from activities that may be             
 required by the AOGCC, which had jurisdiction over the well.                  
                                                                               
 Number 1659                                                                   
                                                                               
 REPRESENTATIVE DAVIES said, "My concern is that the language says             
 `to plug or abandon the well'.                                                
                                                                               
 CO-CHAIRMAN GREEN explained, "They will allow plug-backs, partial             
 plug-offs of zones above.  You can actually plug off a[n] ...                 
 intermediate zone and produce lower, or you can plug the lower zone           
 and produce above it, as required by AOGCC."                                  
                                                                               
 REPRESENTATIVE DAVIES stated, "I'm just concerned that this line              
 doesn't get read that the only option AOGCC has is to plug or                 
 abandon the entire well."                                                     
                                                                               
 CO-CHAIRMAN GREEN thought the language could not be construed to              
 say "you must plug and abandon the well."                                     
                                                                               
 Number 1689                                                                   
                                                                               
 REPRESENTATIVE OGAN clarified, "The legislative intent, my intent,            
 and maybe the committee's intent we could put on the record, is               
 that it is not for them to plug and abandon, but just simply to               
 give AOGCC the authority to deal appropriately with a situation.              
 I think we all maybe agree that we still would like to see the gas            
 produced from that well to go to that particular village, ... but             
 let AOGCC make the call as [to] what the appropriate steps are to             
 do that."                                                                     
                                                                               
 Number 1714                                                                   
                                                                               
 CO-CHAIRMAN GREEN said, "If I could offer a friendly amendment [to            
 Amendment 4] to avoid that possibility:  `to plug, plug back or               
 abandon the well'."                                                           
                                                                               
 REPRESENTATIVE DAVIES replied, "I'd be more comfortable with that."           
                                                                               
 REPRESENTATIVE OGAN said, "That would be more than considered a               
 friendly amendment."                                                          
                                                                               
 CO-CHAIRMAN GREEN stated, "And that plug-back is a common                     
 vernacular in the oil industry."  He asked if there was any                   
 objection to the amendment to Amendment 4.  There being none, it              
 was so ordered.  Co-Chairman Green asked if there were questions,             
 comments, or any objection to Amendment 4, as amended.  There being           
 none, Amendment 4, as amended, was adopted.                                   
                                                                               
 Number 1748                                                                   
                                                                               
 REPRESENTATIVE OGAN moved Amendment 5 to CSHB 394, which read:                
                                                                               
      Page 4, line 20, after "lease;":                                         
           Insert "if the commissioner determines that the lessee              
     has not diligently developed or continued to operate under the            
     lease, the commissioner, after giving notice and opportunity              
     for hearing to the lessee, may terminate the lease;"                      
                                                                               
 REPRESENTATIVE OGAN explained that because of the many                        
 accommodations being made to independent companies to facilitate              
 drilling the gas, he was attempting to make this as "bullet-proof"            
 as possible, to prevent speculators from coming in and tying up               
 leases for five years without developing them.  "What we want                 
 people to do is to lease these leases and be ready, within a year,            
 to do some drilling and some action," he said, adding this was a              
 safe-guard measure to enhance the intent of the bill.                         
                                                                               
 Number 1803                                                                   
                                                                               
 CO-CHAIRMAN GREEN asked Mr. Hansen if legal problems might occur              
 with the amendment.  He asked if it would be an agreement entered             
 into beforehand, eliminating potential litigation.                            
                                                                               
 MR. HANSEN replied he thought the amendment was needed.  He                   
 suggested changing "commissioner" to "director"; when the annual              
 review was done, the director would have the discretion of                    
 terminating the lease if the party was not doing anything.                    
                                                                               
 CO-CHAIRMAN GREEN asked:  "And you don't feel there's any problem,            
 then, with somebody suggesting that that director might be                    
 deleterious or ... arbitrary and capricious?"                                 
                                                                               
 REPRESENTATIVE AUSTERMAN indicated page 4, line 18, already dealt             
 with that.                                                                    
                                                                               
 MR. HANSEN replied that one could always request a reconsideration            
 by the commissioner on the director's decision.                               
                                                                               
 Number 1875                                                                   
                                                                               
 REPRESENTATIVE OGAN moved an amendment to Amendment 5 to change               
 "commissioner" to "director".                                                 
                                                                               
 CO-CHAIRMAN GREEN asked if there was any objection to using the               
 word "director".  There was none.  He asked if there was further              
 concern that, as indicated by Mr. Hansen, there might be other                
 words to help prevent arbitrary capriciousness or whether that was            
 understood.                                                                   
                                                                               
 REPRESENTATIVE DAVIES commented, "I would think that this kind of             
 language would be part of the lease.  It should be able to be                 
 known, going into this situation, that this is part of the deal,              
 ... that if the director isn't happy with your operation, then he             
 has this power to make the decision."                                         
                                                                               
 CO-CHAIRMAN GREEN asked Mr. Hansen if he had indicated that.                  
                                                                               
 Number 1917                                                                   
                                                                               
 MR. HANSEN replied yes and said, "We do have appeal regs in effect            
 in which anybody, for any decision by the director, ought to                  
 appeal.  They have that right to appeal to the commissioner.  So,             
 if someone thinks they're being unfairly treated by the director,             
 they do have legal standing."                                                 
                                                                               
 CO-CHAIRMAN GREEN asked if there was further discussion or any                
 objection to adopting Amendment 5.  There being none, Amendment5,             
 as amended, was adopted.                                                      
                                                                               
 Number 1965                                                                   
                                                                               
 REPRESENTATIVE DAVIES offered Amendment 6 to CSHB 394, which read:            
                                                                               
      Page 10, line 15-18:                                                     
           Delete all material                                                 
                                                                               
 He explained that Amendment 6 deleted Section 11, the prohibition             
 against using the 470 Fund.                                                   
                                                                               
 Number 1906                                                                   
                                                                               
 REPRESENTATIVE OGAN said he did not object.  He indicated his                 
 concerns about deleting the language had been alleviated.                     
                                                                               
 CO-CHAIRMAN GREEN asked if there was indication that suppliers of             
 the 470 Fund would object.                                                    
                                                                               
 REPRESENTATIVE OGAN replied that he had spoken with three major               
 suppliers.  While they had some reservations that the 470 Fund was            
 being expanded, Representative Ogan thought they understood that              
 the possibility of the 470 Fund being used would probably be                  
 mitigated by this bill.  If the bill was effective, there would be            
 less handling and shipping of diesel fuels in the bush.  " And                
 we've also addressed some of the concerns by providing some                   
 financial responsibility for incidental operational spills,"                  
 Representative Ogan said.  "So, because of that, they don't have an           
 objection to it."                                                             
 CO-CHAIRMAN GREEN asked if there were further comments about                  
 Amendment 6.                                                                  
                                                                               
 REPRESENTATIVE OGAN asked anyone in the audience who objected to              
 please speak up.                                                              
                                                                               
 Number 2065                                                                   
                                                                               
 CO-CHAIRMAN GREEN noted there were no objections and stated that              
 Amendment6 was adopted.  He asked if there was further discussion             
 on HB 394.                                                                    
                                                                               
 REPRESENTATIVE DON LONG recalled a concern at a past meeting about            
 page 2, lines 25-32, and page 3, on existing leases.  He asked if             
 anything was being done about that.                                           
                                                                               
 REPRESENTATIVE OGAN explained there had been a meeting between                
 himself and Representatives Long, Davis and Austerman to discuss              
 those issues.  He said, "I know what your concerns are about the              
 North Slope.  I remain committed to work with you between now and             
 the next committee of referral to see if we can get some language             
 that would help your situation.  It's got to be a concerted effort            
 between the [Department of] Natural Resources and myself, and I'd             
 be happy to work with you on that."   He explained that the short             
 notice had precluded the ability to draft language for the present            
 committee.                                                                    
                                                                               
 REPRESENTATIVE LONG said he had no problem with that.                         
                                                                               
 Number 2135                                                                   
                                                                               
 REPRESENTATIVE DAVIES expressed concern about that issue, as well.            
 His office had contacted Mr. Hansen the previous day to try to work           
 out language.  "The department's concerns are sufficiently                    
 complicated that it's not easy to draft some language in the short            
 period of time," he said.                                                     
                                                                               
 Number 2161                                                                   
                                                                               
 MR. HANSEN responded that his concern was over how complicated it             
 would be.  Legal problems needed to be addressed and he wanted to             
 run it by the Attorney General's office to see what could happen if           
 leases were allowed to overlap.  He was unsure what problems there            
 might be, but he foresaw there would be some.                                 
                                                                               
 CO-CHAIRMAN GREEN said, "Wouldn't it be, since that is a lease-hold           
 entity to whoever has the deeper lease - they go from the surface             
 down - that the only way you could accomplish, I think, what                  
 Representative Long wants would be a sublease, if the lease itself            
 does not preclude that.  I think if you try and file lease-on-top-            
 of-lease, you'll hang both leases up."                                        
                                                                               
 MR. HANSEN thought that was correct.                                          
                                                                               
 CO-CHAIRMAN GREEN continued, "But I think it's not without reason             
 to think that you might be able to get a sublease, from a deep                
 lease owner, for the shallow rights."                                         
                                                                               
 Number 2211                                                                   
                                                                               
 MR. HANSEN said, "I believe that's right, Mr. Chairman.  I think              
 Mr. Lappi said that it's actually done in the Lower 48.  So, that's           
 why I'm saying it's not impossible.  I'm just saying we need to               
 look at it closely to see what legal ramifications there might be."           
                                                                               
 REPRESENTATIVE LONG suggested that in the interest of time, the               
 bill would be the instrument to start with.  Another amendment                
 could be made later.                                                          
                                                                               
 CO-CHAIRMAN GREEN submitted that it would not be part of the                  
 current bill in any regard.  "It would have to be an agreement with           
 the other leaseholder," he said.  "The state could not                        
 retroactively take back a portion of that lease by itself."                   
                                                                               
 Number 2239                                                                   
                                                                               
 REPRESENTATIVE DAVIES referred to page 2, line 26 and said he had             
 a corollary concern because that wording excluded everything in the           
 North Slope and Cook Inlet, whether or not it was currently leased.           
 "And the reason for that is to avoid the possibility of an                    
 overlapping lease," he said.  He thought the bill should be                   
 modified to allow for that possibility, although it would be                  
 complicated.  He believed it was possible to amend the language at            
 line 26, for example, to allow for the possibility where no lease             
 currently existed.  "In other words, the lease sale could be                  
 offered subject to whatever existing shallow leases may be in place           
 and whatever language would have to be around it would have to be             
 developed," he said.  "That would take care of Representative                 
 Long's concern in a number of instances," he concluded.                       
                                                                               
 REPRESENTATIVE AUSTERMAN moved that CSHB 394(RES), version M, as              
 amended, move from the House Resources Committee with accompanying            
 fiscal notes and individual recommendations.  There being no                  
 objection, it was so ordered.                                                 
                                                                               

Document Name Date/Time Subjects