Legislature(1997 - 1998)

03/10/1998 01:10 PM House RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
HB 274 - OIL & GAS CONSERVATION COMMISSION                                     
                                                                               
CO-CHAIRMAN OGAN announced the first order of business was House               
Bill Number 274, "An Act relating to the qualifications of the                 
members of the Alaska Oil and Gas Conservation Commission; and                 
providing for an effective date."                                              
                                                                               
Number 0266                                                                    
                                                                               
JEFF LOGAN, Legislative Assistant to Representative Joe Green,                 
Alaska State Legislature, stated the people of Alaska are blessed              
with a number of resources available to them one of which is                   
hydrocarbons.  There is a great demand worldwide for them for                  
transportation uses.  The state has entered into agreements with               
companies that produce these hydrocarbons, a very sophisticated and            
technical process, and in order to have a trust relationship with              
the companies, the state needs to understand what they are telling             
it about the resources.  The responsibility rests with the                     
legislature.  "You're in a trust relationship with the people of               
Alaska to manage their resources.  You have collectively delegated             
that responsibility to a commission that you have statutorily                  
created and have created also a process to select members of the               
commission."  It is important, therefore, that the legislature                 
select someone who is qualified to perform on its behalf and                   
establish those qualifications.  Since statehood every governor has            
seen fit to include on the commission a petroleum engineer.  The               
current Governor has not seen fit to do so, however.  House Bill               
274 would clarify the requirements to serve on the Alaska Oil and              
Gas Conservation Commission (AOGCC) by including a petroleum                   
engineer.  There is a proposed committee substitute dated 2/20/98.             
The change is on page 2, line 12, "and completes university or                 
industry training".                                                            
                                                                               
Number 1119                                                                    
                                                                               
MR. LOGAN explained Section 1 of the proposed committee substitute             
would allow the governor to ask professional or industry                       
representatives to solicit recommendations for the appointment of              
a commissioner.  It would not require an obligation to appoint or              
the legislature to confirm any recommendation.  It would simply                
allow the governor to ask those who do this type of work who might             
be qualified.                                                                  
                                                                               
Number 1356                                                                    
                                                                               
MR. LOGAN explained Section 2 of the proposed committee substitute             
would establish the qualifications of the members.  One member                 
"shall" be a petroleum engineer.  There are two ways to be                     
considered a petroleum engineer - to hold a certificate of                     
registration as an engineer under AS 08.48 and to have earned a                
degree in another field of engineering with at least 10 years of               
professional subsurface experience in the oil and gas industry in              
drilling, well operations, reservoir engineering, or a combination             
thereof, and to have taken university or industry classes specific             
to the problems encountered and methods of drilling, production,               
reservoir engineering, fluid flow through subsurface formation, and            
hydrocarbon transportation.  There are several ways to get this                
additional training.  There is a group called the Society of                   
Petroleum Engineers, an international organization that sets the               
standards of petroleum engineering.  He has spoken with the                    
director of education and according to him the society has short               
courses, technical programs and other educational seminars to teach            
people about petroleum engineering.  The society is preparing to               
apply for certification to the International Association of                    
Continuing Education and Training, a group that sets standards in              
criteria for this type of training.  There is also a group called              
the Petroleum Technology  Transfer Council, a group that holds                 
classes, short courses, seminars, and programs to teach people                 
about technology in the petroleum field.  There is also the                    
International Association of Drilling Contractors.  There are at               
least three organizations in addition to the companies themselves              
that could teach people.  The rest of the bill would set the                   
standards for the  petroleum geologist and the public member of the            
commission which have not really been a problem.                               
                                                                               
Number 2211                                                                    
                                                                               
REPRESENTATIVE RAMONA BARNES stated the first section of the bill              
does not need to be there - "Before making an appointment, the                 
governor may solicit the recommendations of professional or                    
industry representatives for appointment of a commissioner."  Any              
governor does that now.  There is no reason for it to be in law.               
                                                                               
REPRESENTATIVE BARNES further stated she would like to know under              
section 2 of the bill how many people in Alaska would meet the                 
qualifications.                                                                
                                                                               
REPRESENTATIVE BARNES further stated she would like to know why the            
qualifications for the geologist need to be changed.  She is not               
aware of any controversy surrounding his/her qualifications.                   
                                                                               
TAPE 98-32, SIDE A                                                             
Number 0059                                                                    
                                                                               
MR. LOGAN stated, in reference to the language in Section 1,                   
members from the oil and gas industry have suggested similar                   
language.  And yes the governor can do that now.                               
                                                                               
Number 0125                                                                    
                                                                               
REPRESENTATIVE JOE GREEN stated the governor has the prerogative to            
go wherever in the state and ask whoever.  It has not happened                 
currently, however.  He has suggested a petroleum engineer, but one            
can not be found.  According to the industry, they are available,              
it is just a matter of asking.  The language just reemphasizes the             
fact that the governor has a place to go to find qualified                     
personnel.                                                                     
                                                                               
Number 0200                                                                    
                                                                               
MR. LOGAN stated, in response to how many people would meet the                
requirements under Section 2, the Department of Labor has found                
that there were about 579 petroleum engineers employed in the state            
during 1996.  Yet, there were only about 35 registered petroleum               
engineers.  Therefore, under (A) of the proposed committee                     
substitute there should be around 35 who qualify; and under (B) of             
the proposed committee substitute there should be around 579 who               
qualify, if they have had the training.                                        
                                                                               
Number 0346                                                                    
                                                                               
REPRESENTATIVE BARNES stated the fiscal note from the Department of            
Administration says that the pool of engineers would shrink to 25              
when the degree requirements contained in the bill are taken into              
consideration.                                                                 
                                                                               
Number 0379                                                                    
                                                                               
MR. LOGAN replied he would like some time to investigate that                  
himself.  "I don't see how broadening the scope of qualifications              
lowers the number of people who would qualify."                                
                                                                               
Number 0407                                                                    
                                                                               
MR. LOGAN stated, in response to the qualifications of the                     
geologist, there has not been a problem in the past, but there has             
not been a problem with the petroleum seat either.  It is thought              
that it would be good to clarify the legislature's intent in                   
filling the position.                                                          
                                                                               
Number 0452                                                                    
                                                                               
REPRESENTATIVE GREEN stated, in response to Representative Barnes'             
question of the engineer, part may be due to the version of the                
bill and the fiscal note.  The bill is dated 2/20/98, and the                  
fiscal note is dated 2/4/98.  The significant change of broadening             
the qualifications in the bill have not been considered in the                 
fiscal note.  The fiscal note would still be zero, but the analysis            
of the pool shrinking to 25 would drop off entirely.  The pool now             
has been expanded fifteen fold.  It was one of the reasons why it              
was rewritten.                                                                 
                                                                               
Number 0501                                                                    
                                                                               
CO-CHAIRMAN OGAN noted he is concerned about the pool expanding                
fifteen fold because the AOGCC is probably the most important                  
commission in the state.  It has police and adjudicatory powers                
over issues of the North Slope.  "I'm concerned that expanding the             
pool that much, we may not have the best qualified help."                      
                                                                               
Number 0545                                                                    
                                                                               
REPRESENTATIVE GREEN stated one of the reasons that he is willing              
to make this concession is to allow for others to qualify from                 
other disciplines, chemical and mechanical engineering, for                    
example.  It is not uncommon in the oil industry to select a career            
course that would put a person in the drilling department even                 
though he is not in that particular education discipline.  He                  
agrees with the additional qualifications because of the 10 years              
of professional subsurface experience and additional courses                   
requirement.                                                                   
                                                                               
Number 0635                                                                    
                                                                               
CO-CHAIRMAN OGAN asked Representative Green whether the person who             
currently holds the seat would qualify under the criteria.                     
                                                                               
REPRESENTATIVE GREEN replied no he would not qualify under the new             
criteria.  He does not have 10 years of subsurface experience.                 
                                                                               
Number 0647                                                                    
                                                                               
REPRESENTATIVE GREEN stated, in response to the geology portion,               
since statehood there has not been a problem with the petroleum                
engineer or geologist seats.  They have always been occupied by                
people from those disciplines.  Currently, there is a geologist,               
but two of the three have been replaced, and there is concern that             
the third one might be replaced.  If the Governor's propensity                 
continues by not seeking qualified and technical personnel, there              
is concern there would not be any petroleum engineer or geologist              
which is what the bill is trying to avoid.  This is one of the most            
critical commissions in the state safety wise.                                 
                                                                               
Number 0741                                                                    
                                                                               
DAVE NORTON testified via teleconference in Valdez.  He is not in              
favor of the bill.  It relaxes the requirement that the position               
should be held by a professional engineer.  It is important that               
the position be a professional engineer because of the public trust            
implicit in the licensing of engineers in the state.  The bill also            
narrows the requirements to people with experience in subsurface               
issues when the commission and the oil patch in general is much                
broader.  It is not good public policy to make it an exclusive                 
requirement.  It would exclude a lot of people who are professional            
engineers with a lot of experience in the oil patch with a big                 
picture view of the issues related to resource development.  He has            
submitted a letter to the committee dated March 9, 1998 that goes              
into more detail.                                                              
                                                                               
Number 1028                                                                    
                                                                               
REPRESENTATIVE BILL WILLIAMS asked Mr. Norton, in response to his              
comments on the bill taking away experience requirements, how does             
the 10-year experience apply.                                                  
                                                                               
Number 1066                                                                    
                                                                               
MR. NORTON replied the bill is detailed in a very narrow area of               
the commission's purview.  It focuses entirely on subsurface issues            
when the purview of the commission is much more than that.                     
                                                                               
Number 1116                                                                    
                                                                               
REPRESENTATIVE GREEN asked Mr. Norton whether he is familiar with              
the two statutory requirements of the AOGCC.                                   
                                                                               
MR. NORTON replied, "Yes."                                                     
                                                                               
REPRESENTATIVE GREEN asked Mr. Norton what are they.                           
                                                                               
MR. NORTON replied they are to maximize resource recovery and                  
prevent waste.                                                                 
                                                                               
REPRESENTATIVE GREEN stated it is actually the prevention of waste             
and protection of correlative rights.  They require somebody who is            
very knowledgeable of down-hole operations, more so than the fact              
that it has police power to enforce full unitization.                          
                                                                               
Number 1198                                                                    
                                                                               
MR. NORTON replied that he is not suggesting that somebody with                
down-hole experience is not qualified.  Actually, there are three              
main areas of responsibility of the commission:  prevention of                 
waste, maximization of recovery, and protection of correlative                 
rights.  He agrees down-hole experience is important, but it is not            
an "end all and be all."  When he was on the commission, the most              
important hearing was on the unitization of oil and gas issues on              
the North Slope in terms of issues related to the joint use of                 
surface and subsurface facilities.  A reservoir specialist and                 
facility engineer would have been more comfortable in that setting.            
In addition, most reservoir and petroleum engineers that deal with             
drilling are currently or have been employees of one of the big oil            
companies - Exxon, Arco or BP.  They probably have a conflict of               
interest or at least a bias toward one company.                                
                                                                               
Number 1323                                                                    
                                                                               
REPRESENTATIVE GREEN stated until the current Governor took office             
this was not the case.  The petroleum engineer and geologist were              
not former employees of any of the major companies.  From 1972-1978            
there was a former Mobile Oil Company engineer on the commission,              
but other than that the position has not come from any of the local            
operations.                                                                    
                                                                               
Number 1353                                                                    
                                                                               
REPRESENTATIVE BARNES stated former Representative Chat Chatterton             
held the position on the commission for many, many years.  When he             
was in the legislature somebody else served, and then he was                   
reappointed.                                                                   
                                                                               
REPRESENTATIVE GREEN stated he was not on the commission before                
serving in the legislature.                                                    
                                                                               
Number 1379                                                                    
                                                                               
REPRESENTATIVE BARNES asked for clarification from staff.                      
                                                                               
Number 1395                                                                    
                                                                               
REPRESENTATIVE GREEN stated he went on the commission two years                
after he left the legislature.  He was not on the commission prior             
to that.  It was Chat Chatterton who developed the commission                  
through the legislature during the Hammond Administration.  He                 
patterned it after the Texas Railroad Commission.                              
                                                                               
Number 1427                                                                    
                                                                               
REPRESENTATIVE BARNES asked Representative Green what was Chat                 
Chatterton's function in the oil and gas industry prior to becoming            
a member of the legislature.                                                   
                                                                               
Number 1438                                                                    
                                                                               
REPRESENTATIVE GREEN replied he worked for an oil company.  He did             
work for an oil company and did become a commissioner.  The others             
that worked with oil companies were from ones that do not operate              
here.                                                                          
                                                                               
Number 1500                                                                    
                                                                               
CO-CHAIRMAN OGAN entertained a motion to adopt the proposed                    
committee substitute dated 2/20/98.                                            
                                                                               
Number 1518                                                                    
                                                                               
CO-CHAIRMAN BILL HUDSON made a motion to adopt proposed committee              
substitute for HB 274 dated 2/20/98 for official action.  There                
being no objection, it was before the committee.                               
                                                                               
Number 1552                                                                    
                                                                               
ROB BEACH testified via teleconference in Fairbanks.  He wondered              
where the governor is for something so important.                              
                                                                               
CO-CHAIRMAN OGAN stated the Governor does not routinely attend the             
House Resources hearings.                                                      
                                                                               
MR. BEACH stated he is repulsed by the Judiciary and House                     
Resources committees because they thought the Natives could not                
handle fish and game very well.  We were offered firefighting and              
now we are not a concern in oil development.  The Governor is not              
there and neither is oil.  If this is the type of repercussions a              
person receives to be acknowledged in the state when having fair               
and legitimate offerings on positions, he wondered whether the                 
legislature is electing the conservation....                                   
                                                                               
Number 1697                                                                    
                                                                               
CO-CHAIRMAN OGAN called for a brief at ease at 1:56 p.m.                       
                                                                               
CO-CHAIRMAN OGAN called the meeting back to order at 1:57 p.m.                 
                                                                               
Number 1699                                                                    
                                                                               
CO-CHAIRMAN OGAN referred to page 2, line 12 of the work draft,                
"and completes university or industry training", and asked whether             
there is industry training, or is it on-the-job training.                      
                                                                               
Number 1742                                                                    
                                                                               
MR. LOGAN replied training is conducted by the Society of Petroleum            
Engineers, the International Association of Drilling Contractors,              
and the Petroleum Technology Transfer Council.  They conduct,                  
sponsor, and hold short courses, seminars, and educational                     
programs.  The International Association of Continuing Education               
and Training sets the criteria for certification.  The Society of              
Petroleum Engineers is applying for certification within the next              
few months.                                                                    
                                                                               
Number 1774                                                                    
                                                                               
REPRESENTATIVE BARNES stated there is no guarantee that the Society            
of Petroleum Engineers will be certified.                                      
                                                                               
Number 1782                                                                    
                                                                               
MR. LOGAN replied true there is no guarantee.  However, the Society            
of Petroleum Engineers is the highest level of training in regards             
to petroleum subsurface oil and gas matters.  It is recognized                 
worldwide as the best training.  The bill requires other training              
as well, not just from the Society of Petroleum Engineers.  The 10             
years of professional subsurface experience includes hours and                 
hours of training sponsored by the company itself through PDH                  
(professional development hours) in order to progress in a field.              
                                                                               
Number 1843                                                                    
                                                                               
REPRESENTATIVE IRENE NICHOLIA stated that there has been a lot of              
talk about declining revenues and declining prices of oil, and                 
every time there is talk of declines it means cutbacks in                      
employees.  The Department of Law has indicated that there is a                
limited number of petroleum engineers with Alaskan addresses.  She             
wondered, therefore, how that would impact the future pool of                  
petroleum engineers in Alaska.                                                 
                                                                               
Number 1885                                                                    
                                                                               
REPRESENTATIVE GREEN replied the history of the oil industry has               
been up and down primarily related to world or local events that               
affect prices.  They are profit making organizations.  They do not             
operate like the government.  When their expenditures exceed their             
income, they downsize.  They just don't downsize in the technical              
fields, as a matter of fact, it is one of the last groups to go.               
In terms of the pool, there will always be hundreds of people that             
would qualify under this scenario.  Far more than in the older days            
when one had to be a registered petroleum engineer.                            
                                                                               
Number 1946                                                                    
                                                                               
REPRESENTATIVE NICHOLIA stated the fiscal note says that the pool              
of engineers shrinks to 25 with the degree requirements.  she asked            
Representative Green whether the proposed committee substitute                 
would change the number.                                                       
                                                                               
Number 1956                                                                    
                                                                               
REPRESENTATIVE GREEN replied under (A) of the proposed committee               
substitute his information says the pool is closer to 35.  But, the            
proposed committee substitute says "or" to also include (B) which              
requires 10 years of down-hole experience, and to have taken                   
technical courses within the industry or company that applies                  
towards down-hole experience.                                                  
                                                                               
Number 1988                                                                    
                                                                               
REPRESENTATIVE NICHOLIA stated there is never a guarantee that the             
pool of 25 would want to participate on the commission.                        
                                                                               
Number 2008                                                                    
                                                                               
REPRESENTATIVE GREEN stated Representative Nicholia is referring to            
(A) - the small pool.  He is referring to (A) or (B) - a much                  
larger pool.  A downsize would not adversely affect the larger                 
pool.                                                                          
                                                                               
Number 2038                                                                    
                                                                               
CO-CHAIRMAN OGAN stated he has heard enough different opinions to              
cause some concern.  He put the proposed committee substitute dated            
2/20/98 into a subcommittee and assigned Representatives Barnes,               
Green and Joule to the subcommittee.                                           
                                                                               
Number 2070                                                                    
                                                                               
REPRESENTATIVE GREEN asked Co-Chairman Ogan to be excused from the             
subcommittee because of his possible bias.                                     
                                                                               
Number 2074                                                                    
                                                                               
CO-CHAIRMAN OGAN replied certainly he could accommodate that.                  
                                                                               
CO-CHAIRMAN OGAN asked Representative Williams whether he would be             
kind enough to serve on the subcommittee.                                      
                                                                               
Number 2114                                                                    
                                                                               
REPRESENTATIVE WILLIAMS replied he would serve on the subcommittee.            

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