Legislature(2003 - 2004)
02/26/2003 03:35 PM Senate RES
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ALASKA STATE LEGISLATURE
SENATE RESOURCES STANDING COMMITTEE
February 26, 2003
3:35 p.m.
MEMBERS PRESENT
Senator Scott Ogan, Chair
Senator Thomas Wagoner, Vice Chair
Senator Fred Dyson
Senator Ralph Seekins
Senator Ben Stevens
Senator Kim Elton
Senator Georgianna Lincoln
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
Confirmation Appointments to the Alaska Oil and Gas Conservation
Council: Randy Ruedrich and Sarah H. Palin
PREVIOUS ACTION
No previous action to record.
WITNESS REGISTER
Ms. Sarah Palin
1140 W Parks Hwy
Wasilla, AK 99654
Mr. Randy Ruedrich
1515 West Thirteenth Avenue
Anchorage, AK 99501-4214
ACTION NARRATIVE
TAPE 03-8, SIDE A
Number 0001
CHAIR SCOTT OGAN called the Senate Resources Standing Committee
meeting to order at 3:35 p.m. Senators Wagoner, Ben Stevens,
Dyson, Seekins, Elton and Chair Ogan were present. The committee
took up the confirmation hearings of Sarah Palin and Randy
Ruedrich to the Alaska Oil and Gas Conservation Commission
(AOGCC).
[While the committee took a brief at-ease, SENATOR LINCOLN
arrived.]
CHAIR OGAN asked Ms. Palin her reasons for wanting to serve on
the AOGCC and what she will "bring to the mix."
MS. SARAH PALIN, Governor's appointee to the AOGCC, told members
she is motivated to serve because she believes that oil and gas
development is the state's bread and butter. She feels that the
issues facing this industry are significant and its regulatory
agency needs to have fair and objective views. She will be
grateful for the opportunity to serve. She believes the bottom
line is that if Alaskans want good schools, state troopers, and
the infrastructure to fund those, Alaskans need a healthy oil
and gas industry. She repeated that she is motivated and
challenged to serve in this capacity.
CHAIR OGAN took questions from members.
SENATOR ELTON asked Ms. Palin her reaction to the Permanent Fund
Board of Directors' request of the AOGCC to do an investigation
of tariff and lease issues.
MS. PALIN said that resolution raised concern about the North
Slope operators, especially in respect to the costs associated
with the pipeline. Her first reaction was that it will provide
the AOGCC with an opportunity to work with all of the
appropriate agencies involved with tariffs, facility pricing,
and maintenance and operation practices, especially on the North
Slope, and to take any necessary steps appropriate to increase
production for state leases and to maximize recovery. She said
she sees it as a good opportunity to look at the practices of
the AOGCC and other agencies to see if things can be done
better.
SENATOR ELTON then asked Ms. Palin how she will deal with the
fact that her husband works for BP when she must deal with
agendas that come before the AOGCC that involve BP.
MS. PALIN said she spoke to Governor Murkowski, Chief of Staff
Clark, and the AOGCC attorney about this matter before accepting
this nomination. She answered:
"... and have been assured also that because of my
husband's position, he - and I say this respectfully -
he is blue collar, an hourly paid employee up there on
the North Slope in production. He's not a manager, he
works, so he's not making policy and affecting policy
so there is that differentiation there. But I am
filling out a form that I've been told by the attorney
to go and do in order to disclose that my husband is
an employee of BP. And then I've been told on a case-
by-case basis our ethics chair, whoever that would be,
and our Governor appoints that, will rule on whether I
should vote on anything that has to do with BP - again
on a case-by-case basis.
SENATOR ELTON thanked Ms. Palin.
MS. PALIN added that Dan Seamount, a former Governor's
appointee, is a sitting AOGCC commissioner and is also married
to an employee of an industry company in Alaska. He has had no
conflicts of interest.
CHAIR OGAN asked Ms. Palin what she sees the most important role
of the AOGCC to be.
MS. PALIN said the bottom line is to maximize the recovery of
oil and gas for the benefit of Alaskan citizens, to prevent
waste of the resources, and to make sure that first and foremost
Alaska citizens are able to derive the benefits from our
resources. She said that according to the AOGCC statute, her
role is to work with the other two commissioners to help
maximize recovery.
CHAIR OGAN said often, to maximize recovery, producers have to
jump through a lot of hoops with AOGCC, because AOGCC regulates
their technical operations. He said the AOGCC can help or hinder
maximum production by changing the number of hoops they have to
jump through. The other side of the argument is that the AOGCC
doesn't want to be so lenient as to crowd the rights of other
producers, worker safety or the safety of the environment. He
asked Ms. Palin how she will balance that out.
MS. PALIN said that is where the fairness and objectivity that a
commissioner needs to bring to this job and role fit in. She
stated:
Again, Senator, I think if we keep in mind always that
for the benefit of Alaskan citizens is the foundation
on what the commission needs to build upon, the job of
being objective should not be that difficult. And, to
be perfectly honest with you also, I never hid the
fact that I am pro-development and pro-oil and gas, if
you will, in terms of recognizing that oil and gas is
our state's bread and butter and we need to get that
maximum value and maximum recovery from the resources
if we want to have a healthy economy in our state. So,
in that term too Senator, any unnecessary hoops any of
the industry has had to jump through that have just
created a hindrance to progress and to growing a
stronger economy, I would want our commission to
consider the proposals and the changes that, perhaps,
industry would have for us to be considered, and I'll
have an open mind about that.
CHAIR OGAN noted that Ms. Palin will be asked to make rulings on
very technical issues and that her resume does not show a
background in oil and gas development. He said that experience
is not necessary for the public member but asked, "How are you
going to keep people from blowing a bunch of smoke up your
skirts?"
MS. PALIN said thankfully, the AOGCC has technical staff. She
has done some research and believes they give objective and fair
advice to the commissioners. She agreed she does not have an oil
and gas technical background but she believes the three
commissioners, one a geologist and the other a petroleum
engineer, will be able to make fair and objective decisions.
CHAIR OGAN said his previous statement was not meant to be
sexist; he uses it with anyone. He then added that Ms. Palin has
been a quick study and did a great job for the City of Wasilla.
He believes she will be a good spokeswoman for the AOGCC and has
good administrative skills. He cautioned however, that at the
end of the day, the Legislature would need to do what is in the
state's best interest.
SENATOR LINCOLN said she read Ms. Palin's resume and had some of
the same questions about her resume and what the AOGCC is
responsible for. She noted she also read in a newspaper article
that Ms. Palin said she was offered some other positions within
the Administration but turned it down. She asked Ms. Palin why
she wants to serve on this particular commission and what she
wants to achieve while serving.
MS. PALIN said she turned down two prior offers to work in the
Administration because she wants to raise her family in the
Matanuska Valley. She said she is grateful for this opportunity
because she recognizes the significance of the oil and gas
industry and the public role on the commission. She believes the
founders of the board were wise to place a public member on the
AOGCC. She said as the mayor of Wasilla, she was tasked with so
many duties in the fastest growing area in the state. She said
she would be able to bring the skills she has from that position
to the AOGCC.
SENATOR LINCOLN asked how long she has been in office.
MS. PALIN said her AOGCC position is full-time and today is day
six.
SENATOR LINCOLN said the AOGCC is responsible for accepting
written plans submitted by lessees and to hold public hearings.
The AOGCC would then "grant approval of the plan if the plan
contains a voluntary agreement by the lessee to use its best
efforts to employ residents in this state and to contract with
firms in this state for work in connection with the development
of the field...." She asked Ms. Palin what she would do to
improve Alaska hire and utilization of Alaska businesses in the
oil industry.
MS. PALIN assured her she will do all that the AOGCC is legally
able to do to encourage and ensure that Alaska hire is the
common practice. She told members that her husband is an Alaska
Native who works on the North Slope. The opportunity he has been
given for all of these years as an Alaskan has affected her
perspective on the Alaska hire issue positively. She repeated
that she will do all that she can to see that Alaska hire is
strengthened.
SENATOR LINCOLN noted that one of the AOGCC's responsibilities
is to protect the public interest in exploration and development
of oil and gas resources while protecting health and safety, the
environment and property rights. She pointed out that part of
her district encompasses the ANWR footprint and that the
residents of Arctic Village and Venetie are very concerned about
the Porcupine Caribou herd. She asked Ms. Palin how she plans to
protect that herd so that those villagers can continue to derive
the benefits that former generations have.
MS. PALIN said the AOGCC members have not discussed that issue
yet but her perception is that the AOGCC has been underutilized
in terms of outreach and in terms of an education process going
both ways with facts coming from the people who live in that
area and from the scientific community. She believes the AOGCC
needs to do more outreach and to interact with the residents of
that region more.
CHAIR OGAN thanked Ms. Palin and asked Mr. Ruedrich why he wants
to serve on the AOGCC and what he views as its greatest mission.
MR. RANDY RUEDRICH told members he came to Alaska in the early
1970s and worked in the [oil] industry. At that time, the AOGCC
was the center of attention and he thought it was the
government. Over the years he has continued to view the AOGCC as
a very significant portion of what makes the Alaska oil industry
function. He believes with his background, he can help the AOGCC
work toward maximum recovery of the resources for revenue
generation and to create jobs for Alaskans and business for
companies and contractors.
SENATOR WAGONER said that the oil fields in Cook Inlet are past
the maturing stage and are in decline. There has been discussion
about removing two or three platforms in the near future. His
concern is that with quickly changing technology, the oil will
remain in place if the platforms are removed and the wells are
cemented. He asked Mr. Ruedrich his thoughts on that matter.
MR. RUEDRICH said the AOGCC's job is to maximize the recovery
from state property and to regulate on private and federal
lands. Regarding the platforms in Cook Inlet, he said the AOGCC
needs to work carefully with operators to encourage them to keep
their assets viable for as long as practicable because they may
be able to do more recovery in the future from assets deemed to
be at the end of their life. He pointed out that Cook Inlet has
the positive aspects of the [indisc.] platform coming on line as
a new producer. All of the gas fields around the Inlet are now
on line and gas is a commercial activity, which is important to
all of Southcentral Alaska.
SENATOR WAGONER asked if it would be beneficial to provide some
type of incentive for these companies for a short period of time
to see if technology improves.
MR. RUEDRICH said he thinks an incentive is worth consideration
but he didn't have any thoughts on what that might be. He said
he had a brief chat with a manager who invited the commissioners
to come see what is going on and that perhaps some incentives
could be a derived benefit of that.
SENATOR ELTON noted that Mr. Ruedrich described the core role of
the AOGCC as, "an implementing agency that creates jobs for
Alaskans."
MR. RUEDRICH explained that he believes it is critical that when
the AOGCC approves a permit to drill a well, 30 to 50 people
have a job. It is the quickest way to create real activity. A
huge percentage of the people who work for contractors on
drilling rigs are Alaskans. In that sense, the AOGCC is a direct
link and the more drilling permits it approves, the more
activity it will create for the contractors of Alaska.
SENATOR ELTON said that while he doesn't disagree with the
characterization Mr. Ruedrich made of one of the AOGCC's roles,
clearly there is a regulatory control role. He then said that
Mr. Ruedrich was investigated by the federal government and
possibly by the AOGCC when he was the general manager of Doyon
for reinjecting waste into wells. He asked what he will bring to
the AOGCC from that experience.
MR. RUEDRICH said it makes one very aware that the underground
injection control system regulations the AOGCC administers for
the EPA are extremely important. He was very aware of those
regulations before leaving Alaska in the late 1980s and, as he
was working to implement them, he became aware that he had a
situation of non-compliance. The problem was immediately
resolved after it was discovered. An extensive investigation
ensued, which raised the sensitivity of doing that work
correctly. The current injection projects on the Slope minimize
waste on the surface immediately so that there is essentially a
zero discharge.
SENATOR ELTON corrected himself and noted that Mr. Ruedrich
worked for Doyon Drilling rather than Doyon. He then asked what
the mix of instate and out-of-state employees was during his 10-
year tenure at Doyon Drilling.
MR. RUEDRICH said his recollection is that Doyon Drilling
probably always employed at least 80 percent Alaska residents,
and occasionally 90 percent. He believes the numbers are still
very similar today.
SENATOR ELTON asked if that includes the contractors.
MR. RUEDRICH said that is correct.
SENATOR ELTON asked Mr. Ruedrich to comment on the Permanent
Fund Corporation Board of Directors' request that the AOGCC
investigate tariff and lease issues that may impact state
revenues.
MR. RUEDRICH said his initial reaction was curiosity, but after
reflecting on it, the document will give different aspects of
the Murkowski Administration an opportunity to work together to
understand what the other does and what can be done to increase
revenue for operators and the state.
SENATOR ELTON said that he was not sure how Mr. Ruedrich felt
about the request from his answer. He noted Mr. Brady instigated
the resolution.
MR. RUEDRICH said it is not a matter of agreeing or disagreeing
with the request, instead he believes an investigation will be
very helpful.
SENATOR SEEKINS said his association with Mr. Ruedrich goes back
to when he was working for Doyon Drilling. He asked if Senator
Lincoln was a director of Doyon at the time and had direct
oversight of Doyon Drilling.
SENATOR LINCOLN said she is a member of the Doyon Drilling
Board.
SENATOR SEEKINS noted he was also on the state chamber of
commerce executive board when they first met and that Mr.
Ruedrich was doing some tremendous things in terms of local
hire, especially for some of the young shareholders.
MR. RUEDRICH said that Doyon Drilling was not working to
maximize profit; it was aiming to maximize shareholder W-2 and
corporate profit. Doyon Drilling frequently had as high as 40
percent shareholder hire. The only difficulty he can recall is
that other operators would hire some of Doyon Drilling's highly
qualified employees during slower periods.
SENATOR SEEKINS said he thought Doyon Drilling's effort was very
impressive. He asked if there will be an opportunity to
encourage those same efforts in his current position.
MR. RUEDRICH said the AOGCC cannot guide anyone about who to
employ. However, the commission can leave a message with anyone
who asks.
SENATOR SEEKINS said he served with Mr. Brady on the Permanent
Fund Board of Trustees under the Hickel Administration. He asked
if it would be helpful if the Senate, rather than the Permanent
Fund Board, asks the AOGCC to look at ways to get fallow leases
into production.
MR. RUEDRICH said to maximize recovery on undiscovered oil, such
as federal leases, the AOGCC might have to change its charter.
He felt that is more specifically under DNR's venue.
SENATOR SEEKINS commented that it might have more horsepower
coming from the Legislature rather than the investment arm.
SENATOR LINCOLN clarified that Mr. Ruedrich was employed by
Doyon Drilling while she was on the Doyon Drilling board and she
is still a member of that board. She asked Mr. Ruedrich if he
plans to continue to be the Republican Party chair and, if so,
that may affect his decisions.
MR. RUEDRICH said his position is not paid, so he did not list
it on his resume because it is not an employment activity.
Second, he does not think his involvement in the party, based on
changes in federal law, will have any impact on state
activities. He noted the bipartisan campaign reform act that
passed Congress last year requires a segregation of authority.
He has transferred the state operations duties of the Republican
Party of Alaska to Paulette Simpson. He will be dealing with the
federal issues. That segregation should remove any perceived
issues of conflict. It also reduces his Republican Party
involvement to what he would be doing outside of the hours of
his AOGCC involvement.
SENATOR LINCOLN asked if he has stepped down as the state party
chair.
MR. RUEDRICH said he remains the chairman but only deals with
federal matters of the party.
SENATOR LINCOLN said her question still stands and whether he
believes as the state party chair, the decisions he makes will
be affected by that position.
MR. RUEDRICH said no because he believes issues in the interest
of Alaskans are non-partisan in this context. The activities of
the AOGCC are to improve the recovery of resources and the
maximization of revenue for the state.
SENATOR LINCOLN asked if he applied for the AOGCC position.
MR. RUEDRICH said he did.
SENATOR LINCOLN said she was confused by Mr. Ruedrich's
statement that he could talk about Alaska hire. She noted the
AOGCC's statute says the AOGCC can use its best efforts to
employ residents and contract with Alaskan companies if the
company volunteers to do so. She asked him to comment on that
section.
MR. RUEDRICH said he thinks it is extremely important for
lessees to employ Alaskans, no matter where the capital comes
from. He firmly believes that Native Alaskans should be
employed.
SENATOR LINCOLN said she was speaking about qualified Alaskans,
not Alaska Natives.
MR. RUEDRICH replied:
If we give people who have been trained to do the
work, and we have so many people in this state, we
have the opportunity - Alaskan contractors employing
local employees, not people who fly in because we have
a lot of people here who are very qualified, engaged
in oil field work. I can specifically say the lack of
work is such that people that I know extremely well
have worked outside of Alaska most of this year, on
loan by their companies to other locations around the
world, Lower 48, Middle East, etcetera, because we do
not have work here and I think we need to reverse that
situation. It's nice to have Alaskans exported to work
but it's better to have them working at home.
TAPE 03-8, SIDE B
SENATOR LINCOLN said the Governor has stated publicly several
times that Alaska needs more exploration of oil resources, which
can be accomplished by improving access, expanding the drilling
window and reducing the permitting time. She asked Mr. Ruedrich
to comment about his role in that regard.
MR. RUEDRICH said the permits issued by the AOGCC are issued
within 30 days. Frequently, if an operator needs a permit
expedited, the AOGCC has issued permits the next day or within
in a three-day period. He expects the AOGCC to help simplify
some of the other aspects by providing more technical
information to its sister agencies throughout the state to
increase their understanding of the problems.
CHAIR OGAN referred to AS 31.05.009, the AOGCC statute that
pertains to the qualifications of members. He asked if Mr.
Ruedrich is a qualified petroleum engineer.
MR. RUEDRICH said he finds the term "qualified petroleum
engineer" to be interesting. He said he does not have a degree
in petroleum engineering; all three of his degrees are in
chemical engineering. Of the people in this industry doing the
work deemed to be "petroleum engineering" inside of the drilling
community, the production community, and the [indisc.]
reservoir, about one-third are chemical engineers and a like
percentage are mechanical engineers. Less than a third are
actually petroleum engineers. His experience in the oil and gas
business over the last 33 years has been almost exclusively in
reduction aspects. His background in working with pipelines and
the shifting of crude oil is minimal. Most of his experience has
been involved with petroleum engineering work.
CHAIR OGAN said the statute says that one AOGCC member shall be
a certificated petroleum engineer or have earned a degree from a
university in the field of engineering and has at least ten
years of professional subsurface experience in the oil and gas
industry in drilling, well operations, production process
operations and reservoir engineering. He noted Mr. Ruedrich's
resume shows a lot of upper level management experience but he
wondered how much field experience he has.
MR. RUEDRICH said he worked as a drilling engineer or a drilling
foreman from 1970 through 1981 in Texas, Alaska and California,
and proceeded into his first management job in 1982 in Dallas,
Texas and returned to Alaska in 1983 to manage the ARCO drilling
activities. His capital budget was up to $1 million per day at
times. He summarized that he has about 11 years of hands-on
experience and about 20 years of management experience. During
the last three years, he worked as a consultant.
CHAIR OGAN asked Mr. Ruedrich to recite the simplest form of the
equation for linear flow in Darcy's Law.
MR. RUEDRICH replied:
Essentially, for the group at hand, if you just state
it in a simple sense, if you're flowing through porous
rock, the flow rate that you have is a function of the
pressure applied, and the restrictions through which
your flow rate reaches the permeability. So, it's the
permeability multiplied by the pressure gives you the
flow that you've achieved.
CHAIR OGAN asked Mr. Ruedrich if he was able to recite the
formula.
MR. RUEDRICH recited the formula.
CHAIR OGAN asked Mr. Ruedrich the difference between a pipe ram
and a blind ram and a BOP.
MR. RUEDRICH explained that a blind ram has no room to be open
and would have no flow with nothing in the hole. A pipe ram has
a specific half moon opening in each of two sides. If it has a
five-inch half circle opening on both sides, it will allow five-
inch pipe to be inside and seal against it.
CHAIR OGAN asked Mr. Ruedrich to talk about logging as a method
to determine reservoir properties, such as porosity, rock type,
and water salinity. He asked what kinds of logs are used to
determine porosity.
MR. RUEDRICH said porosity laws involve sonic laws that measure
the characteristics of the rock, or density, where a radioactive
source is used and the re-radiation is collected. Neutron tools
can also be used and are a different form of radioactive logging
that measure the density of the material and characterizations
of the fluids in the rock. He then asked to address a comment
that Senator Lincoln made earlier and said the [indisc.] caribou
herd had about 2,000 to 2,500 animals. That same herd ranges
during the calving and summer grazing seasons on the oil area of
the North Slope and is now in excess of 20,000 animals. He feels
that an oil field can be developed properly in the midst of a
vibrant caribou herd.
CHAIR OGAN said the ANWR ball is in Congress's court at this
point. He asked that the committee not belabor the point at this
time as he doesn't see how the AOGCC's operations will affect
the wildlife. He then thanked Ms. Palin and Mr. Ruedrich for
their willingness to serve. He believes the AOGCC is one of the
most important commissions in the state. It helps generate the
revenues needed to operate state functions in government. He
asked the appointees to be diligent and look out for the state's
best interests.
SENATOR WAGONER moved to advance Sarah Palin's nomination to the
full body for consideration. There being no objection, the
motion carried.
SENATOR DYSON moved to advance Randy Ruedrich's nomination to
the full body for consideration. There being no objection, the
motion carried.
There being no further business to come before the committee,
CHAIR OGAN adjourned the meeting at 4:40 p.m.
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