Legislature(1995 - 1996)
04/16/1996 10:11 AM House O&G
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 16, 1996
10:11 a.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chair
Representative Scott Ogan, Vice Chair
Representative Gary Davis
Representative Bill Williams
Representative Tom Brice
Representative Bettye Davis
Representative David Finkelstein
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
*HOUSE BILL NO. 381
"An Act relating to oil and gas conservation and recovery."
- MOVED CSHB 381 (O&G) OUT OF COMMITTEE
(* First public hearing)
PREVIOUS ACTION
BILL: HB 381
SHORT TITLE: OIL AND GAS CONSERVATION & RECOVERY
SPONSOR(S): REPRESENTATIVE(S) GREEN,B.Davis
JRN-DATE JRN-PG ACTION
12/29/95 2366 (H) PREFILE RELEASED
01/08/96 2366 (H) READ THE FIRST TIME - REFERRAL(S)
01/08/96 2366 (H) OIL & GAS, RESOURCES
03/26/96 (H) O&G AT 10:00 AM CAPITOL 124
03/26/96 (H) MINUTE(O&G)
04/16/96 (H) O&G AT 10:00 AM CAPITOL 124
WITNESS REGISTER
REPRESENTATIVE JOE GREEN
Alaska State Legislature
State Capitol, Room 24
Juneau, Alaska 99801
Telephone: (907) 465-4931
POSITION STATEMENT: Sponsor of HB 381
DAVID JOHNSTON, Chair
Oil and Gas Conservation Commission
3001 Porcupine Drive
Anchorage, Alaska 99501-3120
Telephone: (907) 279-1433
ACTION NARRATIVE
TAPE 96-15, SIDE A
Number 000
The House Oil & Gas Special Committee was called to order by
Chairman Norman Rokeberg at 10:11 a.m. Members present at the call
to order were Representatives Rokeberg, Ogan, Gary Davis, and
Brice. A quorum was present. This meeting was teleconferenced to
Anchorage.
HB 381 - OIL AND GAS CONSERVATION & RECOVERY
Number 0083
CHAIRMAN ROKEBERG announced that the agenda was HB 381, "An Act
relating to oil and gas conservation and recovery."
REPRESENTATIVE JOE GREEN, Sponsor of HB 381, read from a sponsor
statement, "HB 381 clarifies that the powers of the Alaska Oil and
Gas Conservation Commission, commonly called AOGCC, to prevent
waste, protect correlative rights and realize ultimate recovery on
all state land lawfully subject to its police powers prevails over
a contrary decision by DNR (Department of Natural Resources).
AS 31.05.027 states, `The authority of the commission applies to
all land in the state lawfully subject to its police powers.'
However, recently the Administration has raised the specter of
overlapping jurisdiction.
I believe that a clear, concise line of authority from the
legislature to the independent agency is important for the
development of our hydrocarbon resources."
Number 0151
REPRESENTATIVE GREEN said the AOGCC is charged by statute with
correlative rights and the prevention of ultimate waste. Under
this authority, AOGCC has the police power to "force unitization
where they have enough people wanting to form a unit and some
individual who may decide that they don't want to, in the effort of
maintaining the best, ultimate recovery program, they have the
police power to force a pool unit." He said in the state of
Alaska, with the exception of the Swanson River federal unit, all
units are on state owned mineral leases and the DNR acts as royalty
owner. The DNR, as royalty owner, has exercised authority to grant
or not grant formation of voluntary units and this authority has
worked well in the Prudhoe Bay unit and the Kuparuk River unit. He
said there are issues over what the overlapping authority between
AOGCC and the DNR.
Number 0321
REPRESENTATIVE GREEN said, if you have a unit with one horizon with
production going into a common facility treating oil, water and gas
and this unit is combined with another unit, a problem over DNR or
AOGCC jurisdiction occurs. He said the biggest item of contention
is with gas metering and the liquids involved in the North Slope
production.
Number 0386
REPRESENTATIVE GREEN referred to pages 81 and 82 of a document
titled, "Decision Regarding Jurisdiction," written by the DNR,
which says the DNR commissioner has the authority and duty to
investigate and issue orders preventing economic and physical
wastes, which is also the AOGCC charge. The document also states
the authority of the DNR commissioner and the AOGCC, over parts of
the Miscible Injectant/Natural Gas Liquids (MI/NGL) dispute, are
overlapping. He said when there are overlapping decisions it
creates problems.
Number 0525
REPRESENTATIVE GREEN said when a voluntary unit has been affected,
on a voluntary basis, the DNR would make the decision. He said HB
381 establishes, when it comes to correlative rights or waste, that
the AOGCC would have authority to modify actions of the DNR. He
said this provision is found in HB 381, on the second page, "but
the provisions of (p), the unitization portion of 180 Statute,
section and this subsection may be modified by the AOGCC by an
order under AS 31," the statute under which the AOGCC operates.
Number 0587
CHAIRMAN ROKEBERG asked for clarification on the language, "the
prevention of physical wastes."
Number 0638
REPRESENTATIVE GREEN said, in Title 31, physical waste refers the
actual waste of the resources such as inappropriate flaring or not
developing the reservoir with the best method for maximum, ultimate
recovery. He said one of the things determined by the AOGCC is the
maximum efficient rate, the rate at which the operator cannot
exceed withdrawals. He said an operator, who has invested money to
develop, by blowing the wells too hard can create damage in the
reservoir which affects ultimate recovery. He said AOGCC is
charged with ensuring that this situation won't happen. He said
the reservoir in Prudhoe Bay was capable of producing 2 million or
3 million barrels of oil per day, but the maximum efficient rate at
which they were authorized to operate was 1.5 million barrels per
day. He said the purpose of setting this rate was to maximize
ultimate recovery, rather than maximize immediate return.
Number 0727
REPRESENTATIVE FINKELSTEIN referred to the letter from the Attorney
General, dated March 4, 1996, and said it addresses the question
raised by Chairman Rokeberg on whether the decisions on royalty
reductions would be covered under HB 381. He said there seems to
be a number of topics within HB 381 which are economic topics and
reading through existing law 31.05.030, regarding the powers and
duties of the AOGCC, he said he did not find anything in the
statutes that relate to these economic relations and expressed
concern over this issue.
Number 0799
REPRESENTATIVE GREEN said HB 381 has nothing to do with economic
waste, and said economic waste is not a charge of the AOGCC. He
said HB 381 relates to, by statute, the charge of the AOGCC. He
said reducing royalty or economic waste would not be a purview
within the AOGCC's authority.
Number 0829
REPRESENTATIVE FINKELSTEIN said the conclusion of the Attorney
General, in his letter, is that HB 381 would allow the issues of
royalty reduction and economic waste to become part of the province
of the AOGCC. He read the Attorney General's letter, "maximizing
economic and physical recovery of resources may be a consideration
in many determinations made by the commissioner...if the purpose,
in fact,...is to insure a greater ultimate recovery of oil and gas
, then that determination,... will be subject to modifications by
the commission" and said the letter makes a different conclusion
from the conclusion made by Representative Green. He said the
Attorney General said these issues, royalty reductions and other
economic determinations would, under HB 381, allow the AOGCC to
override the commissioner of DNR.
Number 0892
REPRESENTATIVE GREEN said royalty reduction would only be given as
an incentive to produce and would contribute to the ultimate
recovery. He said this charge would be required by the AOGCC and
"probably would never be an issue." He said an ultimate recovery
increase would be to the benefit of both the AOGCC and the DNR. He
said, "when the economic situation would result in less ultimate
recovery, or that there was a jurisdictional dispute as to how
facilities are monitored to determine allocations between units,
but that is not an economic waste...I guess you could track that to
economics if the field operating netback costs were different from
one field to another or the allocations of the operation of the
facility were somehow different from the allocations of the fluids
going through it, but I think that's not an issue of the
conservation commission."
Number 0939
REPRESENTATIVE FINKELSTEIN said in HB 381 the area that the AOGCC
would modify the action of the DNR would be to "ensure a greater
ultimate recovery of oil or gas". He said there is a previous
section that relates to the waste of oil and gas, but clarified
that anything insuring a greater ultimate recovery of oil or gas,
as the Attorney General states would include royalty reductions.
He said, because this is a subsection of 180 that relates to
insuring a greater ultimate recovery of oil or gas, which is what
the royalty reduction provision does, then the AOGCC would become
the final arbiter on that decision.
Number 1012
REPRESENTATIVE GREEN said, "when there is going to be an ultimate
increase, because of a royalty reduction, that will be the same
argument that conservation commission would make, they wouldn't by
statute be able to say, no, you can't do that because you are going
to get more oil, that is the whole purpose of prevention of waste."
Number 1044
REPRESENTATIVE FINKELSTEIN said if the DNR commissioner turned them
down, the AOGCC could say that they get final determination when it
is to insure a greater ultimate recovery of oil or gas and AOGCC is
going to modify the termination or action of the commissioner of
DNR by overriding their decision in order to give the oil or gas
company the royalty reduction.
Number 1067
REPRESENTATIVE GREEN said this is an economic consideration by the
applicant and is not a purview of the AOGCC. He said AOGCC is not
empowered to make an operator go out and spend more money or do
something to produce, they are charged with ensuring the method by
which the oil or gas company uses, not whether or not he can
produce because of a royalty reduction.
Number 1093
REPRESENTATIVE GREEN said when an oil or gas company finds the
economic limit and shows cause that he can no longer operate under
the conditions set forth, wants to abandon the wells, the AOGCC
does not have the authority to say, "no, you won't shut in." He
said the DNR can help an operator by assisting them with a
reduction in royalty burden. He said it is not within the purview
of the AOGCC.
Number 1127
REPRESENTATIVE FINKELSTEIN said he agreed with Representative Green
in regards to the old law, but said HB 381 would change the law.
He read from HB 381, "the commission may modify the determination
of the commissioner of natural resources, authorized by another
subsection of 180 which includes royalty reduction, if the purpose
of the determination is to insure a greater ultimate recovery of
oil or gas." He said HB 381 changes the law by amending it to say
the commission can do this in any case where there is an issue of
greater ultimate recovery of oil or gas. He said the Attorney
General, in the aforementioned letter, agreed with this conclusion.
Number 1165
REPRESENTATIVE FINKELSTEIN said the Attorney General states, under
the new law, the AOGCC would take over various areas which were not
under their original statutory purview.
Number 1183
REPRESENTATIVE GREEN said he respectfully disagreed with the
Attorney General's opinion and said the AOGCC could answer this
question.
Number 1204
CHAIRMAN ROKEBERG said this was a discussion of economic waste
versus physical waste and asked for a definition of physical waste.
Number 1247
REPRESENTATIVE GREEN said the prevention of physical waste was a
determination of the most efficient and ultimately the best way to
develop the reservoir to get the most recovery. He said well
spacing, well rates and field rates are all methods utilized. He
said it is not within the purview of the AOGCC to determine how
many wells would need to be drilled, 80 versus 60 wells. He said,
on the 60 wells the operator decided to drill, the AOGCC would
determine co-mingling in the well bore, completion types and rates
of production. He said if you withdraw too fast you can dissipate
reservoir energy and leave recovery that otherwise would have been
producible. He said, if the operator decides they cannot continue
production when the rate falls to 100 barrels a day, the AOGCC
cannot force the operator to continue.
Number 1332
REPRESENTATIVE GREEN said the DNR can reduce royalties to provide
an economic basis to allow the operator to continue production. He
said there would be no reason for conflict to occur between DNR and
AOGCC regarding royalty reduction. He reiterated Representative
Finkelstein's concern about the possibility that AOGCC could force
DNR to reduce the royalty, but he said this is an economic
consideration and the AOGCC has no authority to do that.
Number 1360
CHAIRMAN ROKEBERG said the charge of the AOGCC is to prevent
physical waste not to reduce economic waste, although there are
economic benefits to preventing physical waste.
Number 1409
DAVID JOHNSTON, Chair, Oil and Gas Conservation Commission, was
next to testify via teleconference from Anchorage. He discussed a
hearing, currently being held, on whether the AOGCC should order
compulsory unitization of the Prudhoe oil pool. He said this
hearing was the result of hearings held last year on the proper mix
between natural gas liquids and miscible injectant. He said these
hearings last year created the needed emphasis for HB 381. He said
the AOGCC hearings were followed by hearings from the DNR in
conjunction with the Department of Revenue (DOR).
Number 1468
MR. JOHNSTON said, in the jurisdictional brief prepared by the DNR
relative to their authority to hold this particular hearing, the
brief indicated that there was certain ambiguity existing between
the jurisdiction of the AOGCC, under AS 31, and the jurisdiction of
DNR, under AS 38. He said if there is ambiguity on jurisdiction
then there is probably a need for HB 381. He said AOGCC believes
the statute, AS 31.05.027, is clear that the jurisdiction extends
to all lands within the state of Alaska including federal lands,
state lands and Native lands. He said, generally, the jurisdiction
of the AOGCC is authority relative to conservation principles such
as the prevention of waste, prevention of correlative rights and
the realization of accident recovery.
Number 1527
MR. JOHNSTON said the AOGCC view HB 381 as a bittersweet bill,
because on one hand they feel their statutory authority is clear
but on the other hand if there are individuals that feel there is
ambiguity with the statutes as currently written then perhaps it is
appropriate to clarify this to avoid confusion on the part of
various Departments and the decisions that are rendered. He said,
potentially, the AOGCC could get into a "catch 22" situation with
this (indiscernible) issue if the AOGCC renders one decision and
the DNR renders an opposite decision, if this had happened the
issue would probably been resolved by the courts. Under HB 381
there would be no need for court action, because it would make the
authority of AOGCC, at least when it pertains to conservation
issues, superior to that of the DNR.
Number 1592
CHAIRMAN ROKEBERG clarified that AOGCC has authority in AS
31.05.027.
MR. JOHNSTON said this was correct and read from the statute, "the
authority of the commission applies to all land in the state
lawfully subject to its police powers including land of the United
States and land subject to the jurisdiction of the United States.
The authority of the commission further applies to all land
included in voluntary cooperative or human plans of development or
operations entered into in accordance with AS 38.05.180(p)."
Number 1621
CHAIRMAN ROKEBERG referred to Section 2, of HB 381, "in the other
subsection of 38.05.180 which could include 180(j), the royalty
reduction under HB 207," and asked if AOGCC had an opinion on this.
Number 1638
MR. JOHNSTON said he could not see the AOGCC ever being concerned
with royalty reduction. He said if the royalty owner wished to
lower his royalty it is within his prerogative to do so, but he
could not see that there would be any need for the AOGCC's
attention in that regard. He said this would not be an issue of
physical waste, correlative rights or an issue of ultimate
recovery.
Number 1672
CHAIRMAN ROKEBERG said HB 381 provides for a specific application
to 180(p), (q), (u), or any subsections of 180. He asked if the
areas of overlap between the DNR and the AOGCC were specifically in
(p), (q), (u) or if they were in other subsections of 180 that come
into play.
Number 1690
MR. JOHNSTON said principally, the overlap occurs in (p), (q) and
(u), although, generally, the DNR statute does indicate a
particular concern that the state has relative to the prevention of
wastes, correlative rights and the realization of ultimate
recovery. He said, it appeared to him, as AS 38 directs DNR,
because of the interest of the state in achieving agreements that
would protect correlative rights insuring ultimate recovery and
preventing waste, it gives DNR certain authorities to negotiate
those agreements to insure that those things are realized. He said
this authority raises the possibility that an eventual conflict
would arise between the DNR and the AOGCC's interpretation of
prevention of physical waste, correlative rights and the
realization of ultimate recovery.
Number 1761
CHAIRMAN ROKEBERG said this would be prevented under Section 3 of
HB 381. He referred to the DNR report conclusion that there are
overlapping jurisdictions between the DNR and the AOGCC, but said
the report goes on to say, "which has paramount authority or what
are the limits of each agency's authority need not be decided." He
said the report talks about one specific case, but added that this
appears to be a problem which would be resolved in HB 381.
Number 1797
MR. JOHNSTON said the Department of Law (DOL) might also be of
assistance.
Number 1808
CHAIRMAN ROKEBERG asked his opinion on "your authority, if this is
the overlap, of the existing statutory regime."
Number 1828
MR. JOHNSTON said the AOGCC would have the superior jurisdiction in
terms of the narrow issue having to do with physical waste,
correlative rights and ultimate recovery. He said if there is
confusion over this jurisdiction, then HB 381 would be appropriate
to avoid jurisdictional disputes.
Number 1859
CHAIRMAN ROKEBERG asked what the involvement was of the DOL.
MR. JOHNSTON said the Attorney General was asked to look at the
statutes of both the DNR and the AOGCC to make a determination of
whether there was ambiguity. He said he was not aware of the
status of this inquiry.
Number 1891
REPRESENTATIVE GREEN said Representative Finkelstein expressed
concern over the language of HB 381 in that it could force DNR to
reduce royalty to allow for an operator to continue production and
asked if this was a possibility given the AOGCC charge.
Number 1931
MR. JOHNSTON said he did not think this was the case. He said the
AOGCC had hypothetical discussions on this issue, relative to the
Milne Point, and AOGCC concluded that there was no AOGCC role in
royalty reduction. He said this issue relates to correlative
rights in that certain rights have been established between the
lessor and the lessee. He said, once a particular royalty was
established in the lease document, it establishes the correlative
rights issue between the lessor and the lessee and the AOGCC would
not have an interest in changing that, it would be outside the
jurisdiction of the AOGCC.
Number 1990
REPRESENTATIVE FINKELSTEIN said he was not asking whether
the current members of AOGCC would feel it was appropriate to
modify the determination by the commissioner on these matters,
rather he stated that HB 381 would give them the power to do so.
He clarified that Mr. Johnston had the most recent copy. He
referred to the beginning of HB 381 and said the commission may
modify the determination of the commissioner of natural resources
authorized by another section of 38.05.180, which Chairman Rokeberg
mentioned included royalty reduction, if the purpose of the
determination was to ensure a greater ultimate recovery of oil or
gas. He referred to the letter from the Attorney General and said
that the royalty reduction provision fits in because it is another
subsection of 180 and because it is to insure a greater ultimate
recovery of oil or gas. He said his question isn't whether or not
the AOGCC would decide it would work on these issues, but would
this section of HB 381 give the commission the power to intervene
as the Attorney General has suggested.
Number 2054
MR. JOHNSTON said HB 381 was also written to protect the
correlative rights of persons and said he did not think the AOGCC
would move to a direction changing the arrangements between the
lessor and the lessee, he could not imagine that this would be a
factor for the AOGCC and would be prevented by the statute which
governs the AOGCC. He said the governing statute would prevent the
AOGCC from engaging in any sort of attempt to overturn or order a
reduction of another royalty which has been established by the DNR.
Number 2102
REPRESENTATIVE GREEN said he indicated that the governing statute
of AOGCC gives no authority on an economic basis and royalty
reduction is economic.
MR. JOHNSTON said he would agree that this statement was correct.
Number 2144
REPRESENTATIVE FINKELSTEIN said the statement that AOGCC wouldn't
do this keeps being mentioned, but the question is could AOGCC be
involved in royalty reduction under the new law that is being
formulated under HB 381 which would override the old law. He said
the Attorney General, the one who will decide whether or not there
is an issue of the authority of the AOGCC, has stated that HB 381
allows for AOGCC involvement in royalty reduction. He said Mr.
Johnston's reference to protecting correlative rights is a list of
"ors," there are three items on the list, each one of them has an
"or" statement between them, so any one item on the list is, by
itself, enough to allow the commission to modify the determination
of the action of the commissioner of DNR. He said because there is
no "and" in the list, it doesn't have to meet all three
requirements, it only has to meet one of these requirements.
Number 2193
REPRESENTATIVE GARY DAVIS stated that this list does have the word,
"or" and then asked for examples of correlative rights.
Number 2203
MR. JOHNSTON said correlative rights, defined by statute, is a
provision directing the AOGCC that the owner of each property in a
pool has the right to recover his just (indiscernible) net share of
production. He said, generally, the AOGCC regards the property
right which has been agreed to by the lessee and the lessor. He
said this sharing would not be something that the AOGCC would not
be involved with as long as there was the assurance that the lessee
and the lessor had received their just (indiscernible) net share.
He said, if the lessor wanted to lower the royalty rate, the AOGCC
would have no problem with that. He said, under the current
statute, the AOGCC would not have the authority to overturn a
decision or substitute their judgement for that of the lessor. If
the Attorney General perceives something different it would raise
concerns but, under the statute, he did not see that as under the
authority of the AOGCC.
Number 2277
REPRESENTATIVE GARY DAVIS said this is interpreted as property
rights and asked if it was also interpreted as contractual rights.
Number 2283
MR. JOHNSTON said, within the agreements that the companies
negotiated amongst themselves, that would be a subject of
contractual rights as well. In other words, correlative rights are
more fully articulated in the contract that the owners of the
resources, the working interest owners have negotiated amongst
themselves.
CHAIRMAN ROKEBERG said it was his intention to hold HB 381 over and
expressed concern about Section 1 and 2, the entire leasing statute
of AS 38.05.180. He asked that a letter be drafted to the Attorney
General's office requesting additional information about why they
haven't been able to correct this issue.
Number 2338
REPRESENTATIVE GREEN said this issue is outside of the intent of HB
381 and proposed Amendment 1 on page one, line seven and again on
page two, line five, that after AS 38.05.180 insert, "excluding
subsection (j)," and said this would alleviate any concerns. He
said it is not the intent of HB 381 to get into that jurisdiction.
Number 2367
REPRESENTATIVE BRICE moved Amendment 1 to HB 381.
Number 2375
REPRESENTATIVE FINKELSTEIN said the issue he raised was just an
example of the economic determinations that could be affected by HB
381. He said royalty reduction was the most prominent issue.
Number 2389
REPRESENTATIVE OGAN said HB 381 would go next the House Resources
Committee. He said the issue concerned is (j) and if you exclude
(j) it would fix the problem.
CHAIRMAN ROKEBERG stated that Representatives Finkelstein and
Bettye Davis joined the committee meeting at approximately 10:15
a.m.
Number 2425
REPRESENTATIVE FINKELSTEIN said he would move to amend Amendment 1
as the proposed Amendment 1 would imply that all other economic
decisions besides (j) were going to be subject to override by the
AOGCC. He said the amendment to the Amendment 1 would say, "does
not apply to economic decisions including (j)."
REPRESENTATIVE BILL WILLIAMS objected to the amendment to the
proposed Amendment 1.
REPRESENTATIVE FINKELSTEIN said the amendment to Amendment 1
reflects the discussions where everyone stated that HB 381 is not
intended to apply to economic decisions, including royalty
reductions, and said he did not know how else to incorporate this
language into the proposed amendment to the Amendment 1 except to
use the words that the sponsor and the AOGCC used.
CHAIRMAN ROKEBERG asked that the amendments be handled separately.
TAPE 96-15, SIDE B
Number 0000
REPRESENTATIVE GREEN, "NGL dispute there may be economic
consequences of that decision and this amendment to the proposed
Amendment 1 might preclude that, even though that is not the
intent."
Number 0019
REPRESENTATIVE FINKELSTEIN withdrew the amendment to Amendment 1.
He objected to the proposed Amendment 1 because the amendment would
make HB 381 worse as there are many other economic decisions that
AOGCC could decide as being in their province. The proposed
Amendment 1 would make the issue raised by the Attorney General's
letter worse, not better, because saying that HB 381 does not apply
to the subsection (j) regarding royalty reduction would imply that
all other economic decisions that DNR is involved in would be
subject to override by the AOGCC. He said making an exception
confirms the other possible economic decisions, the exception
proposed in Amendment 1 is too narrow.
Number 0057
CHAIRMAN ROKEBERG said he disagreed, the issue is overlap of
definition of authority and the proposed Amendment 1 makes a
statement consistent with the allocation of authority between the
two agencies.
Number 0081
REPRESENTATIVE FINKELSTEIN withdrew his objection to Amendment 1.
Hearing no other objections, Amendment 1 was incorporated into CSHB
381 (O&G) by the House Special Committee on Oil and Gas.
Number 0086
REPRESENTATIVE FINKELSTEIN made a motion to move Amendment 2.
REPRESENTATIVE OGAN objected to the proposed Amendment 2.
REPRESENTATIVE FINKELSTEIN said people keep saying that economic
decisions are not within the particular duties of the AOGCC, but HB
381 gives the powers and duties on 030, which runs through a number
of things including (f), (g), and (h), and said this will become
(i) and economic decisions will become part of the powers of AOGCC.
He said HB 381 will become part of the statutes stating what AOGCC
can do, it reads, "the commission may modify determination that
relates to that is made the DNR on relating to insuring a greater
ultimate recovery of oil or gas." He said common sense tells you
that this language will allow the AOGCC into a lot of areas that
the commission has said they don't have a lot of interest in, but
they will be able to override those and even though the current
commission members may not feel the need to do this, it will allow
future commission members to do so. He said, if the common sense
side of the argument does not convince you on this point, there is
a letter from the Attorney General confirming that this is the
case.
Number 0137
REPRESENTATIVE GREEN reiterated that the Attorney General's concern
was the royalty reduction which has been excluded from CSHB 381
(O&G). He said those jurisdictional portions are in AS 31 now, so
this is the limit that they are going to do, CSHB 381 (O&G) does
not give AOGCC any authority on economic waste. It is not the
intent, nor the desire, to grant an economic waste jurisdiction to
the AOGCC.
Number 0172
REPRESENTATIVE FINKELSTEIN said the Attorney General did not say
royalty reduction was their only concern, this was a response to
the question that Chairman Rokeberg happened to ask them. Chairman
Rokeberg only asked them about royalty reduction and referred to
page one of the letter where it says, "does this apply to royalty
reduction," and said the Attorney General did not answer any other
question because it was not asked. He said the same exact logic
applies to other economic decisions and it is the reason that the
DNR opposes CSHB 381 (O&G). He said economic waste would be part
of their new standards, the powers and duties of the AOGCC would
include overriding DNR on economic decisions. He said everyone on
the committee can say that they don't intend for this to occur, but
then the committee is not supporting Amendment 2 which would
correct this situation.
Number 0199
REPRESENTATIVE GARY DAVIS said having the AOGCC determine actions
preventing waste to oil or gas to insure greater ultimate recovery
relates to economic decisions. He said these issues are
environmental and economic.
Number 0214
REPRESENTATIVE GREEN said those are the charges currently in Title
31 and the statute is reiterated in CSHB 381 (O&G) to make sure
that no one misconstrues that the AOGCC is trying to anything other
than what they are entitle to, but said it has nothing to do with
economics. The bill says that if you get involved, this is what
you have to do but it does not say you will build this many wells,
you will operate this way, it doesn't get involved in economic
waste the way it was discussed in royalty reduction.
Number 0238
REPRESENTATIVE GARY DAVIS read, "to insure greater ultimate
recovery of oil or gas," and asked why that is included.
REPRESENTATIVE GREEN said to make sure that when a reservoir was
tapped it was done in the most efficient and ultimately the best
manner achieved under current technology. If the operator went out
and said he was going to drill one well, and if there were not
fault traps or any other way to prevent the migration of all that
oil to that one well over a millennium, the AOGCC could not force
him to drill another well. If the AOGCC came in and told the
operator that they were not going to recover oil behind this fault,
you will have to drill a well there. He said the rate at which the
operator produces oil cannot exceed a certain number of barrels per
day as it would create damage to the reservoir. He said the AOGCC
cannot force the operator to extract it at a rate that may be
economic to them. He reiterated that the AOGCC is not charged with
economic waste.
Number 0274
A roll call vote was taken on Amendment 2. Representative
Finkelstein voted yes. Representatives Rokeberg, Ogan, Gary Davis,
Williams, Brice and Bettye Davis voted no. Amendment 2 failed to
be adopted to CSHB 381 (O&G) by the House Special Committee of Oil
and Gas.
Number 0290
REPRESENTATIVE OGAN made a motion to move CSHB 381 (O&G) with
attached fiscal note and individual recommendations.
REPRESENTATIVE FINKELSTEIN objected to the motion.
Number 0297
A roll call vote was taken on the motion to move CSHB 381 (O&G).
Representatives Rokeberg, Ogan, Gary Davis, Williams, Brice and
Bettye Davis voted yes. Representative Finkelstein voted no. CSHB
381 (O&G) was moved from committee by the House Special Committee
of Oil and Gas.
ADJOURNMENT
There being no further business to come before the House Special
Committee on Oil and Gas, the meeting was adjourned at 11:06 a.m.
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