Legislature(2001 - 2002)
04/08/2002 09:04 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
ALASKA STATE LEGISLATURE
HOUSE SPECIAL COMMITTEE ON OIL AND GAS
April 8, 2002
9:04 a.m.
MEMBERS PRESENT
Representative Hugh Fate, Vice Chair
Representative Fred Dyson
Representative Vic Kohring
Representative Gretchen Guess
Representative Reggie Joule
MEMBERS ABSENT
Representative Scott Ogan, Chair
Representative Mike Chenault
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 308(FIN)
"An Act relating to the Alaska coastal management program and
the responsibilities of the Alaska Coastal Policy Council; and
providing for an effective date."
- MOVED CSSB 308(FIN) OUT OF COMMITTEE
CS FOR SENATE BILL NO. 319(FIN)
"An Act relating to shallow natural gas; and providing for an
effective date."
- MOVED CSSB 319(FIN) OUT OF COMMITTEE
PREVIOUS ACTION
BILL: SB 308
SHORT TITLE:COASTAL ZONE MGMT PROGRAM/COUNCIL
SPONSOR(S): SENATOR(S) THERRIAULT
Jrn-Date Jrn-Page Action
02/19/02 2233 (S) READ THE FIRST TIME -
REFERRALS
02/19/02 2233 (S) RES, FIN
03/04/02 (S) RES AT 3:30 PM BUTROVICH 205
03/04/02 (S) Moved CS(RES) Out of
Committee
MINUTE(RES)
03/06/02 (S) RLS AT 0:00 AM FAHRENKAMP 203
03/06/02 (S) <Pending Referral>
03/06/02 2385 (S) FN1: ZERO(GOV)
03/06/02 2385 (S) RES RPT CS 5DP 2NR TECH TITLE
CH
03/06/02 2385 (S) DP: TORGERSON, TAYLOR,
HALFORD, STEVENS
03/06/02 2385 (S) WILKEN; NR: LINCOLN, ELTON
03/21/02 (S) FIN AT 9:00 AM SENATE FINANCE
532
03/21/02 (S) Moved CS(FIN) Out of
Committee
MINUTE(FIN)
03/22/02 2492 (S) FIN RPT CS 4DP 3NR TECH TITLE
CH
03/22/02 2492 (S) DP: KELLY, GREEN, WILKEN,
LEMAN;
03/22/02 2492 (S) NR: DONLEY, AUSTERMAN, WARD
03/22/02 2492 (S) FN1: ZERO(GOV)
03/27/02 (S) RLS AT 10:45 AM FAHRENKAMP
203
03/27/02 2543 (S) READ THE SECOND TIME
03/27/02 2543 (S) FIN CS ADOPTED UNAN CONSENT
03/27/02 2544 (S) ADVANCED TO THIRD READING
UNAN CONSENT
03/27/02 2544 (S) READ THE THIRD TIME CSSB
308(FIN)
03/27/02 2544 (S) PASSED Y17 N3
03/27/02 2544 (S) EFFECTIVE DATE(S) SAME AS
PASSAGE
03/27/02 2544 (S) ELLIS NOTICE OF
RECONSIDERATION
03/27/02 2540 (S) RULES TO CALENDAR 1OR 3/27/02
03/28/02 2562 (S) RECONSIDERATION NOT TAKEN UP
03/28/02 2562 (S) TRANSMITTED TO (H)
03/28/02 2562 (S) VERSION: CSSB 308(FIN)
04/01/02 2733 (H) READ THE FIRST TIME -
REFERRALS
04/01/02 2733 (H) O&G, RES
04/08/02 (H) O&G AT 9:00 AM CAPITOL 124
BILL: SB 319
SHORT TITLE:SHALLOW NATURAL GAS: LEASING & DISCHARGES
SPONSOR(S): SENATOR(S) TORGERSON
Jrn-Date Jrn-Page Action
02/19/02 2236 (S) READ THE FIRST TIME -
REFERRALS
02/19/02 2236 (S) RES, FIN
02/27/02 (S) RES AT 3:30 PM BUTROVICH 205
02/27/02 (S) Moved CSSB 319(RES) Out of
Committee
02/27/02 (S) MINUTE(RES)
03/01/02 2339 (S) RES RPT CS 6DP 1NR SAME TITLE
03/01/02 2339 (S) DP: TORGERSON, TAYLOR,
STEVENS, WILKEN,
03/01/02 2339 (S) LINCOLN, ELTON; NR: HALFORD
03/01/02 2339 (S) FN1: (DNR)
03/26/02 (S) FIN AT 9:00 AM SENATE FINANCE
532
03/26/02 (S) Moved CSSB 319(Fin) Out of
Committee
MINUTE(FIN)
03/27/02 2535 (S) FIN RPT CS 7DP 1NR NEW TITLE
03/27/02 2535 (S) DP: KELLY, OLSON, WILKEN,
AUSTERMAN,
03/27/02 2535 (S) GREEN, WARD, LEMAN; NR:
DONLEY
03/27/02 2535 (S) FN1: (DNR)
03/28/02 (S) RLS AT 8:30 AM FAHRENKAMP 203
03/28/02 (S) -- Time Change --
03/28/02 (S) MINUTE(RLS)
03/28/02 2556 (S) RULES TO CALENDAR 3/28/02
03/28/02 2557 (S) READ THE SECOND TIME
03/28/02 2557 (S) FIN CS ADOPTED UNAN CONSENT
03/28/02 2557 (S) ADVANCED TO THIRD READING
UNAN CONSENT
03/28/02 2557 (S) READ THE THIRD TIME CSSB
319(FIN)
03/28/02 2557 (S) PASSED Y17 N- E3
03/28/02 2557 (S) EFFECTIVE DATE(S) SAME AS
PASSAGE
03/28/02 2562 (S) TRANSMITTED TO (H)
03/28/02 2562 (S) VERSION: CSSB 319(FIN)
04/01/02 2733 (H) READ THE FIRST TIME -
REFERRALS
04/01/02 2733 (H) O&G, RES
04/08/02 (H) O&G AT 9:00 AM CAPITOL 124
WITNESS REGISTER
SENATOR GENE THERRIAULT
Alaska State Legislature
Capitol Building, Room 121
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of SB 308.
DANA OLSON
HC-30 Box 5438
Wasilla, Alaska 99654
POSITION STATEMENT: Testified on SB 308, expressing concerns
and requesting changes; voiced concerns about SB 319.
JOHN T. SHIVELY, Lobbyist
for Foothills Pipe Lines Ltd.
1336 West 12th Avenue
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in support of [SB 308],
particularly the phasing section.
SENATOR JOHN TORGERSON
Alaska State Legislature
Capitol Building, Room 427
Juneau, Alaska 99801
POSITION STATEMENT: Sponsor of SB 319.
MARK MYERS, Director
Division of Oil & Gas
Department of Natural Resources
500 West 7th Avenue, Suite 800
Anchorage, Alaska 99501-3560
POSITION STATEMENT: Answered question relating to the acreage
change in SB 319.
CHARLOTTE MacCAY, Senior Administrator
of Environmental and Regulatory Affairs
Teck Cominco Alaska Inc.
3105 Lakeshore Drive, Building A, Suite 101
Anchorage, Alaska 99517
POSITION STATEMENT: Testified on SB 319, stating support for
most provisions in the bill; offered support for the fee
increase if the monies are directed to the shallow gas program;
testified in support of a five-year lease term with renewal
options, which isn't part of the bill.
KEVIN A. TABLER, Manager of Land and Government Affairs
Union Oil Company of California (Unocal)
P.O. Box 196247
Anchorage, Alaska 99519
POSITION STATEMENT: Testified in support of SB 319.
JOHN TANIGAWA, Special Projects Manager
Evergreen Resources Alaska Corporation
P.O. Box 871845
Palmer, Alaska 99645
POSITION STATEMENT: Testified in support of SB 319, but
mentioned having an acreage limitation of 138,240 acres.
ACTION NARRATIVE
TAPE 02-22, SIDE A
Number 0001
VICE CHAIR FATE called the House Special Committee on Oil and
Gas meeting to order at 9:04 a.m. Representatives Fate, Dyson,
Kohring, and Guess were present at the call to order.
Representative Joule arrived shortly thereafter.
SB 308-COASTAL ZONE MGMT PROGRAM/COUNCIL
[Contains discussion of HB 439]
Number 0065
VICE CHAIR FATE announced the first order of business, CS FOR
SENATE BILL NO. 308(FIN), "An Act relating to the Alaska coastal
management program and the responsibilities of the Alaska
Coastal Policy Council; and providing for an effective date."
Number 0089
SENATOR GENE THERRIAULT, Alaska State Legislature, sponsor,
explained that in its current form, SB 308 encompasses two main
ideas. First, coastal resource areas no longer may [incorporate
by reference] the state statutes and regulations. A problem in
the past has been that coastal resource areas or districts have
interpreted statutes and regulations differently from the way
state agencies do in arriving at consistency determinations.
Therefore, the Division of Governmental Coordination (DGC) has
indicated to coastal resource districts that they are to adopt
their own programs, rather than just adopt by reference the
statutes and regulations; this occurred some time ago. What the
bill does [in Section 1] is enshrine DGC's directive in statute.
SENATOR THERRIAULT explained that Section 2 deals with phasing
of a gas pipeline project in Alaska. The language is route-
specific and project-neutral. "We have some definite ideas of
where we would like the line to be built," he told members, "but
we don't much care who builds it." Therefore, he said, the
language is structured to allow anyone to take advantage of the
routes that are suggested.
Number 0240
SENATOR THERRIAULT noted that this committee had dealt with the
petition process in [HB 439], sponsored by [the House Special
Committee on Oil and Gas, which is chaired by] Representative
Ogan. Because that bill is in the Senate currently, and because
it came to the Senate first, the petition process has been
removed from this version of SB 308. However, the title is
relatively broad. He explained that SB 308 had been sent to the
House with a broad title on purpose, so that if there were any
problems dealing with the petition process through [HB 439],
then [SB 308] would be available as a vehicle to make sure that
petition-process change is taken care of.
SENATOR THERRIAULT reported that Representative Ogan's staff had
been dealing with "the Senate committees" to come up with
language that fixes the problem. Unfortunately, it will trigger
a title change, which would require a two-thirds vote on a
title-change resolution when it comes back to the House. The
desire is to keep SB 308 as a possible vehicle, in case that
title change isn't possible.
Number 0365
SENATOR THERRIAULT returned attention to phasing [Section 2].
He explained:
In order to get a consistency determination, before
you can actually get your permits, you're supposed to
submit your entire project, because a gas pipeline
project is so large that it's virtually impossible to
anticipate every permit, every stream crossing that
you're going to need for the project. So what this
language does is it allows that that consistency
determination would be able to be phased in over a
length of time.
[There was a partial motion to move the bill, but Legislative
Information Office (LIO) personnel interjected because there
were testifiers.]
Number 0480
DANA OLSON testified via teleconference on her own behalf,
noting that she lives in an affected coastal district. She told
members she is very concerned about the coastal management
program. She asked that a legal and factual basis be provided
for the bill, adding that Thomas Dewey once said that a problem
well defined is half solved. She expressed concern that SB 308
"has been primarily a reactionary type of situation."
MS. OLSON requested changes. She asked that the committee add a
fiscal note to SB 308 in order to implement AS 46.03.040, a
state requirement for an environmental plan. She added, "If
implementation of this plan is not desired by the legislature,
then I ask that you put a provision on this bill and repeal it.
Having this provision sit here on this bill is meaningless."
She further requested compliance with "the amendments to the
coastal management Act, which are stated 'not complied with.'"
She said amendments to the coastal management Act require that
consideration of the entire coastal zone - and not just a
coastal district - be looked at. She noted that one of the
particular problems she is addressing is "the legal and factual
basis for construction permits."
Number 0645
JOHN T. SHIVELY, Lobbyist for Foothills Pipe Lines Ltd.,
testified via teleconference in support of [SB 308],
particularly the phasing section. He explained:
This is [an] issue we've worked with, with Senator
Therriault and with the administration. As the
Senator said, generally, in order to get a consistency
determination, which is required for a project in the
coastal zone, you have to have all your permits ready
to go. This project is way too big and complicated
for that, and ... the language in the bill in front of
you allows the administration to phase and actually
make what would be, I believe, several consistency
determinations, if they were necessary. So we think
it's a good piece of legislation, and we support its
adoption.
Number 0720
VICE CHAIR FATE asked whether there were questions or if anyone
else wished to testify; there was no response. He announced
that public testimony was closed.
Number 0773
REPRESENTATIVE KOHRING requested that Senator Therriault address
the concerns expressed by Ms. Olson.
SENATOR THERRIAULT replied by saying he has been involved in
legislation dealing with the coastal zone [program] for a number
of years, and has proposed bills in the past that either
eliminated the program or made sweeping changes. He then said:
This bill doesn't do it. It's very specific,
noncontroversial things as far as dealing with the
administration - people that run the program. With
[regard] to the first section that talks about the
nonadoption through reference, that's currently
basically in place through the directive of Division
of Governmental Coordination; we're just enshrining
that in statutes.
SENATOR THERRIAULT addressed phasing:
As the former commissioner [Mr. Shively] indicated,
the gas pipeline project is such a level of complexity
that having all your permits ready to go - so that a
complete consistency determination can be granted at
once - is virtually impossible. And the people
running the program ... on behalf of the
administration agree with that.
SENATOR THERRIAULT concluded by saying he wasn't sure what the
other concerns were about the way the program operates, but
didn't believe they specifically concerned the two sections
being asked for in this legislation.
Number 0885
REPRESENTATIVE KOHRING, with the concurrence of Vice Chair Fate,
asked Ms. Olson whether Senator Therriault's answer had
addressed her concerns adequately.
MS. OLSON said no. She said the bill is rather broad, and she
emphasized the need to look at the whole problem, instead of
"piecemealing" it. Ms. Olson added, "It's causing people to
react to every little, particular problem, where it really needs
to be looked at in a larger scope."
REPRESENTATIVE KOHRING requested that Ms. Olson call his office
or e-mail or fax her concerns to him for a further look.
Number 0955
SENATOR THERRIAULT remarked that the statutory reference used by
Ms. Olson deals with the Department of Environmental
Conservation, not DGC. He suggested someone might want to
introduce a bill to address that, but said it wasn't his
intention with SB 308.
Number 0990
VICE CHAIR FATE asked whether there were further questions; none
were offered. He thanked participants and again announced that
public testimony was closed.
Number 1013
REPRESENTATIVE DYSON moved to report CSSB 308(FIN) from
committee with individual recommendations and the attached
[zero] fiscal note. There being no objection, CSSB 308(FIN) was
moved out of the House Special Committee on Oil and Gas.
Number 1041
VICE CHAIR FATE called an at-ease at 9:20 a.m. He called the
meeting back to order at 9:23 a.m.
SB 319-SHALLOW NATURAL GAS: LEASING & DISCHARGES
Number 1059
VICE CHAIR FATE announced the final order of business, CS FOR
SENATE BILL NO. 319(FIN), "An Act relating to shallow natural
gas; and providing for an effective date."
Number 1101
SENATOR JOHN TORGERSON, Alaska State Legislature, sponsor of SB
319, explained that the shallow gas leasing program originally
was proposed to enable exploration and production of shallow gas
deposits in rural areas, in order to supply energy to villages,
mines, and other rural users. However, now that the program is
fully operational - with more than 100 leases processed and
nearly 200 pending - it is apparent the program has become a
vehicle for commercial gas development in Fairbanks, Big Delta,
the Matanuska-Susitna area, and the lower Kenai Peninsula.
SENATOR TORGERSON reported that the bill changes the program in
five distinct ways. First, it increases revenues to the State
of Alaska. [Section 2] raises application [fees] for shallow
gas leases from $500 to $5,000, which more closely reflects the
state's processing costs. [Section 4] increases annual fees
from 50 cents an acre to $1 an acre. Second, the bill lowers
administrative costs [in Section 4] by eliminating a requirement
that the Department of Natural Resources (DNR) notify lessees by
certified mail when rental fees are due. It also removes the
deadlines for issuing leases; the deadlines have proven
unworkable and don't recognize the work required by DNR in
processing leases in populated areas that [may have] complex
land-ownership patterns.
SENATOR TORGERSON explained that third, the bill provides better
reservoir management and increased value to lessees. The depth
limitation of 3,000 feet has been replaced with a requirement
that some portion of the field must be within 3,000 feet of the
surface. The total acreage that may be held by a lessee has
been increased [in Section 2] from 46,080 acres to an aggregate
of 100,000 acres; he said DNR believes the acreage increase
reflects the greater amount that may be necessary to have a
viable shallow gas leasing program.
Number 1230
SENATOR TORGERSON noted that fourth, the bill removes the
requirement that the applicant conduct a title search. He said
DNR routinely conducts a title search for land before leases are
issued; furthermore, no title company will conduct a thorough
title search of the subsurface estate and warranty title. In
addition, there is improved protection for surface estate owners
through bonding. However, the lessee must secure a bond as a
precondition of obtaining the lease. If damages occur and the
lessee and landowner cannot reach an agreement on the amount of
damages, either party may seek relief in the courts, he said,
and DNR would release the bond as directed by the court. These
proposed new bonding provisions would help protect surface
owners by ensuring that substantial bonds are in place prior to
the exploration and development of the leases.
SENATOR TORGERSON specified that the fifth change is actually a
timeline for converting the existing leases to the new program,
giving them through September 30 [2002] to do that.
Number 1309
REPRESENTATIVE DYSON noted that this is an area about which
Chairman Ogan has expressed a lot of interest. He asked whether
it would be possible to talk with him by telephone.
VICE CHAIR FATE, after consulting with the committee aide, said
Chairman Ogan [who was absent for medical reasons] wasn't
available.
REPRESENTATIVE DYSON asked whether delaying passage of the bill
until the next hearing, in order to receive comment from
Chairman Ogan, would cause a problem with the timeline.
Number 1361
SENATOR TORGERSON reported that Chairman Ogan is aware of the
bill, which he said they'd discussed earlier. "I don't believe
he has any problems with it," Senator Torgerson offered; he
acknowledged, however, that he wasn't sure whether changes had
been made since Chairman Ogan last reviewed it. He told
Representative Dyson that the key is passage this year, and he
said it wouldn't hurt to hold it for a period of time. He
indicated his understanding, however, that Chairman Ogan has
been most interested in Evergreen [Resources], which is in favor
of the bill.
Number 1408
VICE CHAIR FATE called an at-ease at 9:27 a.m. He called the
meeting back to order at 9:28 a.m.
Number 1417
REPRESENTATIVE KOHRING expressed appreciation to Senator
Torgerson for what he is trying to do with the legislation. He
remarked on the mention of Evergreen Resources' support for the
legislation and surmised that the fee increases aren't
objectionable to that company or others in the industry. He
added that he couldn't help notice the tenfold increase in the
annual rental fees, as well as the increase in the per-acreage
rental fees. He requested that Senator Torgerson address that,
as well as the [portion of the sponsor statement that says the
fees aren't to] discourage parties of genuine interest and
ability from developing [shallow natural gas] resources, given
that companies will be paying more money.
SENATOR TORGERSON noted that before being asked to consider this
bill, he was "going down a parallel path on how to convert the
shallow gas leasing into a more conventional leasing program."
At $500 a lease, he said, he'd been concerned that some of the
300 lessees were just betting on possible success and tying up
the land for $500 because nothing was required to happen.
SENATOR TORGERSON indicated DNR personnel had said going from
[$500] to $5,000 more closely reflects costs, which he
understood to be perhaps $3,500 a lease. He referred to
discussion about "pure rural users," for which this was
originally intended. He remarked, "I committed to revisiting
this program so that we could have, basically, a rural
development kind of a community-by-village lease program where
it would still be available." He added, "Other than that, none
of the companies oppose the current increases, or at least not
that I'm aware of."
Number 1594
VICE CHAIR FATE noted that Mark Myers of DNR's Division of Oil &
Gas was online to answer questions. He referred to the acreage
[in Section 2], pointing out that 46,080 acres is two townships,
whereas 100,000, the new amount in the bill, is between four and
five townships. Although he had no objection to the new amount,
he suggested perhaps it could be a multiple of a whole township.
He asked Senator Torgerson whether he'd considered that.
SENATOR TORGERSON replied no. He said the increase was worked
out between DNR and the producers, "in recognition that it takes
a lot of acreage and a lot of wells to produce the shallow gas."
He added that the reservoirs don't necessarily follow boundaries
or straight lines; he suggested perhaps the particular increase
recognizes that also. He suggested it would be a great question
for Mr. Myers.
Number 1685
MARK MYERS, Director, Division of Oil & Gas, Department of
Natural Resources (DNR), testified via teleconference in
response. He said:
Typically, we don't end up with totally even numbers
when we do the work because, again, in these large
blocks there's typically other subsurface owners as
well, particularly in the areas where the leases have
been. So the numbers end up being not directly
related.
MR. MYERS further explained that with the 100,000 acres, "the
thought process was that that's a very large-size, coal-bed-
methane-type unit, where they would depressurize ... a large
unit." Regarding the existing [46,080 limit], he said there
have been clear examples of units larger than that, which needed
to be that large for "economy-of-scale production." He
concluded:
We were trying to get a number significantly large
enough, that was as large or larger than any of the
largest coal-bed-methane units we knew. That's not to
say an individual company might not need to have two
or three units, again, for ... their total production
scenarios.
So, the 100,000 acres wasn't a magical number. It's
simply a number to recognize the commercial size of
development. And we recognize that in the filing
program; ... people will file for a full township, but
not get that full amount of acreage. So the even-
versus-odd number didn't make much difference to us
because, again, that's something that's sorted out in
the title search, ultimately, at the time of lease
issuance. But, again, we would have no problem in
rounding those numbers ... if the committees and
Senator Torgerson were comfortable with that.
Number 1740
VICE CHAIR FATE clarified that he wasn't anticipating rounding
it, but had wondered whether there was a desire to keep the
acreage at a multiple of a [township]. He said the question had
been answered adequately. He thanked Senator Torgerson and Mr.
Myers for their testimony.
Number 1795
CHARLOTTE MacCAY, Senior Administrator of Environmental and
Regulatory Affairs, Teck Cominco Alaska Inc., testified via
teleconference, noting that Teck Cominco Alaska operates the Red
Dog Mine north of Kotzebue. Ms. MacCay offered the following
testimony:
I'm here today to talk about a potential energy source
we're looking at to replace our extensive use of
diesel fuel. Briefly, the Red Dog Mine employs some
400 Alaskans, of which 60 percent are NANA [Regional
Corporation] shareholders. The mine produces over a
million tons of zinc and lead concentrates each year,
and ships it out through our port for a three-month
period. To crush the ore and make the concentrate
requires some 28 megawatts of power using
approximately 18 million gallons of diesel each year.
In the area where we have found indications of shallow
gas, the terrain is rolling hills to rugged mountains,
much different than either the Matanuska Valley or
Prudhoe Bay. The rugged nature of the region presents
a need to have a more flexible definition for the
depth limitation for a shallow gas lease. The depth
language suggested in this legislation will assist the
state and the leaseholder in knowing which areas are
part of the lease and in allowing us to fully utilize
a reservoir once it's been tapped.
Number 1870
MS. MacCAY continued:
Currently, Teck Cominco holds four state shallow gas
leases, for a total of 23,000 acres, and NANA has the
adjoining land to the east, for nearly 100,000 acres,
which also has shallow gas. To adequately cover a
target or a concept takes considerable acreage. The
current lease has an acreage limitation of 46,000
acres to any one company; this is not sufficient
acreage for a project. The suggested 100,000-acre
limit offered in this legislation is supported by Teck
Cominco.
Surface ownership in this portion of Alaska is fairly
straightforward, with three major owners: the
National Park Service, whose land we know is off
limits; the State of Alaska land; and the private
lands of NANA. So the issues of addressing surface
owners separately is not an issue for Teck Cominco.
The fee change requested by the administration is
considerably more than the initial legislation - in
fact, double for rentals and ten times for application
fees. We understand the administration's desire to
generate more revenue to administer the program, and
Teck Cominco can support the fee increases if the
monies are directed to the shallow gas program.
Otherwise, the increase is a significant [added] cost
to an already cost-sensitive business, particularly
for rural Alaskan development.
Number 1941
MS. MacCAY continued:
Development of a shallow gas field in Northwest Alaska
has many impediments [that] some areas share and some
don't. Location is a major impediment due to access
and the ability to bring large equipment in and out
during the summer months only. The lack of roads in
the area and the desire to maintain the pristine
nature of the region is a high cost and time
impediment.
It is very difficult, if not impossible, to test a
shallow gas lease within the three years provided in
the current lease when work is so seasonal. Logic
would say a lease should be at least five years for a
primary term, with renewal options as provided.
Although not provided in this legislation, we would
support a five-year term with renewal options.
Development of a shallow gas field is much different
than a conventional field in Cook Inlet or on the
Slope. Instead of 2 to 5 holes to develop a gas
field, it will take 50 to 100 holes to develop a
shallow gas field. A longer lease is needed to
accommodate this work, and the cost per hole needs to
be kept at a minimum, or a field becomes uneconomic
very quickly.
Number 1989
MS. MacCAY continued:
To date, Teck Cominco has followed the mineral
exploration effort in the Red Dog area as a tool to
help defray costs and delineate areas of potential gas
resource. The methane gas we have found is low-
pressure, and is located lateral to and underlying our
ore zones. Extensive work has been completed to date,
but the next phase is to conduct a flow test. The
flow test cannot be supported until the depth below
surface of a field is better defined, as this bill
proposes to do.
Arctic operations will always present numerous
challenges not present elsewhere. Teck Cominco Alaska
addresses many of these each and every day at Red Dog.
By passing this legislation, you will have addressed a
major challenge and impediment that we otherwise could
not address.
VICE CHAIR FATE thanked Ms. MacCay and requested that she fax
her written testimony.
Number 2054
REPRESENTATIVE JOULE asked whether any benefits would be
realized by the people who live in the area.
MS. MacCAY replied:
At this point, our exploration has been limited to
just following our own mineral exploration. But it
appears that there's probably a greater gas field
potential than what we've already defined. ...
Currently, we've defined enough to replace Cominco's
18 million gallons. But if we continue exploration
and find further gas, then it's possible that we could
transmit power to the villages of Kivalina and Noatak.
MS. MacCAY noted that for Noatak, in particular, the barges
cannot get there to deliver fuel "at this time," and fuel costs
for both villages are quite high. The power would have to be
transmitted, not the gas, because neither village is large
enough to support the power generation itself.
Number 2112
REPRESENTATIVE JOULE asked, "And should this all come to pass,
the other thing that you would free up is the 18-million-gallon
storage capacity?"
MS. MacCAY responded, "If we were able to convert from diesel
fuel to shallow gas, not only would we eliminate a lot of the
risk of shipping in the 18 [million gallons] of gas each summer,
[but] it would also cut the air emissions and many pollutants to
about half."
Number 2158
KEVIN A. TABLER, Manager of Land and Government Affairs, Union
Oil Company of California (Unocal), testified via teleconference
in support of SB 319, noting that Unocal is currently conducting
an aggressive gas exploration program in the Cook Inlet area and
is very interested in any legislation dealing with gas and gas
exploration. He said:
The shallow gas leasing program augments the existing
areawide leasing program and enhances the access to,
and development of, the state's natural gas resources.
We are very supportive of this program and other
leasing programs providing access to the state's
mineral wealth.
I have participated in hearings on the Senate side and
have listened today to the remarks of Senator
Torgerson and the few remarks of director [Mark] Myers
of the Division of Oil & Gas and others in support of
this bill, and wish to lend Unocal's support in
passage of this legislation, for the varied reasons
already articulated. The amendments identified in SB
319 provide for better administration and
clarification of the shallow gas leasing program and
are certainly in the best interest of the State of
Alaska.
VICE CHAIR FATE thanked Mr. Tabler and requested that he fax any
written comments.
Number 2232
JOHN TANIGAWA, Special Projects Manager, Evergreen Resources
Alaska Corporation, testified via teleconference in support of
SB 319, noting that his company is a wholly owned subsidiary of
Evergreen Resources, Inc. He told members:
Last December, I moved to Wasilla to oversee our
operations, and I am the person who is accountable and
responsible for our activities up here. Currently, we
have [46,080] acres of shallow gas lease applications
near Willow. These applications are pending with the
Division of Oil & Gas.
Today, I testify in support of Senate Bill 319. SB
319 removes obstacles [to] our ability to explore for
and to develop shallow natural gas. Evergreen
Resources Alaska's specialties extend to Alaska the
main focus of Evergreen Resources, which is coal bed
methane, unconventional gas, and shallow natural gas
development.
These activities require at least 100,000 acres, or
roughly four townships, to establish the necessary
economies of scale for initial development. Due to
the challenges of operating in an arctic environment,
however, increasing that acreage limitation to 138,240
acres, or six townships, increases the ... economic
viability of shallow natural gas.
We strongly support increasing the depth limitation to
one that relies on science and geology for the
specific play. And we are certain that we can drill,
complete, and produce natural gas [wells] below 3,000
feet in a safe, environmentally responsible manner,
using already existing technologies that we currently
employ.
Finally, ... the shallow natural gas program is the
primary reason why Evergreen is in Alaska. We are
grateful that the legislature is making this program
possible and for improving it. Changes proposed in
this bill provide us the necessary latitude to operate
in an economically sound and environmentally safe
manner. We acknowledge the Division of Oil & Gas for
collaborating with us and other [stakeholders], and
this is an excellent example of how state agencies and
industry can work together to benefit not just
government and industry, but particularly the public.
Number 2359
REPRESENTATIVE KOHRING remarked, "I want to thank you guys for
all the exploration and prospective development in the Mat-Su.
It's certainly going to translate to some economic activity out
there." He then asked whether Mr. Tanigawa sees the [increase
in] fees as a problem for his company.
MR. TANIGAWA said no. He explained:
We believe that in this time of fiscal challenges for
both the state and the industry, it is important that
this program be ... self-funding. And I believe that
the oil and gas industry has a long history of funding
its own regulations at the borough and state and
federal levels. And we believe that this program
should be no different [and] not seek any taxpayer
support to comply with this proposed regulation.
VICE CHAIR FATE thanked Mr. Tanigawa and called on Dana Olson.
Number 2423
DANA OLSON testified via teleconference on her own behalf. A
property owner in a potentially affected area, Ms. Olson said
she was testifying with regard to the socioeconomic impacts of
the program upon communities. She expressed concern that the
definition of "rural" is too broad because there are well-
defined communities in the Matanuska-Susitna Borough. She said
this activity could potentially displace people and have impacts
on communities.
MS. OLSON further said DNR's land-use plans are out of date, and
Title 38 requires revision when necessary. She pointed out that
land-use plans go through a public process [beyond] just
testifying to the legislature. She cited AS 46.03.040, saying
it is "a requirement for environmental plans that DEC
[Department of Environmental Conservation] has not done, nor has
it been approved by the governor." She suggested the committee
may want to repeal it, if it is no longer relevant.
MS. OLSON further suggested the fees are too low when it comes
to impacting communities. Remarking that the amount in the bill
seems rather arbitrary, Ms. Olson said she'd like to see some
"factual basis for what the effects will be on communities
before a generalized fee is required."
MS. OLSON turned attention to a proposed Knik Arm power plant in
Cook Inlet; she indicated one provision is utilization of both
oil and natural gas. She suggested power plants generally
should be required to use cleaner fuel sources. "It doesn't
make much sense to go in and do all this development and not
require industry to use it," she concluded.
Number 2569
VICE CHAIR FATE thanked Ms. Olson and asked whether anyone else
wished to testify; there was no response. He closed public
testimony.
Number 2585
REPRESENTATIVE DYSON expressed appreciation for the sponsor's
bringing this bill forward. He said it sounds as though there
is no downside. He suggested there is a great advantage to
having the administrative costs covered by the fees paid by the
industry. If the fees are more than enough, Representative
Dyson remarked, it is a public resource being used and can
support public services, which is good public policy and helps
to get public support for the industry. He added that his
former concerns about showing deference to Chair Ogan had been
assuaged.
Number 2628
REPRESENTATIVE DYSON moved to report CSSB 319(FIN) from
committee with individual recommendations and the attached
fiscal note. There being no objection, CSSB 319(FIN) was moved
out of the House Special Committee on Oil and Gas.
ADJOURNMENT
Number 2649
There being no further business before the committee, the House
Special Committee on Oil and Gas meeting was adjourned at 9:50
a.m.
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