Legislature(2015 - 2016)BARNES 124
02/20/2015 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Overview(s): Alaska Oil and Gas Conservation Commission | |
| Confirmation(s): Alaska Oil and Gas Conservation Commission | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
February 20, 2015
1:05 p.m.
MEMBERS PRESENT
Representative David Talerico, Co-Chair
Representative Bob Herron
Representative Kurt Olson
Representative Paul Seaton
Representative Andy Josephson
Representative Geran Tarr
MEMBERS ABSENT
Representative Benjamin Nageak, Co-Chair
Representative Mike Hawker, Vice Chair
Representative Craig Johnson
COMMITTEE CALENDAR
OVERVIEW(S): ALASKA OIL AND GAS CONSERVATION COMMISSION
- HEARD
CONFIRMATION HEARING(S):
Alaska Oil And Gas Conservation Commission
Michael Gallagher - Anchorage
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
DANIEL SEAMOUNT, Jr., Geologist Commissioner
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Provided a PowerPoint overview regarding
the Alaska Oil and Gas Conservation Commission.
MICHAEL GALLAGHER, Appointee
Alaska Oil and Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Testified as appointee to the Alaska Oil
and Gas Conservation Commission.
ACTION NARRATIVE
1:05:50 PM
CO-CHAIR DAVID TALERICO called the House Resources Standing
Committee meeting to order at 1:05 p.m. Representatives Olson,
Seaton, Josephson, Tarr, and Talerico were present at the call
to order. Representative Herron arrived as the meeting was in
progress.
^OVERVIEW(S): Alaska Oil and Gas Conservation Commission
OVERVIEW(S): Alaska Oil and Gas Conservation Commission
1:07:09 PM
CO-CHAIR TALERICO announced that the first order of business is
an overview provided by the Alaska Oil and Gas Conservation
Commission (AOGCC).
1:07:38 PM
DANIEL SEAMOUNT, Jr., Geologist Commissioner, Alaska Oil and Gas
Conservation Commission (AOGCC), noted he is one of the three
commissioners for the Alaska Oil and Gas Conservation Commission
(AOGCC). He drew attention to the papers in the committee
packet, saying the paper entitled, "AOGCC Agency Description,"
discusses how the commission interacts with the administration
and how it gets funded, which is not from the general fund at
this time. The paper entitled, "Role of the Alaska Oil and Gas
Conservation Commission in North Slope Gas Sales," discusses gas
in general on the North Slope, not just on the two big fields,
and alludes to looking at gas offtake in a holistic way.
Another paper is entitled, "Role of the Alaska Oil and Gas
Conservation Commission in Establishing Allowable Gas Offtake
Rate for Prudhoe Bay," and another [is entitled, "Role of the
Alaska Oil and Gas Conservation Commission in Approving Pool
Rules for the Point Thomson Field." Regarding the paper
entitled, "Hydraulic Fracturing in Alaska," he explained that
the commission has been regulating hydraulic fracturing in
Alaska for 60 years without any problems; however, this last
year AOGCC came up with hydraulic fracturing regulations to make
it easier for the public to see what they are. Mr. Seamount
also drew attention to the copy of a Wall Street Journal article
entitled, "The Facts About Fracking," and to the 2009 response,
"AOGCC Statement to Governor," written after a derogatory
newspaper article appeared about the AOGCC. Lastly, he pointed
out the paper entitled, "BLM Legacy Wells Safety and
Environmental Compliance Issues."
1:10:07 PM
MR. SEAMOUNT began his PowerPoint presentation by noting slides
21-35 are backup slides that he will not be discussing but that
show the new technology in drilling. He said the picture on
slide 1 is AOGCC's office [in downtown Anchorage]. The myriad
of things AOGCC is required to do includes holding hearings,
making rulings on spacing and other exceptions, pool rules, gas
offtake allowables, and granting or denying permits on such
things as drilling permits and performing sundry well work. The
commission's statutes are found in Title 31, Chapter 5, and the
commission's regulations are found in Title 20, Chapter 25, of
the Alaska Administrative Code. By statute AOGCC has three
commissioners. The petroleum [engineering] commissioner must
have 10 years of experience in the oil business; the current
petroleum commissioner, Cathy Foerster, has close to 40 years of
experience. The geology commissioner, the position he holds,
also must have 10 years of experience and he has more than 40
years. The public commissioner must have a fundamental
understanding of the oil and gas industry. He pointed out that
AOGCC's web site contains lots of information and data, which is
used by potential and present investors in Alaska.
1:13:07 PM
MR. SEAMOUNT turned to slide 2, explaining that AOGCC is an
independent quasi-judicial state regulatory agency. Over 90
percent of AOGCC's work is sub-surface, and the only surface
work done is that occasionally an inspector will go out for a
site clearance after a well is abandoned to make sure everything
is cleaned up. The other surface work done by AOGCC is ensuring
that meters are accurate when measuring oil and gas so everyone
gets their fair share. He read the mission of AOGCC, which is:
"To protect the public interest in exploration and development
of Alaska's valuable oil, gas, and geothermal resources through
the application of conservation practices designed to ensure
greater ultimate recovery and the protection of health, safety,
fresh ground waters and the rights of all owners to recover
their share of the resource." Mr. Seamount reported that
AOGCC's annual budget of $7.4 million for this year is funded by
industry receipts from a regulatory cost charge that came about
in 1999. A small amount, $128,000, comes from the Environmental
Protection Agency (EPA) for managing the Underground Injection
Control (UIC) Program, which protects underground sources of
drinking water. He said AOGCC is an extremely technical science
and engineering oriented agency, and its regulations and statute
are very tight, and this limits extreme interpretations when
AOGCC makes decisions. Thus, arbitrary interpretation of law
regarding AOGCC decisions is virtually impossible and it is very
rare that all three commissioners don't agree on a decision.
Sometimes there might be disagreement on the amount of a
penalty, but when it comes to pool rules or other things the
commissioners are just about 100 percent [in agreement]. The
commission's 32 staff members include 3 commissioners, 2
geologists, 6 engineers, 7 field inspectors, 2 statisticians, 3
information technologists, and 8 administrative people.
1:17:14 PM
MR. SEAMOUNT moved to slide 3 and noted AOGCC's jurisdiction
covers all lands - public, private, and non-federal onshore - in
the state of Alaska. At this time, most of AOGCC's oversight is
concentrated in Cook Inlet and the North Slope. However, 21
basins in Alaska have hydrocarbon potential; so, a tremendous
amount of potential is left and all that is needed to get to
them is money.
MR. SEAMOUNT addressed slide 4, reiterating that AOGCC is a
quasi-judicial state agency, mainly sub-surface, with mandates
to protect human safety in drilling and production operations
and to protect fresh water. The deepest fresh water he has seen
in the state is about one-quarter mile down in the Matanuska-
Susitna Valley. Most of what AOGCC does occurs from one-half to
three miles deep: the shallowest gas wells in the state are
about half a mile deep and the deepest oil wells are three miles
deep. Another important AOGCC mandate is to prevent physical
waste of the energy resources, meaning to prevent blowouts both
above and below ground. If a well is not constructed right oil
or gas can flow from one zone into another, which loses and
wastes the resource forever. Also, AOGCC is mandated to promote
greater ultimate recovery of the resource. To do that the
operators or companies come in after making a discovery,
drilling a few wells, and doing some science, and give AOGCC
their plan on how they are going to operate this oil field; for
example, the kind of enhanced oil recovery techniques, water or
gas injection, or whatever looks best to recover the most
hydrocarbon. Then AOGCC will make a decision to approve,
disapprove, or tell the operator/company to do more study. The
AOGCC protects correlative rights, which is the right of
adjacent landowners to recover their fair share of the resource.
Lately, new operators are coming into the state and AOGCC has
been intensely inspecting their operations and in some cases
AOGCC has performed enforcement actions when they don't comply
with the regulations. The AOGCC has increased its number of
inspectors, but it is difficult to find them because of the
discrepancy in compensation between industry and this agency.
1:20:59 PM
MR. SEAMOUNT said AOGCC also functions as a repository for most
of the oil and gas data in the state. This well data is
important to potential investors because they can pull logs,
test data, and so forth, and subsequently generate new plays and
new prospects. He then addressed the historical production in
Alaska, drawing attention to slide 5, "Alaska's Average Daily
Oil & [Natural Gas Liquids (NGL)] Production Rate 1960-2014."
He pointed out that the lowest curve depicts Cook Inlet
production, the biggest curve depicts the North Slope, the next
biggest curve depicts Kuparuk and Milne Point, and the rest
depict newer production. From 2000-2003, he said, there was no
decline in production because of the Alpine Field.
MR. SEAMOUNT explained the graph on slide 6 entitled, "Alaska
Oil and Gas Activity AOGCC Oversight (1959-2014)," is historical
data from the start of production in Alaska. He said the dotted
curve depicts the number of well permits that AOGCC has approved
through the years, with the first big bump being the Swanson
River Field, which is the reason Alaska became a state. The
next bump is Cook Inlet offshore where five discoveries were
made in one year. The next really big bump is Kuparuk and
Prudhoe Bay. Then there was a lull and since the late 1990s
there has been quite a bit of activity on some of the satellite
fields on the North Slope, as well as some in Cook Inlet.
Recent AOGCC data shows about 200 wells drilled. The green
curve depicts the number of active wells. Those are wells that
AOGCC has to deal with in one way or the other, meaning they
haven't yet been plugged and abandoned. There are over 5,000
active wells and this number increases every year, which is
another reason why AOGCC needs more inspectors. The purple
curve depicts the number of reservoirs regulated by AOGCC, which
is close to 150.
1:24:11 PM
MR. SEAMOUNT moved to the bar graph on slide 8, noting it shows
total Alaska [oil and NGL] production by month for the years
2013 and 2014. Rather than the bars, he said, the important
curve to look at is the red line depicting the 12-month moving
average of production. For the first time since the early 2000s
there was basically no decline for a while, but suddenly a
decline is being seen again. He then drew attention to the
chart on slide 9, showing the latest 12-month moving average
decline for all of the oil fields in Alaska. He noted that the
bottom right of the chart shows a decline of 4 percent, which is
better than the normal decline in the past of 5-8 percent.
However, 4 percent may be too high, he said, because the top
right of the chart shows a decline at Prudhoe Bay of 9 percent,
and he has never seen Prudhoe Bay have a 9 percent decline. He
said he doesn't know why that is happening, but he will try to
figure it out when he gets back to Anchorage because the decline
at Prudhoe Bay was at 1 percent a few months ago.
MR. SEAMOUNT turned to the pie chart on slide 10 entitled,
"Alaska 2014: Permits to Drill Approved by AOGCC." He noted
the green and blue wedges depict the North Slope, which has
always had the highest amount of activity. However, he said, if
this was compared to 10 years ago it would be a much higher
percent because there are new producers in Cook Inlet. For
example, Cook Inlet Energy and Hilcorp are going crazy with
drilling and making discoveries, and production in Cook Inlet
has doubled over the last year and half.
1:27:33 PM
MR. SEAMOUNT discussed the bar chart on slide 11, explaining it
shows exploration drilling between the years 2000 and 2014. The
light green background in the chart depicts the oil price and
the dates the different taxes were enacted; he said he sees
virtually no correlation there. He pointed out that before
2004, and especially in the 1990s, the big guys - the BPs and
the ARCOs - were the big explorers. However, over the last
three years most of the exploration is being done by the new
guys, companies like ENI, Repsol, Hilcorp, Cook Inlet Energy,
and it is nice to see this increased activity. He advised that
the only correlation he can see on this chart is that there was
a big spike in oil price followed by a big drop in price and at
the same time there was a big drop in exploration. It takes a
few years to get wells planned, he explained, so after the price
of oil went back up the exploration started back up, but most of
that was the independents.
MR. SEAMOUNT said slide 12 shows development activity in proved
fields with oil price and the tax legislation. Basically, he
continued, slide 12 shows that most of the activity is done by
BP, depicted in green, and BP's activity has gone down. The
activity of ConocoPhillips, depicted in red, has stayed the
same. The activity that has occurred has been recent and has
been with the independents. An increase in development work is
seen in 2014.
MR. SEAMOUNT addressed slide 13 entitled, "Workover Activities
(2003-2014)." He explained that many drilling rigs can also act
as workover rigs to repair wells. A drilling rig that is
working over a well obviously cannot be used at the same time to
drill a well. Workover is mainly fixing wells that are broken,
so workovers are quick payout projects, unlike exploration wells
which are long payout projects. A big uptick in workover
activity was seen after the big price increase, then there is a
price decrease and it went down. Then when things came back up
there was a pretty high level of workover activity [in 2014] and
that may explain why there wasn't much of a jump in the drilling
by the big guys, they were fixing their wells.
1:31:10 PM
REPRESENTATIVE SEATON asked how the coiled tubing rigs are
classified [drilling or workover] that are being used on the
North Slope for re-drilling in the oil wells but that are
drilling to new prospects, especially in Kuparuk.
MR. SEAMOUNT replied that it would be considered a rig. A lot
of drilling is done with coiled tubing, he said, and it may be
one of the most common types of drilling now at Kuparuk and
Prudhoe Bay. Part of a well is plugged deep down, a window is
milled, and then drilling out is done with coiled tubing. He
quipped that in the oil patches of 1975 all of the workers were
covered with oil and grease, while a coiled tubing rig is
pristine white and clean, and the workers wear white suits and
look like computer technicians.
REPRESENTATIVE SEATON observed on slide 12 that ConocoPhillips
has been consistent across all of these years with a scheduled
build out of drilling so many wells a year. He inquired whether
the coiled tubing drills in those wells are considered
development and service wells or workover activity wells.
MR. SEAMOUNT responded he is unsure, but he thinks most of it is
drilling. He said he will get an answer to the committee.
REPRESENTATIVE SEATON requested the committee be provided this
information, saying that if these are workovers being shown on
slide 12, then that means the number of new wells has gone down
significantly as coiled tubing has come up.
MR. SEAMOUNT answered he will provide the committee with the
number of coiled tubing workovers versus coiled tubing drilling.
1:34:40 PM
MR. SEAMOUNT moved to slide 14, noting the slide provides a list
of AOGCC's primary services. He said he tried to prioritize
these services but then realized that all of them are important.
Because the regulations require AOGCC to do these services, the
commission is kept very busy.
REPRESENTATIVE SEATON asked what is meant on slide 14 by
"enforce well spacing rules."
MR. SEAMOUNT replied Alaska has well spacing rules. For gas
wells the spacing is a certain number of feet between wells, but
basically it is 640 acres. Plus, a certain number of feet [is
required] from lease lines where the lease ownership changes.
He believed that for oil wells the spacing is 40 acres, but
AOGCC can do an exception to those rules if there is a good
reason, such as geology changes or a fault. Because it is put
out for public comment the public can tell AOGCC why a spacing
exception should not be done and there have been some pretty
contentious hearings in this regard.
REPRESENTATIVE OLSON recalled that eight or nine years ago there
were feeder lines on the North Slope that were not being pigged
on a regular basis or at all, resulting in a series of leaks.
He inquired how that was overlooked and where it would fit
within AOGCC's primary services.
MR. SEAMOUNT responded AOGCC doesn't regulate any pipelines.
The only thing AOGCC does with pipelines is to prove that the
hydrocarbons going through them are measured accurately. He
said the question should go to the Department of Environmental
Conservation (DEC). But, he added, that may have fallen through
the cracks because it may be that no one regulates in-field
pipelines; however, he continued, he thinks there is a group
that is now working on filling that hole.
REPRESENTATIVE JOSEPHSON inquired further about the group that
is working on filling the aforementioned hole.
MR. SEAMOUNT answered it is the Petroleum Systems Integrity
Office, although it may have a different name now.
1:38:26 PM
MR. SEAMOUNT turned to slide 15 to highlight the major issues of
2014. Cook Inlet exploration and development is going crazy and
a new platform is coming in, he reported. Years ago gas was
falling off the cliff and it was predicted there'd be no gas by
2014 or 2015, but now there is a bunch of gas. As a former Cook
Inlet geologist, he said he thinks there is a lot more gas to be
found there, especially below where the gas has been produced,
which is into the Jurassic, the Pre-Tertiary, which is where the
oil is coming from and with oil comes gas. Another issue is a
manpower shortage at AOGCC. Finding another engineer and a
couple of inspectors has been difficult because AOGCC competes
with industry and industry pays sometimes double what AOGCC
pays, even though AOGCC's wages are good. A third issue is
hydraulic fracturing regulations, which AOGCC just did. There
is a lot of hysteria about hydraulic fracturing (fracking), he
said, but this has been occurring in Alaska for 60 years without
a problem.
1:41:24 PM
REPRESENTATIVE TARR understood that fracking is happening on the
North Slope.
MR. SEAMOUNT replied huge fracks are occurring on the North
Slope, 3 million pounds. Additionally, fracking has been
occurring in Cook Inlet for a long time. In the early 2000s
fracking was being done with diesel [in Cook Inlet]. He related
that he urged the companies to stop using diesel because of
safety issues, but he doesn't think diesel is being used
anymore. He said 25 percent of the wells in Alaska are fracked.
REPRESENTATIVE JOSEPHSON asked whether industry shares with
AOGCC what chemicals are being used for fracking.
MR. SEAMOUNT responded that was a very contentious issue. He
believed that industry shares the types of ingredients but not
the percentages in all cases. Some of that information is
proprietary and protected by federal law, so there is nothing
that AOGCC can do about it.
REPRESENTATIVE OLSON inquired whether fracking in Cook Inlet
includes Swanson River and onshore.
MR. SEAMOUNT answered it is mostly onshore. Fracking was tried
offshore in the 1990s and it didn't work. He related that he
worked for Unocal then and it didn't work one time so Unocal
didn't try it again. But lately Hilcorp is getting back into
fracking offshore, he said, and he thinks it will work.
1:43:16 PM
MR. SEAMOUNT resumed his presentation (slide 16), saying the
likely issues for 2015 include all of the 2014 issues. Another
issue is shale oil delineation and development, something that
he is personally excited about. One county in Texas is making
more oil from shale than oil produced in the entire state of
Alaska, he reported. Another issue is new North Slope
operators. Cook Inlet Energy and Hilcorp have gone to the North
Slope and based on what they've done in Cook Inlet there should
be a pretty good increase in production on the North Slope.
MR. SEAMOUNT moved to slide 17 to discuss major gas sales. He
explained that before major gas sales can occur, the operator
must submit an application to AOGCC to make a decision on the
gas sales. The operator must state when it wants to start gas
production, how much the operator wants to produce, how much oil
is left, what is going to be done to prevent oil losses, and
what other uses are for the gas. Right now it looks like [the
state] is on a pretty decisive course, but the question is
whether there is something else that can be done with that gas
besides turning it to liquefied natural gas (LNG) and sending it
to Asia or elsewhere. It could be that AOGCC is the skunk at
the garden party, he said. But, he continued, intuitively he
doesn't think AOGCC is going to be. If it shows waste or if it
shows that hydrocarbons are not being conserved, then AOGCC can
put a stop to it and say to come up with a different plan. It
is not just how much oil is going to be lost or how much gas
will be made, it is the total hydrocarbon - oil plus gas. If
[the state] goes along with the present plan some oil will be
lost, but maybe more will be made up than that by producing the
gas when it is produced. It is really complicated, one example
being how long is the infrastructure going to last and if the
infrastructure doesn't last that long then that gas better be
gotten out of there. But, if the infrastructure holds up, there
is the possibility of wanting to hold off on gas sales.
1:46:37 PM
REPRESENTATIVE JOSEPHSON, relative to the concept of skunk at
the garden party, asked what AOGCC's greatest power is.
MR. SEAMOUNT replied AOGCC's power and everything it does comes
from the Title 31 statute. It is very similar to other states;
that power is accepted in every single oil producing state. If
AOGCC ruled that a gasline couldn't be done, the legislature
could change the law. But that wouldn't be right, he opined,
because getting out as much hydrocarbon [as possible] is wanted,
as well as to conserve it for future generations. However, he
qualified, he doesn't think AOGCC would make that ruling.
MR. SEAMOUNT turned to slide 18 to further expand upon the
aforementioned. In regard to major gas sales, he said the plan
right now is for direct gas sales. If no sales occur, then
another two billion barrels of oil could probably be recovered
from Prudhoe Bay. If direct gas sales do occur, it is unknown
how much would be lost but it would be less than two billion.
Because of Lower 48 shale gas, "my way is the highway" has gone
away and now LNG from the Kenai is being talked about, as he
understands it. The idea of LNG from Valdez has gone away.
Another plan, however, is modified gas sales - taking a holistic
approach by looking at the entire North Slope. Although [AOGCC]
has thought about this for years, not much work has been done on
it; and, while the operators may be thinking about it, there may
be better uses for the gas. One use is to take the Point
Thomson Unit, which is a very high pressure field at 10,000
pounds per square inch (PSI), and run that into the Prudhoe Bay
Unit to re-pressure Prudhoe Bay back to its original pressure of
4,500 PSI. He related that according to a reservoir engineer's
"cocktail napkin" calculations, it may be possible to get
another billion barrels out of Prudhoe Bay. So, by holding off
on the gas sales, two billion barrels are left plus another
billion barrels coming out of Prudhoe Bay via Point Thomson;
that totals three billion barrels, which is a giant oil field.
1:50:32 PM
MR. SEAMOUNT continued addressing modified gas sales, pointing
out that a gas cycling pilot project is currently being done at
the Point Thomson Unit. Gas is pulled out of the ground, the
condensate pulled off, and the gas put back down. This is done
over and over again until there is 400 million barrels of
condensate, which is another Alpine field. If this pilot
project works, he said, then that is probably what [AOGCC] will
do. He further pointed out that by definition in the
regulations, Point Thomson is an oil field, not a gas field.
Another thing that could be done, he added, is to delay the gas
sales because oil is much more valuable than gas. For example,
over 20 billion barrels of viscous oil are within reach of
infrastructure on the North Slope and a study could be done to
see if gas would work for getting out that viscous oil. Mr.
Seamount recalled his work with heavy oil in California in which
gas was used to create steam for steaming the heavy oil to make
oil. This was done because the oil was more valuable than the
gas, which remains true today. He allowed, however, that
talking about modified gas sales is like changing a horse in the
middle of the stream. He concluded his presentation by turning
to slide 19 and inviting members to ask questions.
1:52:51 PM
REPRESENTATIVE TARR surmised there is not total agreement on
whether the concept of modified gas sales is allowable or should
be managed unit-by-unit or could be done as a wetland mitigation
model. She inquired how that will be resolved.
MR. SEAMOUNT responded it will take a lot of study to answer
this very good question. The holistic idea is to look at all of
these different fields put together, not just Prudhoe Bay and
not just Kuparuk. He said even he doesn't know whether that is
within AOGCC's authority; AOGCC's authority might be just on a
field-by-field basis and AOGCC may not have any kind of say.
However, he advised, it would be smart to look at the holistic
modified gas sales idea. He added he would be surprised if this
hasn't already been looked at, but surmised it has been looked
at in an economic way, not in a conservation way.
1:53:58 PM
REPRESENTATIVE JOSEPHSON asked whether AOGCC currently has the
statutory authority to move Point Thomson gas to re-pressure
Prudhoe Bay.
MR. SEAMOUNT answered he thinks AOGCC probably has authority for
the re-pressurizing. But, he continued, he is unsure whether
AOGCC has the authority to say that the gas cannot be sold and
must instead be brought over to produce that viscous oil first.
He qualified he doesn't know whether that would be the best way
to produce the viscous oil, so it would warrant more study and
the operators should be consulted since they have been studying
the viscous oil.
1:54:55 PM
REPRESENTATIVE SEATON, regarding the recovery of another billion
barrels of oil at Prudhoe Bay by re-pressurizing, asked whether
this runs into conflict due to one company having a much higher
ownership of the Point Thomson Unit than the Prudhoe Bay Unit,
so one company would be restricted economically in recovering
oil from another unit even though it makes more total sense.
MR. SEAMOUNT replied AOGCC does not deal in economics, it would
be the Department of Natural Resources and the Department of
Revenue. He agreed that that would have to be resolved. He
related that Unocal went through this same issue when it owned
part of Kuparuk and part of Endicott and it is complicated.
REPRESENTATIVE SEATON understood that AOGCC is looking at this
from a total recovery standpoint, which the state would be very
interested in given that the state's royalty percentage is on
the total value or total volumes of hydrocarbons. Therefore, he
surmised, [the state] might need to look at it from a
conservation and total value recovery standpoint.
MR. SEAMOUNT responded that is correct.
1:56:42 PM
REPRESENTATIVE TARR, in regard to how the Alaska LNG Project is
envisioned today, noted that at some point AOGCC will consider
the disposition agreements. She inquired as to what the public
process will be in this regard given there is concern about
whether there will be enough gas for in-state use. She further
inquired what the steps will be if there is a denial of an
original application.
MR. SEAMOUNT replied the operator would come to AOGCC with an
application that answers the questions shown on slide [17].
Next AOGCC would put out public notice and if someone requests a
hearing then AOGCC must hold a hearing at which any interested
party is welcome to testify. If AOGCC puts out a decision that
someone doesn't like, the decision can be appealed and AOGCC
would consider the arguments. In its consideration AOGCC could
either have a hearing or reject the appeal outright. From there
it would go to superior court and then supreme court.
1:58:36 PM
REPRESENTATIVE OLSON asked whether AOGCC has the ability to
oversee the production of gas hydrates at this point in time.
MR. SEAMOUNT answered he is sure AOGCC would because it would be
the production of hydrocarbons and AOGCC even has authority over
coal gasification. He added that coal gasification has been
tried and has some potential in Cook Inlet.
1:59:14 PM
REPRESENTATIVE SEATON, in regard to the modified gas sale
concept, inquired whether Mr. Seamount is aware of any studies
that have been done other than on the back of a napkin.
MR. SEAMOUNT responded he is not aware of any, but offered to
get back to the committee with an answer.
REPRESENTATIVE SEATON recalled the earlier discussion of viscous
gas and noted that Kuparuk is short on gas and is already
importing gas from Prudhoe Bay to operate. He said he does not
remember any kind of information being presented to the
committee for re-pressurization of Prudhoe Bay and dramatically
increasing the recovery of oil from that field. He suggested
this information be requested from the legislative consultants
so committee members can consider it.
CO-CHAIR TALERICO said he will make note of the request.
MR. SEAMOUNT believed that if Prudhoe Bay were re-pressurized
the 400 million barrels of condensate would be lost, but there
would still be a net gain by doing the re-pressurization.
2:01:20 PM
REPRESENTATIVE JOSEPHSON said he has read that fracking is a
safe procedure, but that the cement casing has to be done
properly or the aquifer can be contaminated. He asked whether
that is the kind of thing AOGCC monitors.
MR. SEAMOUNT answered yes, that is one of the most important
things AOGCC does. He said AOGCC makes sure the well bore has
integrity, makes sure there are two barriers to the environment,
which would be two sets of casing that are cemented so there
cannot be any escape, and makes sure there is a third barrier up
high that goes across the fresh water aquafers to protect them.
He said one of AOGCC's performance measures is how many fresh
water aquafers have been polluted in the 60-70 years of
production in Alaska, and the answer is zero.
2:02:34 PM
REPRESENTATIVE TARR understood the Alaska Industrial Development
and Export Authority's proposal for Fairbanks natural gas may be
favorable because of Hilcorp's increased activity in Cook Inlet
and not wanting to have the Cook Inlet supply dominated by one
company which could create too much consolidation in terms of
the gas supply for consumers. She inquired whether AOGCC, in
looking at the hydrocarbon resource, considers who the
leaseholder or developer is so that if there is concern about
consolidation it can be addressed.
MR. SEAMOUNT replied AOGCC treats everybody the same; so as long
as the regulations are being obeyed it does not matter to AOGCC
who is doing the operating.
2:03:48 PM
REPRESENTATIVE SEATON asked whether AOGCC is free to release to
the committee the number of exploration wells for shale gas in
Alaska. He further asked whether shale gas development is
occurring across the state or only in the one section along the
Dalton Highway.
MR. SEAMOUNT believed that has been published and Great Bear
Petroleum is going to build some ice roads that go about two
miles from the highway. There are a couple of other companies,
he said, but he is unsure whether they will be doing anything
this year. He believed he has seen two permits to drill for
shale oil exploration that are also looking at conventional oil
at the same time in order to pay for the shale oil experiment.
He submitted that Alaska has more shale that contains oil than
does anywhere else.
REPRESENTATIVE SEATON asked whether there is any shale work or
exploration going on in other basins.
MR. SEAMOUNT responded there is not. He said he would love to
see some of that activity in Cook Inlet in the Jurassic, Pre-
Tertiary, rocks because there is oil there and they are tight
rocks and he thinks that that technology could work in Cook
Inlet and Cook Inlet could become a giant producing area.
^CONFIRMATION(S): Alaska Oil and Gas Conservation Commission
CONFIRMATION(S): Alaska Oil and Gas Conservation Commission
2:06:38 PM
CO-CHAIR TALERICO announced that the final order of business is
the confirmation hearing for Michael Gallagher, Appointee to the
Alaska Oil and Gas Conservation Commission (AOGCC).
MICHAEL GALLAGHER, Appointee, Alaska Oil and Gas Conservation
Commission (AOGCC), testified as appointee to the Alaska Oil and
Gas Conservation Commission. He spoke as follows:
The reason I'm interested in this position is to give
back to the state. I feel I can contribute with my
knowledge and experience in the industry. I know the
importance of this commission and, if confirmed, I
look forward to continuing to protect the public
interest in exploration and development of Alaska's
valuable oil, gas, and geothermal resources through
the application of practices designed to ensure
greater ultimate recovery and the protection of
health, safety, fresh ground waters, and the rights of
all owners to recover their share of the resource.
Alaska has given me so much, and to my family, that I
am grateful to have this chance now to give back to
the great state of Alaska. I am grateful that my wife
and I were able to raise our family in Alaska. Our
two children were raised in Alaska, and after
attending college both live and work in Alaska. I
have over 38 years' experience in the oil and gas,
civil, and vertical construction industries. I have
spent over 19 years with the Laborers International
Union of North America, Local 341, as a business
agent, vice president, president, and business
manager. In this position I negotiated bargaining
agreements with other employers and managed the day to
day operations of the local union. One of the duties
with my local union, I was a trustee of a $560 million
pension plan and $14 million health and welfare plan.
In that position I was involved in many judicial
hearings. The board of trustees was responsible for
conducting appeal hearings for the trust. While
hearing the appeals we were to look at the facts and
the evidence that was presented to us and make
decisions based on the facts, the evidence, and
according to the plan document. Throughout my career
I have been fortunate in wonderful opportunities to
learn and contribute and I see this appointment as
another such opportunity. I am especially pleased and
honored to have the opportunity to serve the people of
Alaska as part of such a well-respected commission and
in consort with such intelligent, honest, ethical, and
hard-working colleagues as Commissioner Foerster and
Commissioner Seamount and the staff.
2:10:28 PM
REPRESENTATIVE HERRON complimented Mr. Gallagher on his resume,
noting he has held many positions of responsibility during his
career and in community service. He asked what Mr. Gallagher
does for fun.
MR. GALLAGHER replied he and his wife have a cabin in Willow.
He said he retired several years ago and has just taken on some
projects, so he has had plenty of time playing at the cabin,
hunting and fishing, backcountry skiing, snowmobiling, and
sitting around the bonfire.
REPRESENTATIVE HERRON observed from Mr. Gallagher's resume that
his knowledge is above-ground construction and labor practices
for the oil and gas industry. He noted, however, that AOGCC
does not regulate any of those aspects. He requested Mr.
Gallagher to explain his skill set to what AOGCC does regulate.
MR. GALLAGHER acknowledged his experience is more on the
transportation side. As a representative of the local union he
represented several hundred people that worked for a drilling
company, so he did gain knowledge about downhole things, but
that is definitely not his strong point. He said he has been
working very hard at trying to understand and look at the piping
system that goes into the downhole system and he feels very
comfortable. He stated that under the Alaska statute he
definitely qualifies. Responding further to Representative
Herron, he agreed to provide the committee co-chairs with his
references.
REPRESENTATIVE HERRON requested Mr. Gallagher to define wasting
of a resource as it applies to AOGCC, how it can occur, and what
the ramifications are for the state.
MR. GALLAGHER responded the waste of any hydrocarbons in the
ground will cost the state financially. One of AOGCC's missions
under the Alaska statute is to recover as many hydrocarbons as
possible and prevent hydrocarbon waste.
2:14:38 PM
REPRESENTATIVE SEATON, regarding the issue of oil versus gas
hydrocarbon recovery, inquired how Mr. Gallagher sees the
balance between oil recovery and gas recovery as far as wastage.
MR. GALLAGHER said oil is definitely more profitable than gas,
so as much oil must be gotten from the ground before the gas.
REPRESENTATIVE SEATON surmised Mr. Gallagher would look at
wastage as being economic recovery of the more valuable
commodity and that would be the job that Mr. Gallagher would be
balancing.
MR. GALLAGHER answered he believes that under the statute AOGCC
is not supposed to look at the economics, but rather at
preventing hydrocarbon waste. There are advanced technologies
for trying to recoup different things, he said, and the gas is
very valuable for getting the oil out of the reservoir, so the
different technologies would have to be studied to see which one
would be the best.
REPRESENTATIVE SEATON noted that most of the wells in Alaska's
fields have both gas and oil. He asked how Mr. Gallagher, as a
commissioner, would evaluate oil and gas wastage comparatively.
MR. GALLAGHER replied he would need to think that through since
he is new to the commission, but his understanding of the
statute is that oil is the hydrocarbon that needs to be taken
out and the gas is used to pressurize it, along with water
injection. He believed it must be ensured that as much of the
oil is taken out of the reservoir first.
2:18:44 PM
CO-CHAIR TALERICO noted an important task of AOGCC is ensuring
that the operators follow good oil field practices. Included in
AOGCC's services are inspection of drill rigs and the wells to
ensure they are compliant with AOGCC regulations and this would
include blowout prevention equipment. He inquired whether Mr.
Gallagher has any experience on a drill rig.
MR. GALLAGHER responded he has not worked on a rig, but he has
represented drill rig workers in which multiple safety issues
were dealt with. He said he is scheduled next week to go on a
drill rig to get familiar with it. Within his career, he added,
he would take information from both sides of the issue and make
a decision and that is what he would do with the AOGCC.
CO-CHAIR TALERICO asked whether Mr. Gallagher has experience
with metering devices related to the monitoring, calibrating,
and quality testing that AOGCC does.
MR. GALLAGHER answered when he worked in the field he worked
with the Alyeska metering systems at the terminal. Additionally
he did repair work on meters brought in from up north.
CO-CHAIR TALERICO inquired whether Mr. Gallagher is familiar
with fracking.
MR. GALLAGHER replied only what he has read and what he has
learned over the last five weeks at the commission.
2:21:58 PM
REPRESENTATIVE JOSEPHSON understood Mr. Gallagher is applying
for the subsection 3 seat, which is the at-large person who has
training or experience that gives a fundamental understanding of
the oil and gas industry. He asked whether that is also Mr.
Gallagher's understanding [of this seat].
MR. GALLAGHER responded yes, under the Alaska statute it is
being familiar with oil and gas industry.
REPRESENTATIVE JOSEPHSON observed from Mr. Gallagher's resume
that he has 38 years of experience in the oil and gas and
construction industry, including work at the Alyeska marine
terminal and the Trans-Alaska Pipeline System. He inquired
whether this is correct.
MR. GALLAGHER answered yes, and noted that before he went to
work for the local he spent about 14 years in the field. Then,
as a representative, he represented workers from the Valdez
marine terminal and the oil response teams all the way up to
Prudhoe Bay on the pipeline.
2:23:31 PM
CO-CHAIR TALERICO noted AOGCC is a regulatory board and its
decisions could be considered as quasi-judicial decisions. He
asked whether Mr. Gallagher has any experience working on a
board or commission that makes this type of decision,
particularly a decision that might impact private enterprise.
MR. GALLAGHER replied as a trustee on a pension plan and on a
health and welfare plan, the trustees acted in a judiciary
position. When a person had an appeal the trustees would listen
to the case and would make decisions similar to the process at
AOGCC. He participated in a tremendous amount of appeal
hearings acting in a judiciary capacity. The trustees were
charged to keep their personal opinions out of it - to look at
the facts and the evidence and make decisions based on the plan
documents. He said he would look at that as similar to AOGCC.
2:25:27 PM
CO-CHAIR TALERICO opened public testimony on the appointment of
Mr. Gallagher. There being no one wishing to testify and there
being three committee members absent, Co-Chair Talerico held
over the advancement of Mr. Gallagher's name.
2:26:34 PM
REPRESENTATIVE TARR inquired whether Mr. Gallagher will have an
opportunity to again be before the committee next week to answer
questions from the other members.
CO-CHAIR TALERICO responded only if the members absent today
have questions after being provided the information. Responding
to Representative Olson, he confirmed that Mr. Gallagher will be
given a couple days of notice if the committee wants him to be
present next week.
REPRESENTATIVE TARR noted she may have some questions for Mr.
Gallagher after she reviews the information provided by Mr.
Seamount.
CO-CHAIR TALERICO agreed to accommodate Representative Tarr if
she needs to ask further questions of Mr. Gallagher.
2:27:43 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:28 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HRES Confirmation Hearing Gallagher.pdf |
HRES 2/20/2015 1:00:00 PM |