Legislature(2003 - 2004)
02/02/2004 01:34 PM Senate CRA
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* first hearing in first committee of referral
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= bill was previously heard/scheduled
SB 266-BRISTOL BAY OIL & GAS LEASE SALE CLOSURE
CHAIR BERT STEDMAN called the Senate Community and Regional
Affairs Standing Committee meeting to order at 1:34 p.m. Present
were Senators Elton, Wagoner, Gary Stevens, and Chair Stedman.
He announced SB 266 to be up for consideration. He advised that
Governor Murkowski requested the bill, which approves an interim
classification closing certain land in the Bristol Bay region to
oil and gas exploration and natural gas leasing. He stated his
intention to move the bill from committee that day then invited
Mr. Meyers to testify.
MARK MEYERS, director, Division of Oil and Gas, Department of
Natural Resources (DNR) explained that the bill affirms a
mineral closing order by the DNR commissioner and for the order
to be effective, it must be approved during the first 90 days of
the legislative session.
He admitted that the purpose of the bill appears a bit odd in
that it closes mineral rights to oil and gas in an area so there
can be a competitive sale for oil and gas in the same area. He
then pointed to a geologic map of the Alaska Peninsula region to
show the area (red outlined area) that is proposed for a
conventional sale and said that within that area (blue outlined
area) there would be a closure for other oil and gas leasing
under the shallow gas program, or exploration licensing. They
could then put the area in the competitive lease sale schedule
and then lease the mineral rights.
To demonstrate DNR's reasoning, he pointed to a chart showing
the geologic cross section of the Alaska Peninsula. He advised
members that other programs, in particular the shallow gas
program, would lease the mineral rights of just the upper layer
in an over the counter program so there would be the potential
for the shallow part to be leased to a different party than
would bid in the competitive lease sale. He said:
In areas where you have high oil and gas potential,
particularly one that is stratified at various depths,
you prefer to have a single mineral stake owner. It
increases the value and makes it easier to assure that
all the resources would be exported for development in
an orderly fashion and it prevents a lot of disputes
between parties if the mineral stratum was in fact
split. We also believe we would get more and higher
competitive bids on the sale if the area was all
offered and the tracts were kept geologically whole.
In a sense, that's what this does.
SENATOR THOMAS WAGONER noted that that doesn't preclude the
successful bidder from subbing out a portion of the area to
someone with different expertise.
MR. MEYERS agreed that the lessee is able to convert part of the
lease to another party. In fact, it is not uncommon in the
industry to mitigate risk so that costs and benefits are shared.
He continued saying that DNR believes the area has enough
potential and that the competitive sales will bring the highest
and best value to the state, if in fact the best interest
finding process demonstrates it is appropriate. He repeated they
are closing an area so it can potentially be reopened for
competitive sale. The area of the closure is just inside the
competitive sale area. He referred to the geologic chart again
and said:
Just to note, in the blue area up here, the area we
are, we have an exploration license proposal at this
time. Again, that is allowed. Also in this area we're
closed to exploration licensing. Again, the same
reasons, the license is in the area where, ideally,
you don't think a competitive sale is the best way to
go. We're giving a large portion of the land to a
single operator for a work commitment is the way to
go. In this basin we think there is geologic potential
as well as enough data to pull off a competitive sale.
We think the resources in the competitive sale will
bring in more money to the state in the up front and
will help accelerate exploration development from
multiple lessees who are willing to explore and
develop their land.
SENATOR KIM ELTON asked what the public process is that leads to
a competitive lease sale.
MR. MEYER replied there is a best interest finding process,
which will take DNR until some time in 2005 to complete. A
document that is similar to an environmental impact statement
(EIS) is prepared prior to the lease sale. There is a
preliminary best interest finding (BIF) prepared after
considerable interaction with people in the local area as well
as planning and inter-agency work. The preliminary BIF is sent
to the public and the agencies for comment after which DNR must
address all the comments and adjust them into a best interest
finding, which determines whether or not it is in the state's
best interest to lease. It also stipulates what the mitigation
measures will be, what areas will be off limits to exploration
and what requirements will be placed on the lessees.
SENATOR ELTON asked if there would be no decision until the end
of 2005 or in 2006.
MR. MEYER replied there would be decisions made along the way as
to the best interest finding, but the complete document won't be
ready until 2005. The preliminary BIF will be sent out in late
fall 2004.
CHAIR STEDMAN announced that Senator Lincoln joined the meeting
then he gave a short recap of the proceedings.
SENATOR GARY STEVENS noted that the area under consideration is
a rich fishing area then asked what comments DNR had received
regarding damage to the fishing industry.
MR. MEYERS replied the DNR has worked closely with the
communities and they have been very supportive. He described the
process as a model for integrating the concerns of the fishing
community with the balancing for oil and gas issues. DNR has
held meetings with the three borough governments, the Bristol
Bay Native Corporation, and the Bristol Bay Native Association
and he admitted that they own much of the process. DNR expects
the sale to be integrated and compatible with the industry.
A part of the proposed sale is to have no development of
offshore facilities, but directional drilling to offshore would
be allowed, which is an important point to the fishing
community. DNR recognizes the value of the fishing resource, the
anadromous streams and habitat and those values will be fully
integrated into the best interest finding process.
Fishermen have emphasized their need for an economic base and
lower power cost for processing fish. To this end, the northern
area of the sale tends to be more gas prone and it may provide a
source of natural gas to develop a regional power grid. The
fishing community realizes that they need to increase the value
of their product, they need a lower cost of energy and they are
looking at the economic tax base that oil and gas could provide.
He said he has enjoyed working with the fishing community
because they are straightforward in their concerns and in what
they want to receive from the sale.
Governor Murkowski made it clear that the process began as a
result of supporting input from the Bristol Bay Native
Association, local municipalities and the boroughs. DNR is
modeling the process with good stipulations and mitigation so
that, if the sale goes forward, the communities' input into the
best interest finding will be a key part.
SENATOR GARY STEVENS said he understands the tax base and how
that would affect the communities, but he was curious what other
economic factors, such as jobs, might be expected. Also, he
questioned how to make sure that lower cost power becomes a
reality.
MR. MEYERS replied that there are no guarantees. When DNR looked
at the design of the exploration license, it was for a quicker
process, with a decision scheduled for 2004. That was for the
northern basin area where they expected to find enough gas for
power generation. They also know that there are several mines in
the area that might benefit from the power. That process was
specifically around natural gas and local power generation and
transmission, but they recognize that the area is large and has
a low density.
A second approach would be to find enough gas to create an LNG
or a pipeline project. In that case, the commercial development
would pay for most of the cost of getting the gas developed and
produced. Then the local benefit is there to spin off that
development.
Until a full exploration assessment is done, no one knows
whether commercial natural gas is present or where the gas might
be. The geologic map shows that they expect to find the thicker
part of the basin farther south away from the head of the bay.
MR. MEYERS reported that they do know that there is oil
potential in the bay because they have found oil source rocks in
the basin and there have been oil shows in the wells. For the
oil, an export facility would have to be developed, which might
entail a pipeline to the south side of the Aleutians to some
sort of tanker facility.
SENATOR WAGONER asked whether DNR had any guesstimates regarding
the size of the reserves.
MR. MEYERS replied their best guess is the potential for
multiple tcfs of gas in fields that could be in the hundreds of
millions of barrels. They believe it compares favorably to a
Cook Inlet type sale, but the geology doesn't suggest another
Prudhoe Bay. The part of the equation that helps makes a small-
scale field feasible for development is the tidewater location.
SENATOR GEORGIANNA LINCOLN noted that the sponsor statement
states that local governments and Native organizations requested
this yet she had nothing in her file indicating that this was a
request of any of those entities. She requested supporting
documentation from that area and asked whether there were people
from the area who were online and waiting to testify. Next she
asked the Chair whether a timeframe had been established for
hearing and moving the bill.
CHAIR STEDMAN said there was no one online waiting to testify
and no one had signed up to testify in person.
SENATOR LINCOLN asked whether he intended to move the bill that
day.
CHAIR STEDMAN replied that was his intention.
SENATOR LINCOLN stated for the record that she would have
difficulty voting for the legislation because she didn't have
any documentation showing that the local governments are
supportive.
MR. MEYERS advised that there is a memorandum of understanding
between the Bristol Bay Native Association and the state on the
process of holding a lease sale. He stated that they are very
supportive. He suggested that a confusing aspect is that SB 266
is a mineral closing order and simply closes the area to oil and
gas licensing or shallow gas leasing. It is not a substantive
bill regarding the benefits of a lease sale or whether one is
justified. He described SB 266 as a small part of the process
toward holding a competitive sale in the area. A mineral closing
order is necessary to prevent shallow gas leases from being top
filed in the area or exploration application licenses to be
received for the area.
DNR is in the process of drafting memorandums of understanding
in support of the process with all three borough governments in
the area. He said they would provide that information to her and
other members. With regard to scheduling, they have
documentation that shows all public comments and if the best
interest finding supports the sale, what happens on a month-to-
month timeline. He assured her that that too would be sent to
her office.
SENATOR WAGONER asked Mr. Meyers to refer to the map to show
possible accesses to the south side and said he would assume
that the accesses would be used for both road and pipeline
access.
MR. MEYER acknowledged there is discussion between DNR, the
Department of Natural Resources (DNR) and the local communities
regarding which roads would be for general access and which
might spur oil and gas development. There are also discussions
about the year around port at Cold Bay and that it might be a
major resupply port. Until the sale occurs, it's difficult to
pin down what and where actual development will be, but he
expects that in the early exploration period much of the
transportation needs would be met with barges. Communities have
made it clear that they are interested in roads for community
development and any decisions regarding longer roads would come
later.
CHAIR STEDMAN announced that Dillingham, Bethel, and Anchorage
were online, but no one wanted to testify.
SENATOR Elton asked whether someone has an exploration license
in the proposed Bristol Basin area and that someone is looking
at the shallow resource.
MR. MEYERS referred to the map and said:
The blue area is where if you look at the geology, you
can see the lighter colors. The basin thins and we
have contours that show that the perspective section
is much thinner and we believe more gas prone and less
likely to have large-scale commercial quantities of
gas. The thought process was, folks want a local
energy process as quickly as they can get going.
Licensing has, in some cases, some advantages in that
it requires a guaranteed work commitment of so many
millions of dollars typically being bid. The process
of issuing a license is somewhat separate from a
competitive sale. So, we've taken the area and divided
it into two with the license area. The license area
also has a best interest finding, unlike shallow gas
leasing. That best interest finding is accelerated
relative to this one. A couple of the reasons for that
is the license area itself is a much smaller area.
Within this proposed area, the actual proposal we have
only covers a relatively small percent of it. It's a
much smaller area and it doesn't deal with some of the
issues that a competitive sale does. The mineral
rights there are for all mineral rights; they're not
restricted like shallow gas leasing to a certain
depth. Realistically, the base itself is pretty thin.
The basin is pretty thin there so it's restricted by
the geology.
SENATOR ELTON noted that Wood-Tikchik State Park is just outside
the proposed area (The area outside both the red and blue
lines.) and asked if there are any state parks or marine
sanctuaries that fall inside the red lines.
MR. MEYER replied the red line indicate state lands and DNR is
in the process of looking at all the special use areas inside
the red lines to determine which areas might be leased. Those
considerations all go into the best interest finding process. He
said he was not aware of any parks or sanctuaries within the
license area. He advised that Jim Hansen or Pat Galvin could
give a more definitive answer, but in the lease sale area there
is the Bristol Bay Area Plan and other areas that have special
use areas, which will be reviewed in the plan for a lease sale.
SENATOR ELTON asked Mr. Meyers to provide him a list of those
areas if one was available. He stated that he sits on the
Resource Committee as well and it would be helpful if that were
a part of the packet.
CHAIR STEDMAN asked if there was anyone else that wanted to
speak to the issue. There was no response and he closed public
participation.
SENATOR WAGONER made a motion to move SB 266 from committee with
the accompanying fiscal notes and individual recommendations.
SENATOR LINCOLN objected and stated that she too sits on the
Resource Committee and would ask questions when the bill is
heard there. However, it did not sit well with her for the
Community and Regional Affairs Committee to hear this bill and
not have letters from the affected local governments stating
support for this legislation because that information should be
heard at this level. She closed saying, "For that reason, and
that reason alone, I am objecting to the passage of it today."
SENATOR ELTON voiced reservations about voting in favor of
moving the bill that day as well and not because the bill
doesn't make sense. He acknowledged that the legislation is a
technical change, but the previous speaker had valid points. Of
course resource related issues will be raised in the next
committee, but it is the purview of this committee to gage
community reaction. He said he expects that if the bill were
held in committee, members would then receive supporting
documentation that would make him more comfortable in voting in
favor of passage.
CHAIR STEDMAN stated that there were two objections and asked
for a roll call vote. The motion to move SB 266 passed with
Senators Lincoln and Elton voting nay and Senators Wagoner, Gary
Stevens, and Chair Stedman voting yea.
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