Legislature(2011 - 2012)BARNES 124

01/20/2012 01:00 PM House RESOURCES


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Audio Topic
01:04:34 PM Start
01:04:54 PM Overview(s): Department of Natural Resources
02:49:59 PM Overview(s): Shale Oil Task Force Update
03:08:14 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ Overviews: TELECONFERENCED
- Dept. of Natural Resources by Commissioner
Dan Sullivan
- Shale Oil Task Force Update by William Barron,
DNR Oil & Gas Director
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
               HOUSE RESOURCES STANDING COMMITTEE                                                                             
                        January 20, 2012                                                                                        
                           1:04 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Eric Feige, Co-Chair                                                                                             
Representative Paul Seaton, Co-Chair                                                                                            
Representative Peggy Wilson, Vice Chair                                                                                         
Representative Alan Dick                                                                                                        
Representative Neal Foster                                                                                                      
Representative Bob Herron                                                                                                       
Representative Cathy Engstrom Munoz                                                                                             
Representative Berta Gardner                                                                                                    
Representative Scott Kawasaki                                                                                                   
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
All members present                                                                                                             
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Representative Dan Saddler                                                                                                      
Senator Cathy Giessel                                                                                                           
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                              
OVERVIEW(S):  DEPARTMENT OF NATURAL RESOURCES                                                                                   
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
OVERVIEW(S):  SHALE OIL TASK FORCE UPDATE                                                                                       
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record                                                                                                    
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
DANIEL S. SULLIVAN, Commissioner                                                                                                
Department of Natural Resources (DNR)                                                                                           
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a PowerPoint overview of the                                                                    
Department of Natural Resources.                                                                                                
                                                                                                                                
BRENT GOODRUM, Director                                                                                                         
Division of Mining, Land and Water                                                                                              
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   During the Department  of Natural Resources                                                             
overview, answered questions.                                                                                                   
                                                                                                                                
ED FOGELS, Deputy Commissioner                                                                                                  
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:   During the Department  of Natural Resources                                                             
overview, answered questions.                                                                                                   
                                                                                                                                
WILLIAM BARRON, Director                                                                                                        
Division of Oil & Gas                                                                                                           
Department of Natural Resources                                                                                                 
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Provided a  PowerPoint presentation on North                                                             
Slope shale oil  development and an update on the  Shale Oil Task                                                               
Force.                                                                                                                          
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
1:04:34 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  ERIC   FEIGE  called   the  House   Resources  Standing                                                             
Committee meeting  to order at  1:04 p.m.   Representatives Dick,                                                               
Herron,  Wilson, Gardner,  Foster, Munoz,  Kawasaki, Seaton,  and                                                               
Feige were present  at the call to order.   Representative Sadler                                                               
and Senator Giessel were also present.                                                                                          
                                                                                                                                
^OVERVIEW(S):  Department of Natural Resources                                                                                  
         OVERVIEW(S):  Department of Natural Resources                                                                      
                                                                                                                              
1:04:54 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE announced  that the first order  of business would                                                               
be  an  overview  of  the  Department  of  Natural  Resources  by                                                               
Commissioner Sullivan.                                                                                                          
                                                                                                                                
1:05:26 PM                                                                                                                    
                                                                                                                                
DANIEL   S.  SULLIVAN,   Commissioner,   Department  of   Natural                                                               
Resources (DNR), stated  that a key priority at DNR  is to have a                                                               
strong,   respectful,  and   responsive  relationship   with  the                                                               
legislature and to  show this all of DNR's  directors are present                                                               
in person or online, as was done last year.                                                                                     
                                                                                                                                
COMMISSIONER  SULLIVAN  noted  that decisions  on  two  important                                                               
cases  before the  Alaska Supreme  Court  were announced  earlier                                                               
today:  the  Carlson case, which will have  very important fiscal                                                             
ramifications for the  state both on the case  and going forward,                                                               
and  the Nondalton  case, which  directly affects  DNR.   He said                                                             
these decisions are victories for  the state and reflect the hard                                                               
work of the  Department of Law as well as  the cooperation of the                                                               
Alaska  State Legislature,  which  was critical  for the  Carlson                                                             
case.                                                                                                                           
                                                                                                                                
1:08:48 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN,  in response to Representative  P. Wilson,                                                               
explained that  in the  Carlson case  the court  reversed itself,                                                             
admitting  that  the previous  decision  to  charge the  state  a                                                               
"super high" interest penalty was  incorrect and should have been                                                               
lower.  The  savings on the remanded interest rate  is a big deal                                                               
to the state  not only on the  case, but going forward.   He then                                                               
directed attention  to the  January 1, 2012,  op-ed he  wrote for                                                               
the Fairbanks Daly News-Miner that  highlights some of the issues                                                             
before the state.                                                                                                               
                                                                                                                                
1:11:13 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN then  began  his Power  Point overview  by                                                               
pointing  out  that DNR  has  revised  its mission  statement  to                                                               
simplify  it and  to synchronize  it more  closely with  what the                                                               
department thinks  is the constitutional  mandate [slide 4].   He                                                               
said DNR has also expanded its  core services from two to four to                                                               
better reflect what all of the department's directors do.                                                                       
                                                                                                                                
COMMISSIONER  SULLIVAN  noted  that  the  Department  of  Natural                                                               
Resources manages one  of the largest portfolios in  the world of                                                               
oil,  gas, minerals,  and  renewables such  as  water, land,  and                                                               
timber [slide 5]; only 17 countries  in the world are larger than                                                               
the  state of  Alaska.   Jumping ahead  to slide  9, he  directed                                                               
attention  to the  oil and  gas estimates  depicted for  Alaska's                                                               
North  Slope.   He also  noted  that since  the last  legislative                                                               
session, the U.S. Geological Survey  (USGS) came out with revised                                                               
Cook    Inlet   estimates,    which   are    quite   significant.                                                               
Additionally,  Alaska has  a huge  mineral potential,  ranking in                                                               
the top 10 in the world for important minerals [slide 10].                                                                      
                                                                                                                                
1:13:21 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN introduced  DNR's two deputy commissioners,                                                               
Ed  Fogels and  Joe  Balash,  as well  as  the  directors of  the                                                               
department's  seven  divisions:   Franci  Havemeister,  Director,                                                               
Division  of Agriculture;  Chris  Maisch,  Director, Division  of                                                               
Forestry; Bob Swenson, Acting Director,  Division of Geological &                                                               
Geophysical Surveys;  Brent Goodrum,  Director, Mining,  Land and                                                               
Water; Bill Barron, Director, Division  of Oil & Gas; Jean Davis,                                                               
Director, Division of Support Services;  and Ben Ellis, Director,                                                               
Division of Parks  & Outdoor Recreation.  He  then introduced the                                                               
following  DNR  staff  members:     Kurt  Gibson,  Director,  Gas                                                               
Pipeline  Office; Tom  [Crafford],  Director,  Office of  Project                                                               
Management  &  Permitting;  and Mike  Thompson,  [State  Pipeline                                                               
Coordinator], office of the State Pipeline Coordinator.                                                                         
                                                                                                                                
1:20:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON  recalled that  at the  committee's 1/18/12                                                               
overview of the  Division of Agriculture, a witness  said that he                                                               
could not speak highly enough  of director Franci Havemeister and                                                               
the work she does.  However,  the witness didn't believe that was                                                               
the impression DNR held of  the division.  Therefore, the witness                                                               
expressed the desire for the  Division of Agriculture to be moved                                                               
elsewhere.  He  inquired as to the  commissioner's thoughts about                                                               
this testimony.                                                                                                                 
                                                                                                                                
COMMISSIONER  SULLIVAN  allowed that  it  is  very easy  in  DNR,                                                               
particularly  in the  commissioner's office,  to focus  solely on                                                               
oil and gas  issues and sometimes minerals at the  expense of all                                                               
the other divisions.  He related  that last year he committed the                                                               
commissioner's office  to not  do that.   Although Ed  Fogels has                                                               
gotten  out to  the  communities very  regularly  in addition  to                                                               
Franci  doing  a  good  job,   he  acknowledged  there  could  be                                                               
improvement  in   terms  of   him  "stepping   up  more."     The                                                               
department's commitment  is sincere, he continued,  and while the                                                               
job has probably been half done the department is working on it.                                                                
                                                                                                                                
1:23:48 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  GARDNER   asked  if  there  is   any  foreseeable                                                               
opportunity to  obtain the  title to the  school lands  that were                                                               
promised at statehood.                                                                                                          
                                                                                                                                
COMMISSIONER SULLIVAN stated  that he is not up to  speed on that                                                               
issue, and therefore deferred to Mr. Goodrum.                                                                                   
                                                                                                                                
BRENT  GOODRUM, Director,  Division  of Mining,  Land and  Water,                                                               
Department of  Natural Resources,  offered to research  the issue                                                               
and provide any information obtained to the committee.                                                                          
                                                                                                                                
REPRESENTATIVE  GARDNER  informed  the committee  that  obtaining                                                               
title  to the  school  lands  is one  of  the  priorities of  the                                                               
statewide  Parent Teacher  Association.   She  explained that  at                                                               
statehood,  every state  was promised  grids 31  and 16  of every                                                               
community or the equivalent.   The aforementioned hasn't occurred                                                               
in Alaska.   She acknowledged  that it takes some  federal action                                                               
to release these titles.                                                                                                        
                                                                                                                                
1:25:19 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN remarked that  the Division of Mining, Land                                                               
and Water has  made good progress with the  federal government in                                                               
terms of finalizing  some of the issues related  to the remaining                                                               
land  selections with  the  federal government.    He offered  to                                                               
brief the committee on the land selections issues.                                                                              
                                                                                                                                
REPRESENTATIVE GARDNER related she has  heard there is enough oil                                                               
on the North Slope to justify  construction of a pipeline, if the                                                               
state  didn't  already  have  a  pipeline.    She  asked  if  the                                                               
commissioner  would  concur,  regardless  of  whether  or  not  a                                                               
pipeline would be the best way to obtain it.                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN  acknowledged that the estimates  are still                                                               
very  significant.   Governor Parnell  has laid  out his  vision,                                                               
albeit  ambitious,  of 1  million  barrels  per day  through  the                                                               
Trans-Alaska  Pipeline System  (TAPS).   With  regard to  whether                                                               
there are  enough hydrocarbons  on the North  Slope to  reach the                                                               
governor's  vision,  he  opined  that there  are.    Commissioner                                                               
Sullivan  further opined  that  the  North Slope  is  an area  of                                                               
enormous promise.                                                                                                               
                                                                                                                                
REPRESENTATIVE P. WILSON also expressed  interest in the issue of                                                               
obtaining title to school lands and the follow-up on that.                                                                      
                                                                                                                                
COMMISSIONER  SULLIVAN agreed  to get  back to  the committee  on                                                               
that issue soon.                                                                                                                
                                                                                                                                
1:28:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ requested  that the  commissioner speak  to                                                               
the additional  resources the legislature  approved last  year to                                                               
address the backlog of permitting.                                                                                              
                                                                                                                                
COMMISSIONER  SULLIVAN  opined  that addressing  the  backlog  of                                                               
permitting  was  a  great  example   of  how  the  executive  and                                                               
legislative  branches  came  together  to  address  an  important                                                               
issue.  The  department is [reviewing] a strategy  with regard to                                                               
a comprehensive permitting  reform.  As mentioned,  last year the                                                               
governor's  budget included  an increment  of $5-$6  million that                                                               
mostly went to the Division of  Mining, Land and Water, which has                                                               
resulted in significant  improvement.  In fact,  the division has                                                               
hired  over  30  people,  has  chosen  a  system  to  revamp  the                                                               
technical aspects  of DNR's  system, and  has made  a significant                                                               
dent in  the backlog.   Still, new permit applications  are being                                                               
received.                                                                                                                       
                                                                                                                                
MR. GOODRUM  informed the committee  that since July 1,  about 31                                                               
employees  have been  hired and  trained.   During that  time the                                                               
division has  reduced the backlog  by almost  20 percent.   As of                                                               
December 30, 2011, there remain  2,095 authorizations to process,                                                               
which  is a  reduction  of about  560  from July  1,  2011.   The                                                               
division,  he  related,  has reviewed  better  tools  to  provide                                                               
better  visibility and  transparency with  the issue.   In  fact,                                                               
next month  the division will begin  working with IBM on  a pilot                                                               
project to improve the process.                                                                                                 
                                                                                                                                
COMMISSIONER  SULLIVAN  interjected  that although  the  division                                                               
still  has a  long way  to [reduce  the backlog  and improve  the                                                               
process];  it's  being  attacked   from  a  number  of  different                                                               
directions.                                                                                                                     
                                                                                                                                
1:31:53 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  MUNOZ   inquired  as  to  whether   DNR  has  the                                                               
opportunity to  comment to the  Alaska Energy Authority  (AEA) on                                                               
the  draft  Southeast  Alaska  Integrated  Resource  Plan.    She                                                               
further  inquired as  to  what  the plan  may  mean  in terms  of                                                               
mineral development in Southeast Alaska.                                                                                        
                                                                                                                                
COMMISSIONER  SULLIVAN  indicated that  he  wasn't  aware of  the                                                               
aforementioned plan, but would review it.                                                                                       
                                                                                                                                
REPRESENTATIVE MUNOZ  related that  one issue  of concern  is the                                                               
lack of consideration for existing  energy loads for existing and                                                               
proposed  mines.   She clarified  that  the concern  is that  the                                                               
energy  loads  of  existing  and   proposed  mines  aren't  being                                                               
considered in the recommendations for investment or not.                                                                        
                                                                                                                                
COMMISSIONER SULLIVAN reiterated he would review the plan.                                                                      
                                                                                                                                
1:33:30 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON   turned  attention   to  mariculture   and  the                                                               
permitting  of shellfish  farms.   He  related his  understanding                                                               
that no  longer will those  with a ten-year  transferrable permit                                                               
be able to  apply and obtain a  renewal in the ninth  year of the                                                               
permit, rather in the tenth year  one would have to reapply for a                                                               
brand new  permit.   The aforementioned  change, he  opined, will                                                               
cause severe  disruption since the mariculture  farmer won't know                                                               
whether he/she  would have a farm  or not.  This  change seems to                                                               
run  counter  to  the  commissioner's  comments  in  relation  to                                                               
permitting thus  far, he pointed  out.   He asked whether  DNR is                                                               
working  on resolving  the [change  in permitting]  internally or                                                               
does it require a statutory change.                                                                                             
                                                                                                                                
COMMISSIONER  SULLIVAN, with  regard  to  the permitting  reform,                                                               
emphasized that it's  an ongoing process to make  the system more                                                               
efficient.  He  mentioned that it's important  for legislators to                                                               
make DNR aware what constituents are saying.                                                                                    
                                                                                                                                
1:36:08 PM                                                                                                                    
                                                                                                                                
ED FOGELS, Deputy Commissioner,  Department of Natural Resources,                                                               
informed  the  committee  that the  department  has  been  having                                                               
internal  meetings  regarding  how  to  streamline  and  be  more                                                               
efficient  with  the issuance  of  aquatic  farming leases.    He                                                               
acknowledged that  under the current  structure it has  taken the                                                               
department a  while to renew  the leases.  Although  not optimal,                                                               
in the interim  the department has been issuing  land use permits                                                               
while the  lease is being  renewed.   In part, the  department is                                                               
reviewing the actual structure and  statutes and regulations that                                                               
govern aquatic farming  in order to determine if  any changes can                                                               
be made  at that point.   Also, efforts with the  backlog and the                                                               
streamlining  of the  process should  help that  situation.   The                                                               
department,  he   related,  is  also  reviewing   the  commercial                                                               
standard  for   geoduck  farming  to  ensure   it's  a  realistic                                                               
standard.                                                                                                                       
                                                                                                                                
CO-CHAIR  SEATON  noted  his  appreciation  of  the  department's                                                               
efforts  and encouraged  the department  to keep  the legislature                                                               
informed of its efforts with regard to aquatic farming.                                                                         
                                                                                                                                
MR.  FOGELS   clarified  that  DNR   is  reviewing   the  renewal                                                               
mechanism.   He offered that one  option could be a  mechanism to                                                               
extend an existing lease while  the renewal is being reviewed and                                                               
processed.   He acknowledged that  it is  not optimal to  have an                                                               
existing lease expire while it is being reviewed for renewal.                                                                   
                                                                                                                                
1:38:31 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  then turned  attention  to  the change  in  the                                                               
mission statement,  which he characterized as  "quite a different                                                               
direction."    The  past  mission  statement of  DNR  was:    "To                                                               
develop, conserve, and enhance natural  resources for present and                                                               
future  Alaskans."   However,  the  new  mission statement  says:                                                               
"Responsibly  develop Alaska's  resources consistent  with public                                                               
interest."   Co-Chair Seaton then  pointed out that, in  part, AS                                                               
37.07.014(a) says:                                                                                                              
                                                                                                                                
     Responsibilities of the legislature.                                                                                       
          (a) To carry out its legislative power under art.                                                                     
     II, sec.  1, Constitution of  the State of  Alaska, and                                                                    
     to  promote results-based  government, the  legislature                                                                    
     shall  issue a  mission statement  for each  agency and                                                                    
     the desired results the agency should achieve.                                                                             
                                                                                                                                
CO-CHAIR SEATON noted that although  the House Resources Standing                                                               
Committee  has  jurisdiction  of  this  matter,  it  hasn't  been                                                               
involved in DNR's change in mission  statement.  He then asked if                                                               
the  change in  mission  statement was  done  solely through  the                                                               
executive branch or was the legislature involved in some manner.                                                                
                                                                                                                                
COMMISSIONER  SULLIVAN   answered  that  to  his   knowledge  the                                                               
legislature was not involved in  the change in mission statement.                                                               
The change, he stated, was  the department's effort to streamline                                                               
[the language].  The language  "Responsibly and within the public                                                               
interest"  attempts   to  more  succinctly  capture   the  future                                                               
generation issues and focus  on the [department's] constitutional                                                               
mandate.  Commissioner  Sullivan said that he was  unaware of the                                                               
constitutional statute regarding mission  statements, but said he                                                               
is willing to work with the committee.                                                                                          
                                                                                                                                
1:41:40 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE returned to the  renewal of permits and added that                                                               
there  are  all kinds  of  commercial  use  permits for  which  a                                                               
mechanism  to   make  the  renewal  process   smoother  would  be                                                               
[desirable].   Similarly,  he expressed  interest for  designated                                                               
department  staff to  have the  authority to  extend permits  and                                                               
such that are being reviewed when they are about to expire.                                                                     
                                                                                                                                
COMMISSIONER  SULLIVAN,  regarding   permits,  related  that  the                                                               
department  has  been  cognizant  of the  "basis  of  where  they                                                               
exist."   Therefore,  a direct  mandate in  statute is  clear and                                                               
[would  cause] DNR  to return  to the  legislature regarding  the                                                               
change whereas statutory provisions  that request the agency make                                                               
regulations is  a looser connection.   Furthermore, agencies also                                                               
promulgate  regulations  within  the  authority  granted  by  the                                                               
legislature, although  not specifically connected by  a statutory                                                               
provision.  The department will  be reviewing the aforementioned,                                                               
he said.                                                                                                                        
                                                                                                                                
1:44:38 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN, returning  to his  presentation, directed                                                               
attention  to  slide  12   entitled  "TAPS  Arresting  Throughput                                                               
Decline."   Although the  declining oil through  TAPS has  been a                                                               
critical  issue  for  decades,  only  recently  has  the  federal                                                               
government recognized it as a national  issue.  The notice by the                                                               
federal  government  is positive  and  he  attributed it  to  the                                                               
department's   actions,   including   op-ed   pieces,   articles,                                                               
testimony,   and   meetings    with   the   federal   government.                                                               
Commissioner  Sullivan opined  that the  declining throughput  in                                                               
TAPS is the  number one economic issue on which  the state should                                                               
be focused,  as was  related in the  governor's recent  "State of                                                               
the State" speech.  He reminded  the committee that at the end of                                                               
last  session, the  governor set  out  a vision  and strategy  to                                                               
implement  the  vision.   Over  the  last  year, DNR  has  worked                                                               
relentlessly to  realize the governor's vision  and implement his                                                               
strategy.  The  work of DNR and other agencies  falls into one of                                                               
these  five elements  outlined on  slide  13.   This strategy  is                                                               
starting to bear fruit, he opined.   In fact, he stated that this                                                               
winter looks  to be  a busy exploration  season, as  evidenced by                                                               
slide 14  which provides a  snapshot of North  Slope exploration.                                                               
Still, one must  remember that even when a large  quantity of oil                                                               
is found it takes a long time to develop it.                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN moved on to  slide 15 regarding the success                                                               
of the North Slope lease sale.   He pointed out that the December                                                               
North  Slope lease  sale  was  extended and  DNR  made the  pitch                                                               
regarding why  they should bid on  acreage in the North  Slope to                                                               
several companies,  which was also  done to some extent  for Cook                                                               
Inlet as  well.  He noted  that DNR coordinated closely  with the                                                               
federal government  in order that  the state's sale would  be the                                                               
same day  as the National Petroleum  Reserve-Alaska (NPR-A) lease                                                               
sale.   The aforementioned had  a positive impact as  it resulted                                                               
in companies bidding  in both the state and  federal areas, which                                                               
he opined was beneficial.                                                                                                       
                                                                                                                                
1:50:55 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI asked  whether DNR  has had  discussions                                                               
with any of  the [bidders] regarding how the oil  and gas gets to                                                               
the pipeline into the main Prudhoe Bay field.                                                                                   
                                                                                                                                
COMMISSIONER  SULLIVAN suggested  that if  significant quantities                                                               
of oil  were found, the  focus of any  of the companies  would be                                                               
[to  utilize]  state land  to  get  it  into  TAPS.   In  further                                                               
response to  Representative Kawasaki, Commissioner  Sullivan said                                                               
that [the  discussions] with  the companies  mostly focus  on the                                                               
exploration work  as the companies  tend to view these  [bids] in                                                               
very distinct phases.   If oil is discovered,  the companies then                                                               
perform  calculations  to  determine   whether  to  proceed  with                                                               
development.    Therefore,  there  hasn't  been  much  discussion                                                               
regarding development with any of  these companies while they are                                                               
in the exploration  phase.  Upon finding oil, the  decision of if                                                               
and when to develop it relates to the tax issue.                                                                                
                                                                                                                                
1:53:27 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  mentioned the  bridge over  the Colville                                                               
River, which after many years  of discussion and process, finally                                                               
has permits  in place.  The  Colville River Bridge is  an example                                                               
of plans in  the works.  He asked if  Commissioner Sullivan means                                                               
to say  that the state  doesn't have any plans  past exploration.                                                               
He further  asked if  any company  has approached  the department                                                               
regarding roads that will be necessary for future projects.                                                                     
                                                                                                                                
COMMISSIONER SULLIVAN answered  that in terms of  roads the state                                                               
is considering  a number  of areas.   For  instance, the  road to                                                               
Umiat is part of the  five-part strategy.  Furthermore, roads-to-                                                               
resources  tried  to  coordinate   areas  where  there  are  high                                                               
prospective oil  and gas aspects  and where  infrastructure would                                                               
be required.   He noted that the stated worked  tirelessly on the                                                               
CD-5  [Alpine Satellite  Development  Plan], but  the holdup  has                                                               
been the federal  government, which finally reversed  itself.  He                                                               
mentioned that DNR played an important role in that reversal.                                                                   
                                                                                                                                
1:56:08 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON,   regarding  the   roads  issue,   related  his                                                               
understanding that  on the North  Slope they have  been operating                                                               
on a policy of ice  roads during exploration.  However, testimony                                                               
in November 2011 indicated that  may not have been most effective                                                               
in some areas.  He inquired as  to whether DNR has the ability to                                                               
decide  that a  gravel road  that is  traveled by  more than  one                                                               
company makes  more sense than  an ice road.   Or, will  a gravel                                                               
road  only be  allowed after  there are  proven reserves  and the                                                               
company is applying for development, he asked.                                                                                  
                                                                                                                                
COMMISSIONER SULLIVAN reminded the  committee that ice roads have                                                               
typically been utilized during the  exploration phase in order to                                                               
leave a  minimum footprint.  However,  the issue is in  regard to                                                               
balancing the minimal impact with the  costs in an area where the                                                               
cost  of   doing  business  is   very  high  compared   to  other                                                               
hydrocarbon basins.   With regard  to whether  there is a  way to                                                               
extend the  exploration phase  beyond the  current three  to four                                                               
months  [when ice  roads can  be utilized]  is being  reviewed by                                                               
DNR.  He  offered to get back  to the committee on  the matter of                                                               
whether the use of ice roads  is statutory, regulatory, or a best                                                               
practice requirement.                                                                                                           
                                                                                                                                
CO-CHAIR  SEATON remarked  that  it would  be  advisable for  the                                                               
committee  to hold  hearings on  this matter  in order  to remove                                                               
some of the barriers to development.                                                                                            
                                                                                                                                
COMMISSIONER SULLIVAN  related that he has  frequently heard that                                                               
crews  are hired  for four  months in  Alaska because  that's the                                                               
extent  of   the  exploration  season.     Therefore,   even  the                                                               
exploration period is very costly.                                                                                              
                                                                                                                                
CO-CHAIR  FEIGE  highlighted  that  much of  the  exploration  is                                                               
heavily incentivized,  whereby the  state is contributing  a fair                                                               
amount of tax  relief or outright cash.  He  opined that when the                                                               
ice road  melts it's the  state's/people's money that  is soaking                                                               
into  the  ground  because  incentives were  used  to  build  it.                                                               
However, if [gravel roads] were  utilized, the state/people would                                                               
experience  more benefits  for the  funds the  state provides  to                                                               
incentivize the exploration.                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN said  that the  roads-to-resources concept                                                               
considers that.   For example, there has already been  a focus on                                                               
the road to Umiat.                                                                                                              
                                                                                                                                
2:02:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  opined  that  in  this  venue  those  kinds  of                                                               
conversations with  local communities  can be  held.   He pointed                                                               
out  that  facility access  is  another  issue.   He  then  asked                                                               
whether DNR  is working on  facility access issues  with existing                                                               
companies or is  it only a commercial term  between existing TAPS                                                               
and new players.                                                                                                                
                                                                                                                                
COMMISSIONER SULLIVAN  related that  much of  the shale  oil task                                                               
force  work  has  been  focused  on  conceptualizing  shared  key                                                               
infrastructure, in  terms of  roads or  other aspects.   However,                                                               
Co-Chair Seaton's question speaks to  the present and the future.                                                               
Although DNR has continually  reviewed facilities' access issues,                                                               
such issues have typically played  out on the North Slope through                                                               
the various entities and private sector companies.                                                                              
                                                                                                                                
2:04:28 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  highlighted  that the  state  is  incentivizing                                                               
upstream  costs to  a large  extent, particularly  with high  oil                                                               
prices.   In fact,  at times the  state is paying  as much  as 90                                                               
percent of  the entire  cost for the  facilities.   Therefore, he                                                               
wanted  to  ensure that  DNR  is  reviewing  the access  that  is                                                               
provided from the large state investment into the facilities.                                                                   
                                                                                                                                
REPRESENTATIVE  P.  WILSON  commented that  sometimes  the  state                                                               
implements things to help that don't help.                                                                                      
                                                                                                                                
COMMISSIONER SULLIVAN  opined that  there is  no one  who doesn't                                                               
want  to incentivize  oil  production  and put  more  oil in  the                                                               
pipeline,  it's just  a matter  of how  to do  so while  avoiding                                                               
policies with unintended and negative consequences.                                                                             
                                                                                                                                
2:07:05 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN,  returning to  his presentation  and slide                                                               
15, returned to  his discussion of the December  2011 lease sale.                                                               
During that lease  sale, DNR tried to attract a  diverse group of                                                               
investors.   The aforementioned was accomplished  to some degree,                                                               
he opined.   Although the state  has made a good  start, it's far                                                               
from the goal of turning around the TAPS throughput.                                                                            
                                                                                                                                
2:08:12 PM                                                                                                                    
                                                                                                                                
WILLIAM BARRON,  Director, Division of  Oil & Gas,  Department of                                                               
Natural Resources,  in response to Co-Chair  Feige, answered that                                                               
Royale  Energy is  an independent  company  from California  that                                                               
specializes in shale oil and gas development.                                                                                   
                                                                                                                                
COMMISSIONER SULLIVAN  remarked that sometimes having  the small,                                                               
nimble  companies  is  as  useful as  having  the  [large]  major                                                               
companies.                                                                                                                      
                                                                                                                                
2:09:03 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN, moving  on  to slide  16, identified  the                                                               
significant activity in Cook Inlet,  including a combination of a                                                               
new USGS  study and a  state lease sale.   The recent  Cook Inlet                                                               
activity includes a diverse group  of companies.  He credited the                                                               
activity in Cook  Inlet to the quite  aggressive, competitive tax                                                               
and  investment   incentives  available.    The   department,  he                                                               
related,  has  worked  very hard  at  balancing  exploration  and                                                               
safety.                                                                                                                         
                                                                                                                                
2:10:49 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI  directed attention  to slide 16  and the                                                               
USGS estimates for  Cook Inlet.  He inquired as  to when DNR will                                                               
know whether  the estimated undiscovered volumes  of hydrocarbons                                                               
in Cook Inlet are correct or not.                                                                                               
                                                                                                                                
COMMISSIONER SULLIVAN said that the  best way to determine if the                                                               
estimates  are correct  is  to  obtain more  players.   The  more                                                               
responsible exploration work in the  area, the more ability there                                                               
will be to  true up the numbers.  Although  a year-and-a-half ago                                                               
committee members likely wouldn't  have believed that there would                                                               
be a renaissance  in the Cook Inlet, that's clearly  the case and                                                               
the department wants  to encourage that.   However, he reiterated                                                               
the need to do so in a responsible and safe manner.                                                                             
                                                                                                                                
2:12:57 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI inquired as  to when the department would                                                               
consider the Cook Inlet estimates correct.                                                                                      
                                                                                                                                
COMMISSIONER  SULLIVAN clarified  that the  Cook Inlet  estimates                                                               
are  technically recoverable  but  undiscovered.   These are  the                                                               
best guess numbers from looking at  a lot of new information, but                                                               
are very  different from booked reserves.   The closer a  site is                                                               
to booked  reserves is  almost always  a function  of exploration                                                               
work.  The booked reserves on the  North Slope are close to the 5                                                               
billion barrel range.  Still,  there is enormous potential on the                                                               
North Slope.   He  reiterated that as  more explorers  enter Cook                                                               
Inlet, the better the numbers will be.                                                                                          
                                                                                                                                
2:14:40 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI related that he  is excited to hear about                                                               
the  additional Cook  Inlet gas  reserves, but  at the  same time                                                               
cautious because the  question becomes "What does  that leave for                                                               
an  in-state gasline?"   If  there are  large booked  reserves of                                                               
natural gas in Cook Inlet, he  questioned how that would impact a                                                               
stand-alone  pipeline  from  the  North Slope  to  Anchorage.  He                                                               
inquired  as when  the administration  will  view [a  stand-alone                                                               
pipeline] as feasible.                                                                                                          
                                                                                                                                
COMMISSIONER  SULLIVAN  highlighted  that the  administration  is                                                               
very focused  on the high  cost of  energy in Interior  and rural                                                               
Alaska.  The department believes gas  is one of the components of                                                               
addressing that high cost.   Commissioner Sullivan opined that if                                                               
significant resources  become available  in Cook Inlet,  it bodes                                                               
well for  both the Anchorage  area and  the state.   Therefore, a                                                               
renaissance in Cook Inlet is not  necessarily bad for the rest of                                                               
the state.   The department,  as is  the governor, is  focused on                                                               
commercializing North Slope  gas for two strategic  reasons:  in-                                                               
state needs; maximize that commodity for all Alaskans.                                                                          
                                                                                                                                
2:17:50 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON recalled hearing that  Nordaq had a gas find such                                                               
that it  was going for contract  sales for 15 million  cubic feet                                                               
per day  for 30 years.   He asked if  that's the kind  of numbers                                                               
DNR is  hearing.  He  also asked  what trillion cubic  feet (tcf)                                                               
field would  be accessed north of  the Swanson Oil Field  on land                                                               
under the Arctic National Wildlife Refuge (ANWR).                                                                               
                                                                                                                                
COMMISSIONER SULLIVAN said  he doesn't have the  specifics on the                                                               
Nordaq contract  sales.  However,  it illustrates the  promise of                                                               
what  is going  on in  Cook Inlet.   He  clarified that  he would                                                               
refer to  the happenings  in Cook  Inlet as  a "mini-Renaissance"                                                               
because he didn't want to overplay it.                                                                                          
                                                                                                                                
2:19:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE P. WILSON opined  that the [increased] activity in                                                               
the  Cook Inlet  would  never have  happened  if the  legislature                                                               
hadn't put into place incentives to do so.                                                                                      
                                                                                                                                
COMMISSIONER SULLIVAN agreed and  said the companies would likely                                                               
say  the same.    The Cook  Inlet  is probably  one  of the  most                                                               
competitive areas  in the  state and  is a  good example  of what                                                               
some tax reductions can do in terms of spurring activity.                                                                       
                                                                                                                                
2:21:00 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON interjected  that he didn't want  to overplay the                                                               
incentives  because  one  of  the   big  incentives  is  the  gas                                                               
contracts, which create  a payable venture.  He  pointed out that                                                               
if the situation  was as it was  a few years ago when  gas was at                                                               
$2.50,  the  incentives  wouldn't matter  because  the  companies                                                               
still couldn't  make money  and wouldn't  invest.   He emphasized                                                               
the  need  to  recognize  that  the  gas  sales  contracts  being                                                               
approved in Cook Inlet are $6-$9  mcf, which results in a payable                                                               
venture.   Co-Chair Seaton said he  wanted to be sure  that those                                                               
who want cheap energy don't want to return to $2.00 per mcf gas.                                                                
                                                                                                                                
COMMISSIONER  SULLIVAN agreed  that investment  is a  function of                                                               
the economic  returns, which  is a function  of taxes  and price.                                                               
Still,  Commissioner  Sullivan  opined that  the  tax  incentives                                                               
played a significant role with the mini-Renaissance.                                                                            
                                                                                                                                
2:22:52 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN, returning  to his  presentation, directed                                                               
attention to  slide 18 entitled "Strategic  & Critical Minerals."                                                               
He characterized the strategic and  critical minerals sector as a                                                               
positive for  2011.  In this  sector there was a  lot of activity                                                               
in  terms of  production.   Referring to  Slide 19,  what's quite                                                               
impressive from DNR's  perspective is that one-third  of the 2010                                                               
total mineral exploration  investment in the U.S.  was in Alaska.                                                               
Certainly, that  includes large  projects, but  the fact  that 34                                                               
exploration projects  spent over  $1 million in  2010 illustrates                                                               
that  it  was  broad-based  [investment].   The  impact  of  such                                                               
investment into  mineral exploration on local  economies in terms                                                               
of  jobs  and  high  wages is  enormous,  particularly  in  rural                                                               
economies.   For instance,  the Fort Knox  mine employs  over 800                                                               
employees with an  average wage of $80,000.  He  then pointed out                                                               
that the  map of  2010 mineral exploration  projects on  slide 20                                                               
illustrates  how  broad  based  the exploration  is.    Slide  21                                                               
provides the  outline of  a summit DNR  held on  Alaska strategic                                                               
and critical minerals.   The summit was sold out  and included at                                                               
least  one   representative  of   a  foreign   government,  which                                                               
indicates the strong interest in Alaska's minerals.                                                                             
                                                                                                                                
REPRESENTATIVE  P.  WILSON  interjected  that  she  attended  the                                                               
conference, which she enjoyed.                                                                                                  
                                                                                                                                
2:26:32 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  FOSTER  returned  attention   to  slide  19,  and                                                               
pointed out that it relates that  in 2011 a Nome offshore mineral                                                               
lease  sale received  over  $9  million in  winning  bids for  84                                                               
tracts on  approximately 24,000  acres.  Since  the Nome  port is                                                               
currently at capacity, he asked  whether DNR has reviewed ways to                                                               
address congestion.                                                                                                             
                                                                                                                                
COMMISSIONER  SULLIVAN  said  that  this  issue  has  been  under                                                               
discussion in the office and will  likely result in trips to Nome                                                               
and Kotzebue to obtain a sense of the issue.                                                                                    
                                                                                                                                
REPRESENTATIVE   FOSTER   clarified   that   although   Nome   is                                                               
appreciative and  excited about what this  offshore mineral lease                                                               
sale will do for the economy, it  does want to be sure to address                                                               
any associated challenges it creates.                                                                                           
                                                                                                                                
2:28:29 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN continued his  presentation with slides 22-                                                               
23,  which   provide  an  overview  of   the  accomplishments  in                                                               
agriculture  and parks  and  outdoor recreation  as  well as  the                                                               
Alaska boating  safety program.   He  then moved  on to  slide 24                                                               
entitled  "Timber Resources"  and  acknowledged that  communities                                                               
have  been closed  because of  access difficulties,  particularly                                                               
for federal  resources.   With the help  of the  legislature, DNR                                                               
started to address some of these  issues.  For example, last year                                                               
the  governor  had  an  initiative  to double  the  size  of  the                                                               
Southeast State Forest  and consider ways in which  to create new                                                               
jobs.  Referring to slide  25, Commissioner Sullivan complimented                                                               
Alaska's firefighters who kept the fires  in the state at bay and                                                               
even helped fight fires in Texas.                                                                                               
                                                                                                                                
2:31:59 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN then  directed attention  to slide  26 and                                                               
opined that in  2011 the state made some  progress in cooperating                                                               
with the federal  government on resource development  issues.  He                                                               
highlighted that Alaska finally obtained  what DNR believes to be                                                               
the correct answer to the  CD-5 development, although it took two                                                               
years and a  lot of additional work.   Commissioner Sullivan told                                                               
the committee  that DNR  is doubling its  efforts as  the federal                                                               
government  is   necessary  in  terms  of   responsible  resource                                                               
development.  He noted that  issues remain with the environmental                                                               
impact statement (EIS) for Point Thomson.                                                                                       
                                                                                                                                
2:33:47 PM                                                                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN moved to his  review of year 2011, which he                                                               
characterized as a  good year.  He opined that  when the resource                                                               
development  sector of  the  economy does  well,  it helps  other                                                               
sectors.   Still,  there are  some very  significant issues  that                                                               
need to be  addressed.  As mentioned in the  governor's "State of                                                               
the State" speech,  the most significant issue to  address is the                                                               
TAPS throughput.   However,  he mentioned  that he  was surprised                                                               
that  some are  debating whether  the aforementioned  is even  an                                                               
urgent  issue.   From DNR  and the  administration's perspective,                                                               
the TAPS  throughput is definitely  an urgent issue  and resulted                                                               
in a  large part  of last  year working  toward getting  more oil                                                               
into the pipeline system.                                                                                                       
                                                                                                                                
2:35:08 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  HERRON  related  that  he told  the  governor  he                                                               
didn't  like  the status-quo,  but  that  HB  110 goes  too  far.                                                               
Therefore, he questioned where the [compromise] lies.                                                                           
                                                                                                                                
COMMISSIONER  SULLIVAN   stressed  that  the   administration  is                                                               
focused on  the amount  of TAPS throughput,  rather than  the tax                                                               
reform  that some  have  said is  a $2  billion  give-away.   The                                                               
rationale  is  that if  production  is  increased, then  the  tax                                                               
reform won't be  a give-away because increased  investment at the                                                               
high  oil prices  will  be  an increase  to  state  coffers.   He                                                               
related his  understanding that  the modeling  of the  $2 billion                                                               
give-away doesn't include any increased  production, which is the                                                               
goal of the tax reform.                                                                                                         
                                                                                                                                
2:37:38 PM                                                                                                                    
                                                                                                                                
COMMISSIONER   SULLIVAN   then   remarked   that   one   of   the                                                               
disappointments  of the  last  session was  that  when there  was                                                               
opposition   to   HB  110,   no   one   offered  anything   else.                                                               
Furthermore, he said he has never  heard the governor refer to HB
110   as  a   "take   it   or  leave   it"   proposition.     The                                                               
governor/administration  has  been   focused  on  meaningful  tax                                                               
reform;  that   is  numbers  that   will  result   in  meaningful                                                               
investment.  To reach 1 million barrels  of oil a day in 10 years                                                               
will  probably take  tens of  billions of  additional dollars  in                                                               
investment and the state is not  getting near that now.  However,                                                               
oil exploration and production is  booming all over the U.S., yet                                                               
Alaska,  the  location  with  probably  the  largest  hydrocarbon                                                               
system, is  still declining.   The administration  attributes the                                                               
aforementioned to the state's  cost structure, particularly since                                                               
there  are   inherent  costs   on  the   North  Slope   that  are                                                               
unavoidable.                                                                                                                    
                                                                                                                                
2:39:58 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN, continuing  his  presentation, turned  to                                                               
the  governor's  focus  on commercializing  Alaska's  very  large                                                               
resources of  North Slope natural gas.   Over the past  year, the                                                               
governor  has  asked  the  companies  to  align  and  consider  a                                                               
liquefied  natural  gas  (LNG)  perspective.    As  part  of  the                                                               
administration's  strategy, the  commissioner noted  that he  has                                                               
discussed  with potential  markets what  Alaska has  to offer  in                                                               
terms  of Alaska's  comparative advantages  with natural  gas, as                                                               
outlined on slide  30.  He then directed attention  to the map on                                                               
slide 31, which relates the  strategic proximity of Alaska LNG to                                                               
Asia.  He  moved on to slide 32 which  relates the key principles                                                               
for any project and the governor's roadmap to a gasline.                                                                        
                                                                                                                                
2:42:15 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI recalled a  discussion with Dr. Pedro Van                                                               
Meurs this  past November  regarding commercializing  natural gas                                                               
in large  quantities.  The  discussion was disappointing  when he                                                               
heard  that   commercializing  natural  gas  might   be  severely                                                               
economically   challenged  due   to   competition  from   various                                                               
countries to gain a foothold in eastern natural gas markets.                                                                    
                                                                                                                                
COMMISSIONER SULLIVAN  remarked that there  are a lot  of experts                                                               
who opine  on various issues.   Although commercializing Alaska's                                                               
natural gas isn't easy, Alaska  does offer advantages including a                                                               
stable  investment   and  political  climate   and  geo-strategic                                                               
portfolio    diversification.        Countries    consider    the                                                               
aforementioned.     Furthermore,  Alaska  has  been   a  reliable                                                               
supplier of LNG to Asia for over  40 years.  He mentioned that in                                                               
discussions with potential countries,  they have illustrated they                                                               
are aware of Alaska's North Slope gas.                                                                                          
                                                                                                                                
2:45:05 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON said he thinks  the governor's roadmap to a                                                               
gasline  surprised  people.    He  inquired  as  to  similarities                                                               
between   the   governor's  roadmap   to   a   gasline  and   the                                                               
commissioner's  work on  pipelines in  the Central  Asian Caspian                                                               
Sea.  He assumed those were under aggressive schedules as well.                                                                 
                                                                                                                                
COMMISSIONER  SULLIVAN said  the  key takeaway  he  has tried  to                                                               
bring  to his  work [with  DNR] is  the importance  of trying  to                                                               
align  interests and  work in  partnerships,  which isn't  always                                                               
easy.                                                                                                                           
                                                                                                                                
2:47:51 PM                                                                                                                    
                                                                                                                                
COMMISSIONER  SULLIVAN, returning  to his  presentation, directed                                                               
attention to  slide 33.   He then  emphasized that every  day DNR                                                               
tries   to   balance   responsible  resource   development   with                                                               
protecting the  environment and other important  interests in the                                                               
state.    The state,  he  opined,  has  a  good track  record  in                                                               
achieving  the  aforementioned.     In  conclusion,  Commissioner                                                               
Sullivan   acknowledged    that   there   are    challenges   and                                                               
opportunities  and that  the  key  to it  all  will  be to  align                                                               
interests and establish partnerships.                                                                                           
                                                                                                                                
^OVERVIEW(S):  Shale Oil Task Force Update                                                                                      
           OVERVIEW(S):  Shale Oil Task Force Update                                                                        
                                                                                                                              
2:49:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR FEIGE announced that the  next order of business would a                                                               
[Shale Oil Task Force] update.                                                                                                  
                                                                                                                                
2:50:24 PM                                                                                                                    
                                                                                                                                
WILLIAM  C.  BARRON,  Director,  Division of  Oil  &  Gas  (DOG),                                                               
Department of Natural  Resources, first clarified that  he is not                                                               
representing Great Bear  Petroleum LLC, but he  felt it important                                                               
to provide a briefing on the  company's activities [slide 2].  He                                                               
said Great Bear is progressing  its program fairly well, securing                                                               
all  of the  primary  governmental permits  -  state, local,  and                                                               
federal.   Furthermore, it is  in the process of  identifying and                                                               
securing a  drilling rig and  once a  rig is secured  the company                                                               
will   progress  permits   through   the  Alaska   Oil  and   Gas                                                               
Conservation  Commission  (AOGCC)  and Alyeska  Pipeline  Service                                                               
Company for a  waiver of easement over to the  pipeline area.  He                                                               
understood  that Great  Bear  has submitted  most  of the  needed                                                               
material  to  AOGCC  and  has   been  in  dialogue  with  Alyeska                                                               
Pipeline.     Alyeska  Pipeline  has  already   issued  a  letter                                                               
requesting more  technical specificity  about the  equipment that                                                               
will be coming into that area.   Great Bear is now targeting site                                                               
preparation for  March and April  [2012] and will  begin drilling                                                               
activity  after  that.   The  company  had  originally  discussed                                                               
winter  activities with  the  division and  AOGCC,  but that  was                                                               
pushed back  primarily due to  trying to identify  an appropriate                                                               
rig.                                                                                                                            
                                                                                                                                
2:52:44 PM                                                                                                                    
                                                                                                                                
CO-CHAIR SEATON recollected that  in its 11/1/11 testimony before                                                               
the committee Great  Bear said it had  partnered with Halliburton                                                               
and  at  its  own  expense  Halliburton  was  proceeding  on  the                                                               
drilling of another series of  wells within that lease structure.                                                               
He inquired whether Halliburton has  applied for permits for that                                                               
separate shale exploration proof-of-concept stage.                                                                              
                                                                                                                                
MR. BARRON  replied that  "no applications  or permits  have been                                                               
supplied or submitted by Halliburton."                                                                                          
                                                                                                                                
2:53:25 PM                                                                                                                    
                                                                                                                                
MR. BARRON  resumed his presentation,  explaining that  the Shale                                                               
Oil Task Force [slide 3] is  a group of representatives from many                                                               
state agencies and is under  Commissioner Sullivan [Department of                                                               
Natural Resources].   He relayed that  Commissioner Sullivan said                                                               
it is known  that Alaska is going to have  some shale development                                                               
and the issues associated with  some of those developments in the                                                               
Lower 48  are understood, and it  is incumbent upon the  state to                                                               
be pro-active  in this  regard.   The Division of  Oil &  Gas was                                                               
directed  to take  the  lead role  and the  task  force groups  -                                                               
Alaska  Department of  Fish &  Game, Department  of Environmental                                                               
Conservation, Department  of Transportation &  Public Facilities,                                                               
Alaska  Oil and  Gas Conservation  Commission, and  others -  are                                                               
working  to  get their  collective  arms  around all  the  issues                                                               
associated with shale.   The task force has looked  at all of the                                                               
existing permits  that are required for  drilling and facilities,                                                               
and  the state's  statutes and  regulations should  be more  than                                                               
adequate  to  satisfy  the  drilling  and  development  of  shale                                                               
operations  because it  is  not much  different  than drilling  a                                                               
conventional well.                                                                                                              
                                                                                                                                
2:54:31 PM                                                                                                                    
                                                                                                                                
MR.  BARRON related  that  AOGCC is  reviewing  its statutes  and                                                               
regulations  relative to  hydraulic fracturing.   He  offered his                                                               
belief  that  there will  be  no  major  changes in  the  AOGCC's                                                               
process because over  25 percent of Alaska's  existing wells have                                                               
already been hydraulically  fractured.  The Shale  Oil Task Force                                                               
will continue looking at permitting  efficiencies relative to the                                                               
overall  conceived development  plan.   There  will be  a lot  of                                                               
permits and  activity so  the task  force is  looking at  ways to                                                               
package, bundle,  or group  permits relative  to a  location; for                                                               
example, a pad-type  design in cases where there is  one pad with                                                               
several  wells.     The  task  force  is   engaging  its  federal                                                               
counterparts  and  understands that  at  this  juncture the  U.S.                                                               
Corps of Engineers will be the  lead federal agency and will work                                                               
with the U.S. Coast Guard, U.S.  Fish & Wildlife Service, and the                                                               
National Marine Fisheries Service.                                                                                              
                                                                                                                                
2:56:05 PM                                                                                                                    
                                                                                                                                
MR. BARRON  said he  asked the task  force to  particularly drill                                                               
down on general  infrastructure.  Infrastructure will  be key and                                                               
because sharing that infrastructure will  be an advantage to both                                                               
the  state  and  the  operating  companies,  the  task  force  is                                                               
encouraging  that  activity.   Gravel  and  water sources,  water                                                               
disposal,  and water  re-use play  into a  major shale  operation                                                               
that is heavily  dependent on hydraulic fracturing,  which is 90-                                                               
some percent  water driven.   The task  force, having  gotten its                                                               
hands around  the permitting side,  has now shifted to  the "nuts                                                               
and bolts" discussion.                                                                                                          
                                                                                                                                
2:57:09 PM                                                                                                                    
                                                                                                                                
MR. BARRON  discussed a  task force  proposal which  the governor                                                               
has included  in his  Fiscal Year  2013 (FY  13) budget  for $1.1                                                               
million.   Of that, $1  million is associated  with environmental                                                               
baseline work  and was  submitted through the  Division of  Oil &                                                               
Gas.  This  was done in concert and dialogue  with members of the                                                               
task force  and the division  will continue to  diligently engage                                                               
all of those representatives.  The  intent is to find what areas,                                                               
concerns,  or data  that representatives  in  that group  believe                                                               
necessary  to adequately  establish  baseline environmental  work                                                               
for  the shale  area, which  has primarily  been leased  by Great                                                               
Bear and  Royale.  The  purpose here  is that many  times federal                                                               
agencies will  take the word of  a state agency over  the word of                                                               
an  independent  company.    "Our" objective  is  to  help  those                                                               
companies  establish   what  that   baseline  is  and   use  that                                                               
information  progressively  for  the  state.    The  $100,000  is                                                               
associated with the Division of  Geological & Geophysical Surveys                                                               
(DGGS)  and Bob  Swenson's  group in  terms  of overall  geologic                                                               
assessment of North Slope shale oil potential.                                                                                  
                                                                                                                                
2:58:39 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE KAWASAKI inquired whether  the issue of fracturing                                                               
fluid chemicals  allegedly contaminating  water supplies  will be                                                               
part of the  environmental data and AOGCC study  prior to passage                                                               
of a permitting process.                                                                                                        
                                                                                                                                
MR. BARRON replied that many  of the chemicals used in fracturing                                                               
are  household chemicals  that  can be  found  under the  kitchen                                                               
sink.   The baseline  studies that  [the division]  would propose                                                               
would look at  groundwater and the geological  framework of where                                                               
aquifers are  located and how best  to protect them.   He said he                                                               
did not imagine that AOGCC would  be working too hard to identify                                                               
those chemicals but  may be working on  regulations requiring the                                                               
reporting  of what  those  chemicals are.    Fracfocus.org is  an                                                               
organization that has been doing  this quite well and is becoming                                                               
quite the  repository for that  information.  Many  companies are                                                               
pro-actively adding  their list of  agents into that  database so                                                               
people can see what they are.                                                                                                   
                                                                                                                                
3:00:28 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KAWASAKI  pointed  out that  household  chemicals                                                               
kept  under the  sink are  locked up  so the  baby cannot  get to                                                               
them.   He said he  wants to make  sure that chemicals  are dealt                                                               
with before the permitting process (indisc.).                                                                                   
                                                                                                                                
MR. BARRON allowed that it is a  good concern and said that a lot                                                               
of work  is being  done on  some of  the issues  in the  Lower 48                                                               
associated  with   groundwater,  or  allegedly   associated  with                                                               
groundwater  contamination.   To  his  knowledge,  most of  those                                                               
issues have  been associated  with very, very  old wells  and not                                                               
the new  wells being drilled  and fractured.   Today's technology                                                               
for well design  and construction, even in the past  30 years, is                                                               
much more  robust than was done  in the 1920s and  1940s.  States                                                               
where  issues are  being  heard, such  as PA,  NY,  and OH,  have                                                               
thousands  of wells  that were  drilled  in the  1900s and  whose                                                               
locations are unknown,  so some of this contamination  may or may                                                               
not be  associated with  fracturing, but  may be  associated with                                                               
old wells that are now beginning  to fail because of the way they                                                               
were constructed;  a lot of work  still needs to be  done in that                                                               
regard.                                                                                                                         
                                                                                                                                
3:01:59 PM                                                                                                                    
                                                                                                                                
CO-CHAIR  SEATON  noted  that many  of  Alaska's  regulations  or                                                               
statutes  relate to  units, yet  the understanding  is that  once                                                               
proof of concept  is done in these substrates every  well will be                                                               
a  development well  and not  an  exploratory well.   Since  this                                                               
seems  to be  different from  "our" framework,  he would  like to                                                               
know  how that  is progressing.   Regarding  hydraulic fracturing                                                               
and groundwater contamination,  he said he does  not think Alaska                                                               
has quite the same issues  as other places because the permafrost                                                               
goes down a  couple thousand feet.  However,  the permafrost will                                                               
be  penetrated with  a well  that will  be pumping  hot oil.   He                                                               
asked whether the division or  AOGCC is addressing thawing of the                                                               
permafrost around  the well and  what could  happen if a  seal in                                                               
the well broke.                                                                                                                 
                                                                                                                                
3:03:54 PM                                                                                                                    
                                                                                                                                
MR. BARRON, regarding well construction  in the Arctic, responded                                                               
that [shale] wells would not  be constructed any differently than                                                               
the   existing  2,000-plus   wells  that   penetrated  the   same                                                               
permafrost and that  have been pumping hot oil and  water for the                                                               
last 30-plus years.   The designs required by  AOGCC already more                                                               
than adequately protect the permafrost  area, he said, so he does                                                               
not know  that this would  be a new  concern given that  this has                                                               
been a concern since the original discovery at Prudhoe Bay.                                                                     
                                                                                                                                
MR. BARRON, regarding  units, explained that that  is a conundrum                                                               
still  being  work on  because  of  how  to protect  the  state's                                                               
interest relative  to leases and  acreage and the  entire concept                                                               
for  having  a  unit.    Typically, a  unit  is  formed  for  the                                                               
protection  of  the owners  and  of  the proper  development  and                                                               
optimization  of  that resource.    In  a shale  development,  in                                                               
theory and  in practice, each  well is its  own unit and  that is                                                               
what  the division  is working  through, not  necessarily whether                                                               
that is  appropriate because right  now the division  believes it                                                               
is  appropriate.   The  question  is whether  there  is an  issue                                                               
associated with the  leasing and the term of  that lease relative                                                               
to a  company trying to  secure a  great amount of  lease acreage                                                               
with a  term on  it and  at the  same time  trying to  do advance                                                               
drilling and timeliness  of trying to develop those  acres in the                                                               
primary lease term.   In a unit, however, the  company gets extra                                                               
time and the unit is held as long  as there is production.  So it                                                               
is a timing  issue relative to the appropriateness  of leases and                                                               
the units thereof and holding of  that acreage - and that is what                                                               
is being discussed.                                                                                                             
                                                                                                                                
3:06:03 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HERRON,  in regard to permitting  efficiencies and                                                               
bundling,  asked whether  that  is reinventing  the  wheel or  is                                                               
following other models elsewhere.                                                                                               
                                                                                                                                
MR. BARRON  replied that the  [task force]  is trying to  look at                                                               
various models, bundling  being one example.  It  must be ensured                                                               
that whatever the  model, it is appropriate for  the area itself.                                                               
The model that  would be used next to a  highway may be different                                                               
than the one used in  a much more environmentally sensitive area;                                                               
[the  task force]  wants to  be  flexible, but  appropriate.   In                                                               
further response, Mr.  Barron confirmed that the  wheel would not                                                               
be reinvented;  rather, models that  the [task force]  is already                                                               
aware of would be emulated.                                                                                                     
                                                                                                                                
3:08:14 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no further business before the committee, the House                                                                 
Resources Standing Committee meeting was adjourned at 3:08 p.m.                                                                 

Document Name Date/Time Subjects
HRES DNR - Comm. Sullivan 1.20.12.pdf HRES 1/20/2012 1:00:00 PM
HRES DNR - Shale Oil Task Force Update 1.20.12.pdf HRES 1/20/2012 1:00:00 PM
HRES -1.20.12 Comm. Sullivan Editorial.pdf HRES 1/20/2012 1:00:00 PM