02/07/2003 01:05 PM House RES
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ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 7, 2003
1:05 p.m.
MEMBERS PRESENT
Representative Mike Chenault, Co-Chair
Representative Hugh Fate, Co-Chair
Representative Beverly Masek, Vice Chair
Representative Carl Gatto
Representative Cheryll Heinze
Representative Bob Lynn
Representative Kelly Wolf
Representative David Guttenberg
Representative Beth Kerttula
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CONFIRMATION HEARING
Commissioner, Department of Environmental Conservation
Ernesta Ballard - Juneau
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 69
"An Act relating to regulation of shallow natural gas leasing
and closely related energy projects; and providing for an
effective date."
- MOVED HB 69 OUT OF COMMITTEE
HOUSE BILL NO. 16
"An Act amending the standards applicable to determining
whether, for purposes of the Alaska Stranded Gas Development
Act, a proposed new investment constitutes a qualified project,
and repealing the deadline for applications relating to the
development of contracts for payments in lieu of taxes and for
royalty adjustments that may be submitted for consideration
under that Act; and providing for an effective date."
- SCHEDULED BUT NOT HEARD
CONFIRMATION HEARING
Commissioner, Department of Natural Resources
TOM IRWIN - Juneau
- CONFIRMATION HEARING POSTPONED
PREVIOUS ACTION
BILL: HB 69
SHORT TITLE:REGULATION OF SHALLOW NATURAL GAS
SPONSOR(S): REPRESENTATIVE(S)KOHRING
Jrn-Date Jrn-Page Action
01/29/03 0086 (H) READ THE FIRST TIME -
REFERRALS
01/29/03 0086 (H) O&G, RES
01/31/03 0108 (H) COSPONSOR(S): HEINZE
02/05/03 0135 (H) COSPONSOR(S): MORGAN
02/06/03 (H) O&G AT 3:15 PM CAPITOL 124
02/06/03 (H) Moved Out of Committee
02/06/03 (H) MINUTE(O&G)
02/07/03 0146 (H) O&G RPT 6DP 1NR
02/07/03 0146 (H) DP: CHENAULT, MCGUIRE,
ROKEBERG,
02/07/03 0146 (H) CRAWFORD, FATE, KOHRING; NR:
KERTTULA
02/07/03 0147 (H) FN1: ZERO(ADM)
02/07/03 0155 (H) COSPONSOR(S): ROKEBERG
02/07/03 (H) RES AT 1:00 PM CAPITOL 124
WITNESS REGISTER
ERNESTA BALLARD, Commissioner
Department of Environmental Conservation
Juneau, Alaska
POSITION STATEMENT: Testified as appointed commissioner of the
Department of Environmental Conservation.
REPRESENTATIVE VIC KOHRING
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Testified as sponsor of HB 69.
JACK EKSTROM, Director
Government and Public Affairs
Evergreen Resources, Inc.
Denver, Colorado
POSITION STATEMENT: Provided information and answered questions
related to HB 69.
ACTION NARRATIVE
TAPE 03-3, SIDE A
Number 0001
CO-CHAIR HUGH FATE called the House Resources Standing Committee
meeting to order at 1:05 p.m. Representatives Fate, Chenault,
Gatto, Heinze, Lynn, Guttenberg, Masek, and Wolf were present at
the call to order. Representative Kerttula arrived as the
meeting was in progress.
CONFIRMATION HEARING
Commissioner, Department of Environmental Conservation
CO-CHAIR FATE announced the first order of business, the
confirmation hearing on the appointment of Ernesta Ballard as
commissioner of the Department of Environmental Conservation.
Number 0170
ERNESTA BALLARD, Commissioner, Department of Environmental
Conservation (DEC), testified, and noted that she was very
pleased that she had the opportunity to have the [overview] with
the committee on February 3, and the chance to talk about some
of her broad views.
Number 0245
REPRESENTATIVE HEINZE asked Commissioner Ballard if she has had
a chance to visit Prudhoe Bay or Valdez.
COMMISSIONER BALLARD, in response, said she had not visited in
the capacity of [commissioner] but had visited Prudhoe Bay in
other capacities.
REPRESENTATIVE HEINZE remarked, "We're looking forward to you
going."
Number 0293
REPRESENTATIVE GATTO told Commissioner Ballard that he has very
high expectations for her and is very proud that she is here.
He said he thought she was the right person for the job and
congratulated her. He told her [the committee] would be happy
to meet with her in the future.
Number 0348
REPRESENTATIVE MASEK told Commissioner Ballard that she was
fairly impressed, and appreciated the fact that DEC brought
forward the information on the removal, cleanup, and prevention
of leaking underground storage tanks.
COMMISSIONER BALLARD acknowledged that the staff at DEC had been
responsive to the [committee], and had tried to turn around
requests quickly. She remarked, "They really have been
outstanding," and offered her observation that the 17 days that
the legislature had been in session felt to her like about nine
months. She remarked, "If we have 104 more to go, I guess we'll
all be sort of worn out at the end."
Number 0425
REPRESENTATIVE WOLF thanked Commissioner Ballard for going to
his office and talking to him and giving him the information
that she provided. He said he looked forward to working with
her.
REPRESENTATIVE GATTO said he was going home over the weekend and
would be visiting a business establishment to talk to the owner
and tell him that his concerns were relayed to the commissioner
and that the commissioner had already investigated and
responded. He said he thought the people in the community would
be delighted to know that there is a commissioner in Juneau that
had "done anything within a time span that is considered by any
microscopic, almost, compared to the usual time pan." He
thanked Commissioner Ballard for getting back to him.
Representative Gatto told the committee that Commissioner
Ballard had researched some of the statutes to see if the issue
that he had brought forward [during the overview] was truly an
issue and or "did it violate anything" and responded to him. He
remarked, "That's truly the kind of representation that we all
want, desire, and would love to have, so, thank you."
Number 0569
CO-CHAIR FATE said it was a pleasure to see somebody who
articulates a concise and clear objective and management style.
He commended her for it.
Number 0597
REPRESENTATIVE MASEK highlighted the protection status of active
paints in Alaska from 1993 to 2002, and said 22 percent met
paint standards [in 1993] but the [figure had increased] to 86
percent in 2002. She said she was happy to see the progress
that had been made and acknowledged that there was still some
work left to do with this issue. She remarked, "Overall, it
looks like the blunt force of the work has been established, and
I'm really happy to see that."
Number 0660
Co-CHAIR FATE announced that the confirmation hearing was
closed.
[No formal motion was made, but the appointment of Ernesta
Ballard was treated as advanced from committee.]
HB 69-REGULATION OF SHALLOW NATURAL GAS
CO-CHAIR FATE announced that the next order of business would be
HOUSE BILL NO. 69, "An Act relating to regulation of shallow
natural gas leasing and closely related energy projects; and
providing for an effective date."
Number 0689
REPRESENTATIVE VIC KOHRING, Alaska State Legislature, sponsor,
explained that HB 69 would affect the natural gas drilling
industry, mainly coal bed methane, not only in the Matanuska-
Susitna [Valley], which is where active drilling is presently
occurring, but also throughout Alaska where potential exists.
He told the committee that the legislation clarifies the
authority of the Alaska Oil and Gas Conservation Commission
(AOGCC) to regulate the shallow gas and unconventional natural
gas resources; it allows the AOGCC to grant variances to the
regulatory requirements in certain cases. Representative
Kohring explained that operators of the shallow gas drillers are
subject to the same regulations as operators of oil wells on the
North Slope, but the oil wells are much different in that they
are at greater depths, and are very expensive and complex.
Operations involve high-pressure situations, and toxic wastes
are produced, he said, and it is not the same kind of operation
as the shallow bed methane-type wells, which are, essentially,
modified water wells at very shallow depths.
REPRESENTATIVE KOHRING, referring to the issuance of permits for
the drilling of shallow gas wells, said AOGCC is required by law
to subject those companies to the same rules and regulations
that deal with the other more complex wells that are drilled on
the North Slope. Therefore, it makes the process much more
cumbersome in regard to issuing permits. He said the permitting
process is very slow and takes one to two years; there is also
more paperwork, which frequently involves thousands of pages of
documents that are to be filled out by the applicants; there's
more cost involved as a result.
REPRESENTATIVE KOHRING remarked, "So, we're trying to change ...
it, which will result in a much more fair process, one that
[makes] much more sense, and that's applicable to the shallow
gas industry." He expressed hope that the net result would be
an increase in shallow gas drilling activities throughout the
state; contributions to the economy; and additional royalties to
the state treasury. The governor has strongly been pushing the
issue of increased oil and gas exploration of the state as a way
build the economy and to address the issue of the budget
deficit, he said. He suggested [HB 69] was one small step in
that direction and said there was a long way to go; there was
going to be a lag-time between putting forth legislation,
getting it on the books, and actually seeing some real
development and the effect to the state treasury.
Number 0914
REPRESENTATIVE KOHRING remarked, "But we have to start
somewhere, and this is a real good start; a real good movement
in that direction." He talked about potential of areas such as
Cook Inlet, and said there is an estimated 1.5 trillion tons of
coal there; in that volume of coal is estimated to be about 200
trillion feet of coal bed methane. Representative Kohring
referred to areas in Southcentral that are starting to run out
of gas, and said [HB 69] presents a phenomenal potential and
opportunity for that area's economy. He mentioned 200 trillion
cubic feet of natural gas; it's estimated there is enough to
supply the entire United States at its current rate of
consumption for the next eight years. Representative Kohring
explained that obtaining the permits and drilling is a very
expensive process and expressed hope that [HB 69] would pass out
of committee. He explained that the industry has worked with
the agency; this bill would result in a much more streamlined
process that would make it much easier for the industry.
REPRESENTATIVE KOHRING reiterated that the [intention] of the
bill was to allow the AOGCC the ability to grant a variance so
[these operators] don't have to adhere strictly to the drilling
rules and requirements for deep oil wells. He suggested that
[HB 69] would make it easier and quicker to issue permits to the
operators of the shallow gas, in particular, on coal bed
methane-type operations.
Number 1070
REPRESENTATIVE GATTO, referring to the amount of coal available,
said it translates into very large numbers of trillions of feet
of natural gas. He asked how much gas was available in "shallow
bed, shallow coal" deposits as opposed to the major field on the
North Slope.
Number 1118
REPRESENTATIVE KOHRING, in response, said he didn't remember the
numbers but guessed the amount in question was substantially
less. He remarked, "We have just huge ... reserves up on the
North Slope, and I don't know what the numbers are."
Representative Kohring said the advantage to coal bed methane is
that it's easier to get at and is in locations that are very
convenient. He talked about the eight wells in Wasilla that had
been drilled recently and said there was potential around Cook
Inlet, particularly, Beluga, which would be beneficial to the
Kenai Peninsula because it's easily accessible and is at such
shallow depths, in some cases, 100 to 200 feet down. He said it
would be in close proximity to where gas could actually be used,
so there would be less transportation issues.
Number 1182
REPRESENTATIVE GATTO offered his understanding that in the area
in question there is 35 trillion cubic feet [of gas], but in the
coal bed methane there is 200 trillion cubic feet.
REPRESENTATIVE KOHRING, in response, said there is a potential
for 200 trillion feet in the proven coal deposits in the Cook
Inlet region, and 200 trillion feet is roughly what the United
States would consume over the next eight years at the current
rate of consumption.
Number 1220
REPRESENTATIVE FATE clarified that the 35 trillion feet is at
the wellhead. The 100 million cubic feet is a projected
potential and is similar to the projected potential on the
Arctic Slope. Therefore, Alaska isn't short of a gas supply.
Furthermore, shallow well and nonconventional gas are easy to
access and are inexpensive in comparison to the deep drilling on
the North Slope.
REPRESENTATIVE GUTTENBERG asked if there has been any review
with regard to how other states do this and have developed
regulations.
REPRESENTATIVE KOHRING answered that he hasn't researched that
issue extensively, other than to review [information from] the
State of Colorado. He informed the committee that HB 69 has
been patterned after Colorado's legislation, where this approach
has worked. Furthermore, Evergreen Resources, which is involved
in drilling in Alaska, is from Colorado.
REPRESENTATIVE LYNN inquired as to how much actual permitting
time would be saved should HB 69 become law.
REPRESENTATIVE KOHRING responded that in many cases, it's up to
one to two years to be issued a permit for these shallow wells.
This legislation would probably result in the issuance of
permits on such wells occurring in about 30-60 days on average.
Number 1418
REPRESENTATIVE MASEK pointed out that HB 69 is tied to Governor
Murkowski's State of the State speech with regard to resource
development. She related her belief that it's time that the
state develops legislation that would attract companies and make
it easier for them to do business.
REPRESENTATIVE HEINZE remarked that HB 69 is a wonderful start.
She noted that an article [in the committee packet] specifies
that Evergreen Resources owns a 100 percent working interest in
52,000 acres. She asked if that would mean that Evergreen
Resources is a royalty owner.
REPRESENTATIVE KOHRING deferred to a representative from
Evergreen [Resources, Inc.].
Number 1536
JACK EKSTROM, Director, Government and Public Affairs, Evergreen
Resources, Inc., answered: "We would be the operator of record
and the owner of the production, but we are not a royalty
owner." He explained that the state is the primary royalty
owner, and there are some other properties in the unit that are
owned by private individuals, as well as some by the federal
government. He added, "So they would be the royalty owners
within this Pioneer Unit."
Number 1582
REPRESENTATIVE HEINZE asked for an explanation of the tariffs on
the gas.
CO-CHAIR FATE interjected that the tariffs are usually applied
to the transportation system and the pipeline, but at the
present time there is no transportation system; it is in the
"exploratory mode."
Number 1627
MR. EKSTROM, in response to a follow-up question by
Representative Heinze, said that the Enstar (ph) pipeline runs
through the Pioneer Unit, and it is anticipated that the gas
would be sold through the Enstar pipeline system and be
transported south to Anchorage, Alaska. Because [Evergreen
Resources, Inc.] is an exploration production company, it sells
the gas to the transporter and "the tariffs are applied at that
time."
Number 1635
CO-CHAIR FATE added his belief that those tariffs would probably
be set by the [Regulatory Commission of Alaska (RCA)].
Number 1643
REPRESENTATIVE KERTTULA noted that she would inquire about a
subject addressed in the previous day's hearing in the House
Special Committee on Oil and Gas. She pointed out that the
[proposed legislation] would change some of the public notice
requirements. She mentioned variances normally used for small,
technical engineering decisions, for example, where a long delay
is not wanted. She asked if she was correct that [the
legislation] would not affect property rights or the broader
issues where land owners would be given notice. She said, "So
there would still be public notice and people would still be
involved, and ... this is just for the types of things that
variances are normally granted for, where there would be no
public notice. Is that right?"
Number 1652
REPRESENTATIVE KOHRING told Representative Kerttula she was
correct. He told the committee that Evergreen [Resources, Inc.]
has been outstanding in regard to its sensitivity to property
owners in "the valley," after assuming ownership of a parcel
where the previous company had "ruffled some feathers out
there."
REPRESENTATIVE KOHRING thanked [the people involved in Evergreen
Resources, Inc.] for their interest in Alaska and optimism
toward what they can contribute to its economy, and for the
month spent drilling. He extended his welcome to other
companies, as well.
Number 1753
REPRESENTATIVE GUTTENBERG noted that "everything in the bill is
referring to Article 1, which is the administration of the Act,
as compared with the ... regulation of operation." He asked
[Representative Kohring] if there would be an effect on the
public process of permitting - if it would be "shortened, or
narrowed, or streamlined."
Number 1798
REPRESENTATIVE KOHRING responded that he thinks that question
would be better answered by one of the commissioners of AOGCC;
however, he stated that his expectation is that the process
would be shortened, which is part of the goal to be
accomplished. He said he believes "it's more to address
technical issues." For example, he said if there was a problem
in the course of drilling a well in the middle of the night, a
decision should be rendered quickly, without having to shut down
operations.
Number 1831
CO-CHAIR FATE mentioned deep-hole gas wells versus those with
pressures "not nearly as great as those that you find at depth."
He said that the process that is currently in place is relegated
to natural gas "at depth," where pressures are very high.
Number 1876
The committee took an at-ease from 1:30 p.m. to 1:34 p.m.
Number 1884
REPRESENTATIVE HEINZE stated her understanding that eight wells
would be dug by spring [2003]. She asked if the results [of
drilling those wells] would be available before the legislature
adjourns in May.
Number 1900
MR. EKSTROM answered that his expectation is that preliminary
results would certainly be available.
REPRESENTATIVE HEINZE asked him to share those results [when
available].
Number 1939
REPRESENTATIVE MASEK moved to report HB 69 out of the House
Resources Standing Committee with individual recommendations
[and the accompanying zero fiscal note]. There being no
objection, HB 69 was reported from the House Resources Standing
Committee.
Number 1967
REPRESENTATIVE GUTTENBERG shared a comment made by a previous
director of [the Division of] Oil & Gas, as follows: "If you
want to know where the oil and gas is in Alaska, look for the
geese and the caribou."
ADJOURNMENT
Number 1982
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 1:36 p.m.
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