Legislature(1995 - 1996)

02/27/1996 10:11 AM O&G

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
             HOUSE SPECIAL COMMITTEE ON OIL AND GAS                            
                       February 27, 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 were present                                                      
 COMMITTEE CALENDAR                                                            
 HOUSE BILL NO. 394                                                            
 "An Act authorizing a program of natural gas and coal bed methane             
 development licensing and leasing; relating to regulation of                  
 certain natural gas exploration facilities and coal bed methane               
 exploration facilities for purposes of preparation of discharge               
 prevention and contingency plans and compliance with financial                
 responsibility requirements; amending the duties of the Alaska Oil            
 and Gas Conservation Commission as they relate to natural gas                 
 exploration activities and coal bed methane exploration activities;           
 and amending the exemption from obtaining a waste disposal permit             
 for disposal of waste produced from coal bed methane drilling."               
      - MOVED OUT OF COMMITTEE                                                 
 PREVIOUS ACTION                                                               
 BILL:  HB 394                                                              
 SHORT TITLE: GAS & COAL METHANE LICENSES & LEASES                            
 SPONSOR(S): REPRESENTATIVE(S) OGAN,ROKEBERG,James                             
 JRN-DATE     JRN-PG            ACTION                                         
 01/05/96      2369    (H)   PREFILE RELEASED                                  
 01/08/96      2370    (H)   READ THE FIRST TIME - REFERRAL(S)                 
 01/08/96      2370    (H)   O&G, RESOURCES, FINANCE                           
 02/08/96              (H)   O&G AT 10:00 AM CAPITOL 124                       
 02/08/96              (H)   MINUTE(O&G)                                       
 02/13/96              (H)   O&G AT 10:00 AM CAPITOL 124                       
 02/21/96      2846    (H)   COSPONSOR(S): JAMES                               
 02/27/96              (H)   O&G AT 10:00 AM CAPITOL 124                       
 WITNESS REGISTER                                                              
 JAMES HANSEN, Leasing/Evaluation                                              
 Division of Oil and Gas                                                       
 Department of Natural Resources                                               
 3601 C Street, Suite 1380                                                     
 Anchorage, Alaska  99503-5948                                                 
 Telephone:  (907) 269-8804                                                    
 POSITION STATEMENT:  Testified on HB 394                                      
 JOHN CONNOR                                                                   
 Alaska Agricultural Research Group                                            
 Chairman, Natural Resources Committee                                         
 Kenai Peninsula Resources Conservation and Development District               
 P.O. Box 15038                                                                
 Fritz Creek, Alaska  99603                                                    
 Telephone:  (907) 235-5550                                                    
 POSITION STATEMENT:  Supported HB 394                                         
 DAVID LAPPI, Owner                                                            
 LAPPI Resource, Incorporated                                                  
 4900 Sportsman Drive                                                          
 Anchorage, Alaska  99502                                                      
 Telephone:  (907) 248-7188                                                    
 POSITION STATEMENT:  Testified in support of HB 394                           
 BILL WEBB                                                                     
 Trading Bay Energy Trading Company                                            
 825 West 8th, Suite 204                                                       
 Anchorage, Alaska  99501                                                      
 Telephone:  (907) 279-5655                                                    
 POSITION STATEMENT:  Testified in support of HB 394                           
 PAUL CRAIG, Chairman of the Board                                             
 Trading Bay Energy Trading Company                                            
 825 West 8th, Suite 204                                                       
 Anchorage, Alaska  99501                                                      
 Telephone:  (907) 279-5655                                                    
 POSITION STATEMENT:  Testified in support of HB 394                           
 JACK CHENOWETH, Legislative Counsel                                           
 Legal Services                                                                
 Division of Legal and Research Services                                       
 Legislative Affairs Agency                                                    
 130 Seward Street, Suite 409                                                  
 Juneau, Alaska  99801-2105                                                    
 Telephone:  (907) 465-3867                                                    
 POSITION STATEMENT:  Testified on HB 394                                      
 ACTION NARRATIVE                                                              
 TAPE 96-12, 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, G. Davis, Williams,             
 Brice, B. Davis, and Finkelstein.  A quorum was present.  This                
 meeting was teleconferenced to Anchorage and Homer.                           
 CHAIRMAN ROKEBERG announced the agenda was a continuation of the              
 hearing on HB 394.                                                            
 HB 394 - GAS & COAL METHANE LICENSES & LEASES                             
 Number 165                                                                    
 REPRESENTATIVE SCOTT OGAN, sponsor of HB 394, said it is an act               
 authorizing shallow bed natural gas leasing.  He said, currently              
 there is problem with diesel fuel storage facilities that are                 
 failing, causing economic and environmental problems in the rural             
 communities.  He said the clean up and renovation of these diesel             
 fuel storage tanks is estimated to be around $500 million.  He                
 added that every year, $20 million is spent on power cost                     
 equalization.  He said transporting diesel fuel is hazardous and              
 mentioned the potential environmental problems associated with                
 hauling diesel fuel up river by barge.                                        
 Number 237                                                                    
 REPRESENTATIVE OGAN said natural gas, by contrast, is clean and               
 could be utilized in many parts of rural Alaska.  Most of these               
 rural areas which have natural gas potential will be pioneer areas            
 of natural gas exploration and are outside of any lease schedule or           
 large scale development.                                                      
 Number 259                                                                    
 REPRESENTATIVE OGAN said rural homes could be heated by natural gas           
 and that electricity could be generated by natural gas because                
 diesel generators can be converted to burn natural gas.                       
 Number 276                                                                    
 REPRESENTATIVE OGAN said the purpose of HB 394 is to encourage                
 shallow gas development production within the state of Alaska.  He            
 said this natural gas would not be part of a pipeline system or a             
 resource that would be exported.  The HB 394 relieves the bonding             
 and regulatory requirements placed upon those who would develop               
 this resource for rural communities, and added that those                     
 requirements are currently geared towards large, commercial oil               
 fields that are exporting resources.  He said the committee                   
 substitute for HB 394 represents a concerted effort between the               
 sponsor, private entities and the Administration.  He said                    
 converting the rural communities to natural gas should have                   
 occurred much sooner.                                                         
 Number 397                                                                    
 REPRESENTATIVE OGAN referred to a map of the state of Alaska,                 
 produced by Polar Consult of Alaska which showed the potential coal           
 and coal methane fields throughout the state.  He said the primary            
 intent of HB 394 will be to go after coal bed methane.  He said the           
 reserves follow the Yukon River and river beds.  He said methane              
 gas is trapped in fissures and within the coal reserves.  He said             
 tapping this resource is very much like drilling a water well,                
 small rigs are used and would be transported into the region by               
 cargo plane.  He added that the drilling depth is 3,000 feet or               
 less.  He said the possibility of finding oil is remote in these              
 shallow regions.  He said when they get into areas with a high gas            
 content, the casing will be perforated and it will be piped out               
 into a system set up within the village to either heat homes or               
 generate electricity.                                                         
 Number 501                                                                    
 REPRESENTATIVE OGAN said there is a tremendous potential for coal             
 and coal bed methane reserves in the state of Alaska.  He mentioned           
 that changes have been made to HB 394.                                        
 Number 550                                                                    
 REPRESENTATIVE GARY DAVIS made a motion to adopt the committee                
 substitute for HB 394, version 9-LS1463\G.   Hearing no objection             
 it was so ordered.                                                            
 Number 583                                                                    
 REPRESENTATIVE OGAN said there were five major changes made in this           
 new version of CSHB 394.  He said the use of the 470 Fund is exempt           
 in CSHB 394.  He briefly described the 470 Fund, saying that it was           
 a fund set up by the Department of Environmental Conservation (DEC)           
 to cover spills.  He said there is the possibility of having to use           
 the 470 Fund to clean up areas contaminated by diesel fuel.  He               
 referred to a handout, available in the committee packet titled,              
 "Alaska Rural Energy Initiative," which showed photos of leaking              
 diesel storage tanks and tanks that are not on properly constructed           
 bases.  He said this diesel fuel is continuing to leak and again              
 referred to the cost of clean up and creating new storage tanks.              
 He then compared that situation to a graph demonstrating the                  
 worldwide number of oil spills which have occurred in onshore                 
 exploration since 1978.  He said there was one in 1985 and since              
 then there haven't been any.  He said the chances are very remote,            
 especially if you are not drilling below 3,000 feet.  He said if              
 oil is discovered in this shallow depth it will most likely be                
 heavy oil and not something that is going to be flowing to the                
 Number 755                                                                    
 REPRESENTATIVE OGAN said CSHB 394 kept the $25,000 bond.  He said             
 a $1 million dollar bond is limited to large scale developments.              
 The rent on the lease is changed from an annual cost of $3.00 and             
 acre to 50 cents an acre, with a cost of 25 cents an acre prior to            
 production annually.  He said CSHB 394 involves small operations in           
 rural areas and wanted (indiscernible) responsibility and up front            
 costs which will keep leasers from coming and doing speculative               
 drilling.  He said these are two year leases and if the leaser does           
 not develop or actively work the lease it is lost.                            
 Number 825                                                                    
 REPRESENTATIVE OGAN said royalties were reduced to 6.25 percent for           
 these operations, cutting the current royalty in half, to offer               
 development incentive.  He reiterated the potential amount lost in            
 revenue as compared to the $500 diesel storage tank cost.  He said            
 the higher the royalty, the fewer villages will have natural gas              
 developments for their fuel use.                                              
 Number 882                                                                    
 REPRESENTATIVE GARY DAVIS asked about a fiscal note.                          
 Number 892                                                                    
 REPRESENTATIVE OGAN said there was a fiscal note attached from the            
 previous version of HB 394 and a new fiscal note hadn't been                  
 prepared for CSHB 394.  He said the old fiscal note said the costs            
 associated with the bill would be $386,000 for the first year in              
 order to set up a licensing program.  He believed the current                 
 licensing provisions under CSHB 394 would create a fiscal note                
 which would be smaller.                                                       
 Number 977                                                                    
 REPRESENTATIVE BILL WILLIAMS asked for clarification regarding the            
 470 Fund.                                                                     
 Number 1007                                                                   
 REPRESENTATIVE OGAN said the 470 Fund was set up to clean up oil              
 spills.  He said a request for information, regarding how this fund           
 has been used in the past, was sent to DEC.  He said the likelihood           
 of an oil spill is very small due to the 3,000 foot limit.  He said           
 there is no oil above the 3,000 foot limit in the Cook Inlet basin,           
 and added that on the North Slope, heavy oil is located above this            
 3,000 foot limit.  He said the development will be in pioneer areas           
 of tertiary sediments, layered sediments of coal.  He said in the             
 unlikely problem derived from a drilling operation, even then the             
 costs of cleaning up this spill would be less than the current                
 costs associated with diesel fuel storage tanks and from hauling              
 this fuel up river.                                                           
 Number 1169                                                                   
 REPRESENTATIVE DAVID FINKELSTEIN said the 470 Fund is just the                
 system set up in the state to provide funds for emergency clean-up            
 in the event of an oil spill.  He reiterated Representative Ogan's            
 point that an oil spill is unlikely and said that it is unlikely              
 that the 470 Fund would be used.                                              
 Number 1201                                                                   
 REPRESENTATIVE OGAN said the most likely exposure, if it were to              
 occur, would happen when the diesel gas tank was being filled on              
 the drilling rig.  He mentioned the $25,000 bond which would cover            
 incidental costs.                                                             
 Number 1223                                                                   
 REPRESENTATIVE FINKELSTEIN said, that however remote the                      
 possibility of an oil spill is, you still want access to the 470              
 Fund as added precaution.                                                     
 Number 1290                                                                   
 JAMES HANSEN, Leasing/Evaluation, Division of Oil and Gas,                    
 Department of Natural Resources (DNR), testified via teleconference           
 from Anchorage.  He said CSHB 394 was brought up briefly and some             
 technical staff also looked at it.  He said there are some basic              
 concerns that need to be addressed, the first being whether the               
 state is rushing into a new program without fully examining the               
 possible, negative impacts CSHB 394 might have.  He said the best             
 interest finding (BIF) is a long, arduous process which takes up to           
 two years, but the purpose of a BIF is to for DNR to determine the            
 positive and negative impacts for any type of oil and gas                     
 exploration and more importantly to provide a public review                   
 process.  He said it is important to give the rural areas a chance            
 to say whether or not they want the shallow drilling rigs in                  
 certain areas.                                                                
 Number 1404                                                                   
 MR. HANSEN said the rural areas have a different topography than              
 the Cook Inlet basin.  He said Alaska is a tectonically active area           
 and are composed of crunched up sediments.  He said there is no way           
 of knowing, outside of drilling, whether there is oil less than               
 3,000 feet.  He said oil has been found less than 3,000 feet in               
 many of the lower 48 states and cited examples of this occurring in           
 West Virginia, Pennsylvania, Texas and Kansas.  He said, because              
 oil hasn't been found less than 3,000 feet in the Cook Inlet,                 
 doesn't mean it won't happen in the interior.                                 
 Number 1445                                                                   
 MR. HANSEN said that when you get gas from coal you are going to              
 have to de-water the coal first.  He said the formation waters                
 around coal contain salts and are also acidic.  Coal produces                 
 nauseous methane, carbon dioxide, carbon monoxide and nitrogen                
 gases.  He said there are impacts from coal bed methane production            
 and he asked whether those impacts are worth it compared to the               
 known impact of diesel fuel storage tanks.  He restated the concern           
 over the public review process and the factors involved with                  
 drilling for natural gas.                                                     
 Number 1515                                                                   
 REPRESENTATIVE OGAN said an operator who is interested in coal bed            
 methane told him that their objective is to drill in tertiary                 
 sediments, coal bed sediments.  He asked if most of the coal bed              
 sediments are tertiary.                                                       
 Number 1545                                                                   
 MR. HANSEN said tertiary refers to an age.  He said it is unknown             
 what the structure of the sediments are, under the surface.                   
 Number 1554                                                                   
 REPRESENTATIVE OGAN asked if, in the interior basin, without                  
 seismic work to discover where broken up pockets are, whether it is           
 easier to identify coal beds.                                                 
 Number 1575                                                                   
 MR. HANSEN said an area the interior basin is full of thrusts and             
 faults, poor reflection data is obtained from those areas.  He said           
 it all depends on how the formation is laid out.  He said there are           
 areas that are going to be flat and areas that are not, but you are           
 not going to be able to determine this from the surface.  This                
 information will only be obtained through shallow or deep surveys             
 or through drilling.  He said DNR knows little about these areas.             
 Number 1637                                                                   
 REPRESENTATIVE OGAN referred to the map and asked how they were               
 able to determine where the coal bed reserves were.                           
 MR. HANSEN said coal will show up with seismic reflections.                   
 REPRESENTATIVE OGAN asked if seismic reflections have been done in            
 the areas of the map showing known or highly suspected coal                   
 Number 1670                                                                   
 MR. HANSEN said a map done by the National Geologic Survey showing            
 coal bed deposits, he said it was done through a surficial geology            
 investigations.  He said, with coal, you look at the surface, find            
 the coal and then map where it dips into the subsurface and this is           
 how these maps are developed.  He said only four seismic lines have           
 been shot in interior Alaska.                                                 
 Number 1701                                                                   
 CHAIRMAN ROKEBERG asked if coal areas could be exposed with that              
 type of seismic work.                                                         
 Number 1708                                                                   
 MR. HANSEN said coal would not necessarily be exposed, he said the            
 seismic work that had been done was mainly identification of hard             
 rock minerals.                                                                
 Number 1714                                                                   
 REPRESENTATIVE FINKELSTEIN referred to a provision of HB 394, and             
 said it does not allow the Administration to adopt regulations                
 relating to anything, including the setting of procedures to govern           
 application of this section.  He asked Mr. Hansen to comment on               
 this section.                                                                 
 Number 1731                                                                   
 MR. HANSEN said, the way HB 394 is written, the DNR cannot write              
 regulations and if anything needs to be changed, it needs to go               
 back to the legislature to make those changes.  He said this                  
 process would be more cumbersome than writing new regulations.  He            
 recommended leaving the possible regulatory changes to the                    
 discretion of the commissioner.  He said, if DNR finds that certain           
 things are not covered by HB 394, then DNR should be able to write            
 regulations to address the situation, rather then waiting until               
 session began to do anything.                                                 
 Number 1770                                                                   
 REPRESENTATIVE FINKELSTEIN received clarification, from Mr. Hansen,           
 that there were no other areas that the Administration was                    
 forbidden to write regulations.                                               
 Number 1783                                                                   
 CHAIRMAN ROKEBERG asked if DNR disagreed with the provision in HB
 394 which exempted a BIF.                                                     
 Number 1800                                                                   
 MR. HANSEN said, he felt, there would be public resentment,                   
 especially in the local community, if they were not given an                  
 opportunity to express their feelings towards natural gas                     
 Number 1822                                                                   
 REPRESENTATIVE FINKELSTEIN expressed that the commissioner of DNR             
 cannot make any findings, determinations, and added that HB 394 is            
 written in such a way that excludes any public input.  He referred            
 to page three, line 24, which says the director shall enter into              
 these leases upon application.                                                
 Number 1846                                                                   
 MR. HANSEN agreed with what Representative Finkelstein said, and              
 added that in permiting there is a review process within the                  
 agencies and he believed that the public did have an opportunity to           
 review those permits.  He said HB 394 reverts back to a precedent             
 the state used to follow, he said this precedent was changed.  He             
 added that there would be problems in the community if something is           
 carried through in which they did not have any input.                         
 Number 1886                                                                   
 REPRESENTATIVE FINKELSTEIN said he is not sure that HB 394 allows             
 the permit process as described by Mr. Hansen.  He said in HB 394             
 it states, "promptly after receipt of a lease application, the                
 director shall enter into these lease."  He said it was unclear               
 whether the DNR would have time to enter into discussions or                  
 considerations, and added that if this process is done it doesn't             
 matter because the lease needed to be given.                                  
 Number 1900                                                                   
 JOHN CONNOR, Alaska Agricultural Research Group, and Chairman,                
 Natural Resources Committee, Kenai Peninsula Resources Conservation           
 and Development District, testified via teleconference from Homer.            
 He gave a brief overview of the Kenai Peninsula Resources                     
 Conservation and Development District saying it represented various           
 constituencies and worked with a federal employee of the Natural              
 Resource Conservation Service (NRCS) that assists the group with              
 activities regarding resource development and conservation matters.           
 He said HB 394 would allow local communities to benefit from the              
 natural resources which are currently not utilized.  He said, "we             
 are taking the commodity products that we are sending out,                    
 exporting, the wood, the wood chips and the various other things              
 and produce an industry based on a much cheaper and more reliable             
 source of fuel that is not as likely to spoil our area as an                  
 increase in diesel fuel and diesel holders, that kind of thing."              
 He stated that he didn't think that the people in Homer would have            
 a problem with water well type of drilling.                                   
 MR. CONNOR said HB 394 requires a 640 acre size on the lease and              
 requested some changes to the bill in order to reduce this to a               
 size suitable to a small industry size, as is done in other states            
 including Ohio.                                                               
 Number 2062                                                                   
 MR. CONNOR mentioned the "value added concerns" that might come up            
 in the Finance Committee.  He said commodities, which are currently           
 not utilized, can be transformed, producing activity for the local            
 economy.  He said local control over these industries needs to be             
 maintained.  He cited the benefits and mentioned the problems the             
 region around Homer faces.  He said it is costly to develop the               
 natural gas resource and suggested language exempting royalties or            
 something similar to that, "as long as you are talking about                  
 increased value added processes."  He thought, "your BIF will be              
 actually aired well in advance of these things through the process            
 of creating an area plan for the Kenai Peninsula through our                  
 organization which is associated with the NRCS and looks to serve             
 the best interest of all the people of the Kenai Peninsula."  He              
 concluded that he is very supportive of HB 394.                               
 Number 2168                                                                   
 CHAIRMAN ROKEBERG said under HB 394, the original lease could be              
 640 acres, but the commissioner has the ability to redraft the                
 amount of lease area, after a discovery is made, contracting the              
 size of the lease area.                                                       
 Number 2198                                                                   
 MR. CONNOR believed that the language of HB 394 read that the                 
 "lease area could be reorganized so those 640 acres is cared for in           
 a different way."  He said he would study the language of HB 394              
 Number 2211                                                                   
 REPRESENTATIVE GARY DAVIS read from CSHB 394, page three, line 17,            
 which states, "the area to be leased may not exceed 23,040 acres              
 and may not be less than 640 acres."  He requested information from           
 the sponsor regarding this figure.                                            
 Number 2240                                                                   
 REPRESENTATIVE OGAN said the figure was derived from discussions              
 with industry about what they felt an appropriate minimum lease               
 size should be.  He said he would address this issue and another              
 concern later in the meeting, at the suggestion of Chairman                   
 Number 2266                                                                   
 DAVID LAPPI, Owner, LAPPI Resource, Incorporated, testified via               
 teleconference from Anchorage.  He said his business is a small,              
 independent oil and gas exploration company based in Anchorage.  He           
 said his company supports CSHB 394 and views it as an environmental           
 bill rather than something which would add additional risk to the             
 environment.  He said the more rural areas that can switch their              
 fuel use, from diesel to natural gas, the safer our environment is            
 going to be.  He said Alaskans know the risks of producing,                   
 refining, transporting, storing and distributing diesel fuel and              
 having them switch over to natural gas is a correct one from an               
 environmental point of view.                                                  
 Number 2322                                                                   
 MR. LAPPI said CSHB 394 will protect the 470 Fund because the more            
 people using diesel fuel, the higher the risk is that the 470 Fund            
 would have to be used.  He addressed the issue of public process              
 and said the testimony, being conducted on CSHB 394 today, is a               
 public process.  He said public input will be entertained during              
 the permitting process through the Coastal Zone Management                    
 Consistency Review and other permit requirements.  He cited the               
 fact that a temporary tent camp of more than ten people can not               
 occur without a permit which has a public comment process.  He said           
 CSHB 394 is designed to reduce the amount of work that the state              
 government does.  He hoped CSHB 394 would have little negative                
 impact on the state budget and that a small fiscal note would                 
 accompany it.  He said drilling will not occur in rural areas where           
 it is not wanted or desired.  He said markets are needed before               
 drilling can begin and public process will occur through this                 
 manner.  He urged the committee to adopt CSHB 394 as it is an                 
 environmental as well as a pragmatic approach to solving some of              
 the energy problems in rural Alaska.                                          
 Number 2477                                                                   
 BILL WEBB, Trading Bay Energy Trading Company, testified via                  
 teleconference from Anchorage.  He said he is in support of CSHB
 394 so that all the coal bed methane reserves can be developed in             
 the state of Alaska.                                                          
 TAPE 96-12, SIDE B                                                            
 Number 000                                                                    
 MR. WEBB mentioned the BIF and said that everyone he has met agrees           
 that natural gas is the best fuel used in the world community.  He            
 mentioned the diesel storage tank issue, the power cost                       
 equalization program, the rural electrification program and stated            
 that he hoped coal bed methane exploration could help resolve those           
 problems.  He remarked that CSHB 394 has received wide spread                 
 public support and added that Commissioner Shively remarked, last             
 summer, that the public process is often used as a delaying tactic.           
 He said the new fiscal times demand that we encourage innovation              
 and efforts by the entrepreneurs rather than delay them and get in            
 their way.  He concluded that he supported CSHB 394 and that it               
 should be passed this session so that aggressive coal bed methane             
 development can occur.                                                        
 Number 076                                                                    
 PAUL CRAIG, Chairman of the Board, Trading Bay Energy Trading                 
 Company, testified via teleconference from Anchorage.  He said both           
 he and his company support CSHB 394.                                          
 Number 121                                                                    
 REPRESENTATIVE TOM BRICE asked the cost and the time required for             
 a BIF.                                                                        
 Number 143                                                                    
 MR. HANSEN said the DNR has to plan for a two year period to                  
 complete a BIF and said the original fiscal note was done under the           
 assumption that a BIF would need to be done and represented the               
 Number 173                                                                    
 REPRESENTATIVE BRICE asked if the expected cost of a BIF is                   
 considered prohibitive to DNR, considering the low expectation of             
 return from the natural gas royalties and lease payments.                     
 Number 196                                                                    
 MR. HANSEN remarked that the DNR did two BIF for sales that no one            
 REPRESENTATIVE BRICE asked if the costs associated with the two               
 BIFs would be distributed across other sales where people did show            
 Number 217                                                                    
 MR. HANSEN said the cost of a BIF is in terms of people and time              
 and if we develop a new program, we will have to do additional                
 findings requiring more staff.                                                
 Number 246                                                                    
 REPRESENTATIVE OGAN asked the maximum time of a BIF.                          
 Number 255                                                                    
 MR. HANSEN said normally the BIF process takes two years which                
 includes requests for extended public comment period.  He said the            
 extensions of public comment is something that DNR just does, it is           
 not something that they must do.  He said if a BIF were required              
 under CSHB 394 they could limit it to one public comment period.              
 CHAIRMAN ROKEBERG asked Mr. Chenoweth to come forward to testify.             
 He also directed the committee's attention to a letter by the                 
 Calista Corporation, dated February 26, 1996.  He said this letter            
 requests an amendment which would clarify the language relating to            
 private ownership and state leases in CSHB 154.  The Calista                  
 Corporation has requested that any provisions included in CSHB 394            
 be applicable to private, state and federal lands.                            
 Number 350                                                                    
 REPRESENTATIVE OGAN said this issue didn't appear to be a problem             
 in CSHB 394, private land owners can okay drilling on their land.             
 Number 365                                                                    
 JACK CHENOWETH, Legislative Counsel, Legal Services, Division of              
 Legal and Research Services, Legislative Affairs Agency, was next             
 to testify.  He said the section being referred to was Section 6,             
 found on the bottom of page eight and the top of page nine.  He               
 said Section 6 offers an exemption for current waste disposal                 
 permitting.  He said page eight, line 23, Section 6 states that a             
 permit is not required.  He said, under current law, a permit is              
 not required for coal bed methane.  In the discussion around CSHB
 394, it was agreed that no distinction should be made between coal            
 bed methane drilling and any other shallow bed gas drilling.  He              
 said to do this he eliminated the reference in CSHB 394 to coal bed           
 methane drilling, at the bottom of page eight, and carried the                
 whole thing forward in the context of shallow bed gas development             
 leasing under Alaska Statute 38.05.177, so that in effect the                 
 change would provide for an exemption from a waste disposal permit            
 for any activity under the exploration activity authorized under              
 MR. CHENOWETH said the Calista Corporation is asking that some sort           
 of protection be built back in CSHB 394 for private land owners.              
 He said if a private land owner required a permit disposal be                 
 obtained, CSHB 394 could incorporate that into the language.   He             
 said he wasn't sure if the language suggested by the Calista                  
 Corporation would do that, as it merely extends the exemption.                
 Number 449                                                                    
 CHAIRMAN ROKEBERG said an additional committee substitute would be            
 formed before CSHB 154 went to the Resources Committee.  He said he           
 would like the committee to adopt the concept of CSHB 394, but the            
 language did not need to be done right away.  He referred to the              
 amendments submitted by Representative Finkelstein.                           
 Number 517                                                                    
 REPRESENTATIVE OGAN said he opposed the amendments submitted by               
 Representative Finkelstein.                                                   
 Number 550                                                                    
 REPRESENTATIVE FINKELSTEIN said there are three amendments.  He               
 said the first, and the most important, Amendment 1, regards the              
 compromise in the issue of BIF, on page three, line 24 to take the            
 word, "shall" and replace it with "may" leaving in the provisions             
 of CSHB 394 that eliminate the BIF.  He said CSHB 394 would not               
 require a BIF process, but would leave some discretion regarding              
 public comment to the director.  He said CSHB 154 automatically               
 gives someone the right to obtain this lease regardless of any                
 other use that might be occurring on these lands such as                      
 subsistence hunting or recreational use.  He said the way CSHB 394            
 is written, once the application is put in for those areas, the               
 director shall give out the lease, regardless of those local                  
 concerns and the director has no chance to mitigate those concerns.           
 He said the change of the wording allows a modicum of discretion by           
 the director.                                                                 
 Number 621                                                                    
 REPRESENTATIVE OGAN referred to Mr. Lappi's testimony and said                
 these are wells that are going to be done with the support,                   
 cooperation, and marketing of the local community before they are             
 Number 662                                                                    
 REPRESENTATIVE FINKELSTEIN said there are going to be                         
 circumstances, "we know from experience," where someone is going to           
 object to certain parts of a land area that they are not going to             
 want leased and CSHB 394 does not allow the director the ability to           
 solve problems.                                                               
 Number 704                                                                    
 CHAIRMAN ROKEBERG said "it was grossly objectionable not to exempt            
 this from a BIF."  He said it is not the intention of this                    
 committee to entirely reject the public process and CSHB 394 should           
 incorporate public comment.                                                   
 Number 737                                                                    
 REPRESENTATIVE FINKELSTEIN said Amendment 1 has nothing to do with            
 eliminating a BIF.  He said the director "may" enter into these               
 leases and referred to the lines where this amendment was focused.            
 Number 830                                                                    
 REPRESENTATIVE GARY DAVIS clarified that Amendment 1 left Section             
 3 intact, but gives discretion to the director.                               
 Number 840                                                                    
 CHAIRMAN ROKEBERG said if there were any leases that were a                   
 problem, it would be looked at under Amendment 1.                             
 Number 871                                                                    
 REPRESENTATIVE OGAN said the amendments that haven't been moved               
 would have a bearing on the public input process.  He said he was             
 hesitant to give the director this discretionary authority on the             
 A vote was taken on Amendment 1, Representatives Rokeberg, Ogan,              
 Gary Davis and Brice voted nay.  Representatives Bettye Davis and             
 Finkelstein voted yea.  Representative Williams was absent for the            
 vote.  Amendment 1 failed to be incorporated into CSHB 394 by the             
 House Special Committee on Oil and Gas.                                       
 Number 1000                                                                   
 REPRESENTATIVE GARY DAVIS said he would like the discussion of                
 Representative Finkelstein's amendments to take place and would               
 like to see it addressed and possibly incorporated into CSHB 394.             
 Number 1021                                                                   
 CHAIRMAN ROKEBERG said the areas of public input, fees and                    
 regulation will be reviewed before a committee substitute is                  
 introduced in the House Resources Committee.                                  
 Number 1038                                                                   
 REPRESENTATIVE OGAN concurred with Chairman Rokeberg and said he              
 would be happy to work with Representative Finkelstein to develop             
 the language of CSHB 394.                                                     
 Number 1045                                                                   
 CHAIRMAN ROKEBERG thought there should be an inclusion of a fee               
 application and public process during the permit process, rather              
 than have a protracted BIF.  He said there might need to be                   
 regulations regarding the development of this resource.                       
 Number 1079                                                                   
 REPRESENTATIVE FINKELSTEIN said he would work with the sponsors.              
 REPRESENTATIVE BETTYE DAVIS made a motion that the committee move             
 CSHB 394 with accompanying fiscal note and individual                         
 recommendations.  Hearing none CSHB 394 was moved from the House              
 Special Committee on Oil and Gas.                                             
 There being no further business to come before the House Oil & Gas            
 Special Committee, Chairman Rokeberg adjourned the meeting at                 
 11:19 a.m.                                                                    

Document Name Date/Time Subjects