Legislature(2001 - 2002)

03/21/2001 03:48 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
         SB 125-LAND ENTRY UNDER STATE RESERVATION OF RT.                                                                   
CHAIRMAN  JOHN  TORGERSON  called  the  Senate  Resources  Committee                                                          
meeting  to order at  3:48 p.m. and  announced SB  125 to be  up for                                                            
consideration.  He explained  that it sets  up procedures to  handle                                                            
damage to land owners' property.                                                                                                
SENATOR HALFORD said that his intern, Alex Kopperud, has long-term                                                              
roots in the Mat-Su Valley and came up with this situation, which                                                               
concerns  the way the  state deals  with subsurface  values as  they                                                            
apply to surface  values. He explained, "It is clear  the subsurface                                                            
estate  is paramount  in  the mineral  values  that  are leased  and                                                            
developed,  but when you get to major  activities and you  find that                                                            
the surface  estate  is much  more developed,  as it  is in the  Mat                                                            
Valley now  and as it is  in the Kenai Peninsula,  you start  to get                                                            
potential  conflicts.  The preference  for subsurface  values  isn't                                                            
without limitation."                                                                                                            
He noted this  bill tries to put those limitations  on the table. It                                                            
deals with  the questions of damage  to the surface estate,  of what                                                            
the legal authorities are  between surface and subsurface owners, of                                                            
notice and how it's provided,  of how damages are assessed, and of /                                                            
how bonds are dealt with.                                                                                                       
SENATOR HALFORD  said, "It has raised quite a bit  of objection from                                                            
some of  our friends in  the subsurface industry….  I think  some of                                                            
those  objections  are  reasonable."  The surface  estate,  in  some                                                            
cases,  has  been   substantially  abused  by  the   owners  of  the                                                            
subsurface  estate. He  thought the  issue would  get bigger  in the                                                            
MR. ALEX KOPPERUD, staff  to Senator Halford, explained that Section                                                            
1 makes stylistic  changes to AS 38.05.130.  Section 2 prescribes  a                                                            
definition  of damages, which comes  from the model Surface  Use and                                                            
Mineral Development  Accommodation Act from the National  Conference                                                            
of Commissioners on Uniform State Laws in 1990.                                                                                 
MR. KOPPERUD  explained  that  there are  two primary  areas in  the                                                            
definition  of damage:  (1) loss of  or injury to  the value  of the                                                            
owner's property,  improvements or personality; or  (2) interference                                                            
with  or  interruption  of the  owner's  access  to  or use  of  the                                                            
property or  improvements.  The bill  provides the means  to measure                                                            
those two definitions  of damages in (d), which attempts  to provide                                                            
a meaningful  remedy  for subsurface  lessee and  surface owner,  by                                                            
trying to provide a reasonable  deterrent that says before you enter                                                            
surface estate,  you should really comply with AS  38.05.130, settle                                                            
the damages up front with  the owner and, if you can't do that, post                                                            
a surety bond.                                                                                                                  
MR. KOPPERUD explained  that the damages in Mat-Su  were laid out by                                                            
the Alaska Supreme  Court in a similar case regarding  this issue in                                                            
Hays vs. AG Associates.  Subsection (2)(a) and (b) gives the surface                                                            
owner  the option  of  pursuing  the lessee  for  punitive  damages.                                                            
Subsection  (e) provides recognition  that  the surface owner  and a                                                            
subsurface  lessee are  allowed to  come to a  different measure  of                                                            
damages and agree on it  by themselves. Subsection (f) describes the                                                            
bond  to be  either  the assessed  value  of  the entire  parcel  or                                                            
$100,000. Currently,  DNR takes the assessed value  of the property,                                                            
identifies  the areas that  will be impacted  and uses the  value of                                                            
that. The assumption is  that all portions of the property are worth                                                            
the same.  There  is a problem  with  that rationale  in the  Mat-Su                                                            
Valley where  it's not uncommon to  have a 10-acre parcel  of record                                                            
and find that only one  or two acres are really developable. If, for                                                            
some reason, the  subsurface lessee chooses to enter  onto those one                                                            
or  two acres,  those are  the  most valuable  acres  in the  entire                                                            
The lessee  needs some kind  of reasonable  assurance that  they are                                                            
going to have enough room  to take on the matter and cover the costs                                                            
that may  go as far as  the Superior Court.  MR. KOPPERUD said  that                                                            
typically, you don't get  bond money just by asking for it. $100,000                                                            
is what they  determined to be the  minimum [bond amount]  necessary                                                            
to take  the issue  seriously.  Some areas  don't  have an  assessed                                                            
value and  those are  determined on  page 4, line  6. Some  boroughs                                                            
have cycles  for assessed values and  a property owner has  the room                                                            
to get an appraisal done.  The basic liability provision in (g) says                                                            
that a  surface owner  should  not be liable  for the  actions  of a                                                            
subsurface lessee.                                                                                                              
MR.  KOPPERUD said  that  Section  3, page  4, contains  the  notice                                                            
provisions.  He  explained that  he  has found  that  not every  one                                                            
understands the  law in Alaska and many people don't  know that they                                                            
are even entitled to discuss  damages with a subsurface lessee. As a                                                            
surface owner, one needs  to know what kind of damages to expect and                                                            
that is covered in this section.                                                                                                
Number 1000                                                                                                                     
SENATOR  ELTON said  he was concerned  that  the words "immediately                                                             
preceding the  entry" on page 2, lines 29 and 30,  may not cover the                                                            
situation of a summer cabin or Boy Scout camp use.                                                                              
MR. KOPPERUD  agreed  and said  he thought  that  language could  be                                                            
delineated further.                                                                                                             
MR. MARK MEYERS,  Director, Division of Oil and Gas,  DNR, said that                                                            
oil and  gas and  mining  activities are  increasing  in areas  with                                                            
significant private surface  ownership. This is particularly true in                                                            
the  Mat-Su Valley.  DNR  estimates  that about  75  percent of  the                                                            
approximately  300 outstanding  shallow  gas leases  have  privately                                                            
held surface  estates. He  said that Mr. Bill  Van Dyke, as  hearing                                                            
officer,  has  dealt  directly  with these  issues.  He  turned  the                                                            
discussion over to him.                                                                                                         
MR. BILL VAN DYKE, Petroleum  Manager, Division of Oil and Gas, DNR,                                                            
said his home is subject  to a mineral reservation similar to what's                                                            
described in SB 125, so  he is aware of the potential conflicts that                                                            
can arise. He  noted that Mr. Meyers and Mr. Loeffler  [wrote] memos                                                            
with comments  on  the issue and  proposed amendments,  which  would                                                            
reduce the cost  of implementing the bill. The fiscal  note reflects                                                            
the costs  that  would occur  if the  bill is  enacted as  currently                                                            
written. He said  DNR does not have to issue a lease  or license for                                                            
someone  to shoot  seismic  operations. He  explained  that once  an                                                            
agreement  has been  reached or  a bond  has been  set, the  mineral                                                            
developer can enter onto the private surface.                                                                                   
Under existing  law, DNR is not the body that ultimately  determines                                                            
damages;  that would be done  in court. DNR  believes that  is where                                                            
the authority  should stay. The owner  of the subsurface  estate has                                                            
the right, with some limitations,  to enter onto some privately held                                                            
surface  to  explore  and  develop  the  underlying  minerals.  This                                                            
concept is pretty  foreign to people in the Mat-Su  Valley, although                                                            
it is common practice  in the Lower 48. He stated,  "All the mineral                                                            
reservations  are in  the people's  deeds  and they  really do  mean                                                            
something." The surface  owner is entitled to damages, if damages do                                                            
occur, but defining those  damages through legislation or regulation                                                            
will start DNR "down a slippery slope."                                                                                         
MR.  VAN DYKE  said he  didn't  think that  any state  had  actually                                                            
adopted the model act that  Mr. Kopperud had talked about. They have                                                            
found that just  occupying unimproved land with a  drill rig usually                                                            
does not  constitute  damages. He  noted, "It's  not what a  surface                                                            
owner  wants to hear,  but it's  the law  and it's  the practice  in                                                            
other jurisdictions."  He said that one has to proceed  with caution                                                            
when  giving either  the surface  owner  or the  mineral owner  more                                                            
rights, because you can't  give one party rights without taking some                                                            
rights  away from  the other.  He advised,  "In this  case they  are                                                            
discussing the  state's mineral estate and we do derive  substantial                                                            
value  from   that  mineral  estate."   He  thought  expanding   the                                                            
definition  of  damages  to  be  too  inflexible   would  impose  an                                                            
additional burden upon the subsurface owner or their agents.                                                                    
MR. VAN DYKE highlighted three points in his memo.                                                                              
   · A $100,000 [bond] is too high because it uses a one-size-fits-                                                             
     all approach. He proposed a tiered approach that also reflects                                                             
     the differences between mining and drilling for oil and gas.                                                               
   · This bill would cover seismic operations so a $100,000 [bond]                                                              
     to walk on  someone's property is too high. There  are hundreds                                                            
     of properties in a  given seismic survey. They don't think that                                                            
     certain  activities  require  a  bond at  all,  like  surveying                                                            
   · They also believe the lessee should be required to notify                                                                  
     surface owners.                                                                                                            
He said their  proposal takes more  of a "meat cleaver" approach  to                                                            
the  defining  damages  section. This  is  the  point at  which  the                                                            
surface  owner can't be  compensated without  taking something  from                                                            
the subsurface  owner or vice versa.  He didn't think either  one of                                                            
those actions were justified.  He gave an example of a lessee who is                                                            
not supposed  to work between the  hours of 10 p.m. and 6  a.m., but                                                            
gets in the middle of cementing  casings and can't get it done by 10                                                            
p.m. The  lessee would then  be subject to  punitive damage  claims.                                                            
DNR  does not  think  that should  happen.  It's a  perceived  value                                                            
question. He maintained:                                                                                                        
     Entry  by a mineral  developer  on to any  privately  held                                                                 
     surface estate  is going to be a traumatic experience  for                                                                 
     the  surface  owner.  We  try  to  make  that  experience                                                                  
     understandable   and  trouble-free.   The  surface   owner                                                                 
     regardless  of whether you follow existing law  or the law                                                                 
     that would be in place if  this bill is enacted, the owner                                                                 
     is  still not going  to be  happy. That issue  we have  to                                                                 
     work through.  Mineral reservations  are real and they're                                                                  
     binding  and the state  derives substantial  revenue  from                                                                 
     those  mineral reservations.  We hope  to be able to  work                                                                 
     with Senator Halford and  the committee to craft solutions                                                                 
     that will work for all parties involved.                                                                                   
Number 1700                                                                                                                     
SENATOR TAYLOR  said it seemed  to him that  Alaskans are in  a very                                                            
difficult  position with  the reservation  of  subsurface rights  as                                                            
compared to the  citizens of Oklahoma, Louisiana,  Georgia and Texas                                                            
or any citizens  of this state who may have received  patented title                                                            
to their  lands  prior to  statehood, who  may very  well own  their                                                            
subsurface  rights. He noted, "Apparently,  if you go on  a person's                                                            
property  in Texas and  want to drill  for oil  under his land,  you                                                            
enter into  an agreement with him  on how much you're going  to give                                                            
him as far as a royalty  coming out of his land." He bet there isn't                                                            
much of a problem  with surface owners in Texas, because  they get a                                                            
piece  of  the  same  action.  However,  in  the  Mat-Su  Valley,  a                                                            
developer can  run roughshod over  the owner; the developer  doesn't                                                            
have  to tell  the owner  a thing  about what  is taken  out of  the                                                            
ground  underneath his  house or  his property.  He maintained,  "He                                                            
gets no interest  in it. So his only concern then  is the impact and                                                            
effect upon his surface  estate. I can certainly understand how that                                                            
conflict is not  only continued, but as we sell more  state land and                                                            
as we expand  and ask the industries  to expand both in mineral  and                                                            
oil  and  gas development,   we're  going to  be  setting  up  those                                                            
additional  conflicts  and  the state  is  going  to be  the  person                                                            
sitting at  the table getting a piece  of the action while  the home                                                            
owner gets  run off the property."   He didn't think an oil  company                                                            
would  be encountering  these  problems  if it  was  talking to  the                                                            
landowner about giving them 10 percent.                                                                                         
SENATOR  ELTON  asked how  the  lessee  is supposed  to  notify  the                                                            
surface landowner  and whether that is part of the  lease or license                                                            
agreement  with  the  lessee.    He  questioned   whether  they  are                                                            
compelled to notify by some other means or method.                                                                              
MR.  VAN DYKE  answered  that AS  38.05.130  and provisions  in  the                                                            
leases require notification.  He said,"We won't issue a permit until                                                            
we know those notifications have been made."                                                                                    
SENATOR TAYLOR asked about  the form of notification:  how many days                                                            
prior  to  the issuance   of the  permit  it  is  required;  whether                                                            
notification must be sent  via certified mail or whether a notice is                                                            
placed in the newspaper.                                                                                                        
MR. VAN DYKE  answered, "Right now  it is the responsibility  of the                                                            
person who  is going to  do the seismic  operations or the  drilling                                                            
activity  to  notify the  owners.  We  would  require some  sort  of                                                            
certification  or  notice that  all  those notifications  have  been                                                            
made. If a surface agreement  has been entered into, we could have a                                                            
hearing to  post a bond, if they don't  have a damages agreement  or                                                            
surface use agreement."                                                                                                         
SENATOR TAYLOR  asked what a state agency does when  someone doesn't                                                            
MR. VAN DYKE replied  that in the Valley they had  an instance where                                                            
two people  had the same name and  the wrong person got notified.  A                                                            
second instance  was a surface agreement that was  entered into, but                                                            
there was  a disagreement  about what that  surface agreement  meant                                                            
and in that case, they don't bond after the fact.                                                                               
SENATOR TAYLOR said the  department said it is the responsibility of                                                            
the permit  applicant to provide notice  to the landowner.  He asked                                                            
if DNR requires that it receive a copy of a particular form.                                                                    
MR. VAN  DYKE replied,  "No.  The proof  would be  either a  surface                                                            
entry agreement  or having  a bond  hearing. The  notice has  to get                                                            
done one way or  the other in order to get to the  next step, but we                                                            
don't have a specific procedure right now on notice."                                                                           
Number 1900                                                                                                                     
SENATOR  HALFORD  said  he  thought  an  exemption  for  seismic  or                                                            
diminimous activity makes sense.                                                                                                
MR. LOEFLER,  Director,  Division of  Mining, Land  and Water,  DNR,                                                            
told  members  the division  has  experience  working  with  mineral                                                            
values  on shales and  subsurface  and surface.  In most cases,  the                                                            
division expects  to work with a borough, although  in some cases it                                                            
is a private developer.  He thought the bill worked  quite well, but                                                            
his memo laid out his three significant comments.                                                                               
MR. LOEFFLER said  if the legislature decides to require  notice for                                                            
diminimous activities,  DNR had an instance in which a surface owner                                                            
got notice that a subsurface  owner was going to do exploration. The                                                            
surface  owner either  went or threatened  to go  stake it  himself,                                                            
which would deprive the  subsurface owner access to the minerals. He                                                            
thought a $100,000  bond would be too much for any  realistic placer                                                            
operator.  He also  thought the  Division  of Land and  Water had  a                                                            
regulation  procedure that  works reasonably  well for split  estate                                                            
situations. He  said for the most part, the bill is  consistent with                                                            
that,  but the  Division  does require  the  developer  to make  the                                                            
SENATOR LINCOLN  said that  Mr. Loeffler and  Mr. Meyer's memo  made                                                            
sense to  her and asked if  the sponsor was  going to work  with the                                                            
different divisions to address some of their concerns.                                                                          
SENATOR HALFORD  responded that the  criticisms were well  taken. He                                                            
suggested, with  regard to prospecting and mineral  activities, they                                                            
might  want to  simply require  a notice  provision  and no  bonding                                                            
provision.  He  stated,  "This  is a  case  where  one side  of  the                                                            
equation  is  traditionally  a  giant  and  the other  side  of  the                                                            
equation is  a very small property  owner. So you've got  to try and                                                            
balance  that as  best  you can.  Yes,  I intend  to  work with  the                                                            
departments, because most  of their criticism is pretty well taken."                                                            
SENATOR TAYLOR  asked, under  conveyances with  land claims,  if the                                                            
subsurface fell  within a category where they had  to be shared with                                                            
the  other corporations.  He  asked if  the subsurface  is  conveyed                                                            
MR. HALFORD responded that  the profits of the subsurface are shared                                                            
between  regional corporations,  but the  regional corporations  own                                                            
subsurface  under land owned  by the village  corporations.  So they                                                            
also have a  split ownership and may  have a split in terms  of what                                                            
they want to do with it.                                                                                                        
SENATOR TAYLOR said he  understood the dispute as to the utilization                                                            
of the  land, but  he asked if  that landownership  got its  mineral                                                            
rights. He asked, "So if  you're going to drill for gas underneath a                                                            
certain  village's property,  do they  have the  rights to that  and                                                            
it's just a dispute as to how that was going to be divvied up?"                                                                 
SENATOR HALFORD  responded, "That 44 million acres  included mineral                                                            
rights, as did federal transfers before statehood."                                                                             
SENATOR LINCON added, "To the regional corporations."                                                                           
SENATOR  TAYLOR  said that  wouldn't  be a  problem  on their  land,                                                            
because they were going to negotiate it probably.                                                                               
SENATOR HALFORD responded, "Probably."                                                                                          
MR. JOHN  RODDA said he is  the son of a  property owner in  the Big                                                            
Lake area.  He told members,  "Something has  to be done to  protect                                                            
us. We homesteaded  on this property  45 years ago. Our intent  from                                                            
the beginning  was that our property  held our family's future…"  He                                                            
thought  the issue  boiled down  to lack  of interest  in a  surface                                                            
owner's rights  beginning with  a lack of  notice when a  subsurface                                                            
lease is offered.  He asked if a subsurface lease  is offered to the                                                            
surface owner or whether  it is only offered to oil, gas and mineral                                                            
MR. RODDA said he had been  dealing with two separate operations for                                                            
10 years: an ARCO  oil exploration process (the lease  has expired);                                                            
and with  Ocean  Energy that  has a  gas exploration  operation.  He                                                            
pointed out,  "Once there  has been an approved  plan, the  plans do                                                            
not always get  adhered to." He noted a buried waste  reserve pit on                                                            
his property about  100 ft from Big Lake Road is about  1/3 the size                                                            
of a soccer field  and six to eight feet thick mixed  with concrete.                                                            
He said DEC permitted that without his family's knowledge.                                                                      
MR. RODDA  said the owner  needs to have  the opportunity to  object                                                            
before a full  and complete plan is approved. Modifications  need to                                                            
be  disclosed and  the  opportunity  to concur  or object  to  those                                                            
modifications should be provided.                                                                                               
TAPE 01-23, SIDE B                                                                                                            
MR. RODDA said  a solution to specifically address  the damages that                                                            
can't  be seen  needs to  be  found. He  noted that  complaints  and                                                            
letters need to be addressed  in a timely manner. He noted he hadn't                                                            
received any decision  from Mr. Van Dyke on a bond  hearing that had                                                            
been held 10  months ago. Also, Mr.  Rodda said he has to  appear at                                                            
his own  cost to defend his  position. He  said he also paid  for 68                                                            
pages of transcription  and monitoring  of the site since  it is not                                                            
secured. When  the gate protecting the entrance to  his property was                                                            
torn down, it  took a phone call from him to Matt  Raider, who works                                                            
for Mr.  Van Dyke,  to get  Ocean Energy  to fix  it. He   remarked,                                                            
"That repair  constituted taking  a piece of  cable and wrapping  it                                                            
around the poles  and leaving it hanging there in  another dangerous                                                            
He said that  Mr. Van Dyke knows about  the gate, the problems  with                                                            
the waste, the unevenness  on the land and the unsafe condition. His                                                            
family has spent hundreds  of hours to protect the property that has                                                            
been theirs for 45 years.                                                                                                       
CHAIRMAN  TORGERSON  said he  thought the  Division of  Oil and  Gas                                                            
should give  Mr. Rodda a  call and, "get some  of this stuff  worked                                                            
out." He announced that  they would hold the bill so Senator Halford                                                            
could work on it.                                                                                                               

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