Legislature(2013 - 2014)BUTROVICH 205
04/08/2014 03:30 PM Senate SPECIAL COMM ON TAPS THROUGHPUT
| Audio | Topic |
|---|---|
| Start | |
| Presentation: the Alaska Oil & Gas Conservation Commission Mission Overviews & Outstanding Issues. | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
SENATE SPECIAL COMMITTEE ON TAPS THROUGHPUT
April 8, 2014
3:35 p.m.
MEMBERS PRESENT
Senator Peter Micciche, Co-Chair
Senator Anna Fairclough
Senator Lesil McGuire
Senator Berta Gardner
MEMBERS ABSENT
Senator Mike Dunleavy, Co-Chair
OTHER LEGISLATORS PRESENT
SENATOR CATHY GIESSEL
COMMITTEE CALENDAR
PRESENTATION: THE ALASKA OIL & GAS CONSERVATION COMMISSION
MISSION OVERVIEW & OUTSTANDING ISSUES.
- HEARD
PREVIOUS COMMITTEE ACTION
No previous action to record
WITNESS REGISTER
CATHY FOERSTER, Chair & Engineering Commissioner
Alaska Oil & Gas Conservation Commission (AOGCC)
Anchorage, Alaska
POSITION STATEMENT: Presented information on AOGCC's mission and
outstanding issues.
ACTION NARRATIVE
3:35:49 PM
CO-CHAIR PETER MICCICHE called the Senate Special Committee on
TAPS Throughput meeting to order at 3:35 p.m. Present at the
call to order were Senators Gardner, Fairclough, McGuire, and
Chair Micciche. He also noted the presence of Senator Giessel.
^PRESENTATION: The Alaska Oil & Gas Conservation Commission
Mission Overviews & Outstanding Issues.
PRESENTATION: The Alaska Oil & Gas Conservation Commission
Mission Overview & Outstanding Issues.
3:36:52 PM
CO-CHAIR MICCICHE announced a presentation by the Alaska Oil &
Gas Conservation Commission (AOGCC). He related that the state
is seeing increased activity in oil and gas business. Cook Inlet
has new jack-up rigs and a new platform that is about to be
installed. Cook Inlet Energy is operating two-to-three
conventional rigs. Repsol and ConocoPhillips are conducting
winter exploration activities.
CO-CHAIR MICCICHE noted a 20 percent increase in AOGCC-related
activities. He voiced concerns about not having enough
inspectors. He requested AOGCC educate Alaskans on what they do
and suggested the possibility of providing future assistance to
them.
3:38:24 PM
CATHY FOERSTER, Chair & Engineering Commissioner, Alaska Oil &
Gas Conservation Commission (AOGCC), Anchorage, Alaska,
presented information on AOGCC's mission and outstanding issues.
She explained that AOGCC is an independent and quasi-judicial
body located in downtown Anchorage. Although located within the
executive branch, by statute AOGCC is independent and does not
report to any department but is held to the same administrative
requirements. This is so that when DNR comes before AOGCC, it is
not held any higher than any other applicant. AOGCC must remain
fair and unbiased in nature.
MS. FOERSTER related that statute requires three commissioners;
one must be a petroleum geologist, one must be a petroleum
engineer, and one must be a public member with relevant training
and experience. The public position is currently vacant. She
listed the remaining staff: two geologists, six engineers, seven
field inspectors, and several IT data management and
administrative support positions. There is currently one
engineer vacancy and an effort to add one additional field
inspector.
She noted that staffing is one of the biggest issues AOGCC has.
She said the industry is very active and the technical staff are
drawn from the same talent pool as the industry. The industry's
compensation is more competitive so it is hard for AOGCC to
compete for staff. She related that the last two engineers AOGCC
lost left for a 10 percent signing bonus, a 20 percent raise,
and an all-expense trip back to Texas.
3:42:40 PM
SENATOR GARDNER asked how long the positions have been vacant
and if AOGCC can exempt positions from normal compensation
schedules.
MS. FOERSTER replied that the field inspector positions have
been filled and another field inspector position has been
recently added. With the increased activity, more inspectors are
needed. The engineer position has been vacant for close to two
years. For a while there was a geologist vacancy. The
commissioner vacancy occurred at the end of January. She said
AOGCC has sought and achieved an exemption for technical staff.
She said AOGCC and DNR's technical staff, geologists, and
engineers receive an exempted salary status. This year AOGCC
budgeted for a raise for commissioners, also, and will make
those positions competitive with the director of the Division of
Oil and Gas at DNR.
3:46:48 PM
CO-CHAIR MICCICHE said AOGCC used to compete with Lower 48
positions of similarly qualified and adequately experienced
field engineers, but they don't come close to competing within
Alaska.
MS. FOERSTER agreed. She said field inspectors have difficult
work and must travel to remote sites. On the North Slope they
are on call 24/7. She gave examples of the types of calls they
receive. She said inspectors try to respond to those calls as
quickly as possible due to potential cost to the industry, but
with a shortage of inspectors, a balance between having adequate
coverage of inspections and not slowing projects down is needed.
Inspectors in Cook Inlet, off slope, are on call even when
they're on vacation.
CO-CHAIR MICCICHE requested more about AOGCC's mission.
3:49:28 PM
MS. FOERSTER recounted AOGCC's mission: prevent hydrocarbon
waste, protect correlative rights, promote greater ultimate
recovery, protect underground fresh water, and protect human
safety. She related that AOGCC exercises the police powers of
the State of Alaska and has jurisdiction throughout the state,
including offshore state waters for conventional oil and gas,
coalbed methane, shale gas, shale, oil, and geothermal resource
exploration and development. In addition, if a well is being
drilled for other purposes, but there is reason to suspect that
it will encounter unanticipated hydrocarbons or other hazardous
substances, AOGCC has the authority to assert jurisdiction. She
said in 2013 when CIRI was drilling underground coal
gasification wells, AOGCC asserted jurisdiction preventing a
blow-out.
She explained that their authority covers resource management
and conservation, drilling and well work operations, well
integrity and well safety systems, custody transfer metering,
and, eventually, well abandonment.
3:51:17 PM
MS. FOERSTER described the typical AOGCC approvals: drilling,
sundry wellwork, underground injection, conservation orders, and
others. She said all wells drilled in Alaska must receive a
drilling permit. All remedial or recompletion wellwork on an
existing well requires a permit. The AOGCC has primacy for
administering the EPA's Class II underground injection control
program in Alaska, and has its own independent review, approval,
and monitoring of injection into Class I wells. She said there
are statewide rules covering all requirements, but whenever an
operator wants pool-specific rules, they submit a request to
AOGCC and those rules are addressed in conservation orders. She
gave an example from the Cook Inlet fields.
She related that AOGCC addresses a variety of other approvals,
such as granting exceptions and variances from existing rules.
She shared that in the new millennium, AOGCC has approved almost
3,000 drilling permits, and almost 6,000 sundry well work
permits, over 1,200 injection orders, conservation orders, and
other decisions and orders.
3:53:03 PM
MS. FOERSTER listed the major issues before the AOGCC: increased
Cook Inlet activity, increased North Slope activity, hydraulic
fracturing regulation, suspended, orphaned, and BLN legacy well
clean-up, and North Slope gas sales. She addressed increased
Cook Inlet activity, stating that offshore drilling in the post-
Macondo world is one of the hottest topics before AOGCC. New
operators are coming to the field. Furie and Buccaneer have
brought jack-up rigs to the Inlet and have been exploring for
the past few seasons. Both of these companies have come to
Alaska with a lower standard of regulatory compliance than
Alaska is used to and have required more than normal regulatory
oversight. Both companies are making meaningful discoveries.
Also, Hilcorp has purchased Unocal and Marathon's interests and
is very aggressively investing in restoring production in these
fields. She referred to a graph that depicts the uptick in
production in Trading Bay Field due to Hilcorp's aggressive
wellwork and drilling program.
3:54:48 PM
SENATOR GARDNER recalled that several years ago AOGCC was
concerned with lack of office space. She asked if that was
resolved.
MS. FOERSTER said they requested and received additional budget
to expand the office space.
SENATOR GARDNER asked if new developers have a lower standard of
regulatory compliance and are less compliant, or if they've
historically practiced in a place with differing regulations.
MS. FOERSTER explained that she could not speak to their prior
operations, but most states are fairly similar. She said AOGCC's
experience with new developers is that they are cutting corners,
making mistakes, and not knowing Alaska's regulations, all of
which require greater vigilance and more frequent inspections.
She used Hilcorp as an example of a company that is striving to
be the best operator, but has a way to go.
MS. FOERSTER showed increased production in Trading Bay and
Swanson River Field, noting it is worth AOGCC's time to work
with Hilcorp and bring them up to regulatory compliance. She
added that Cook Inlet Energy also shows increased production in
Redoubt Shoal Field.
3:57:27 PM
MS. FOERSTER continued to explain that increased activity has
kept AOGCC very busy. She said they are reviewing an unusually
high number of custody transfer metering applications for
companies wanting to bring new production on. Field inspectors
are conducting more inspections and safety system tests. New
operators are having difficulties complying with regulations so
inspections and incident investigations are also up. AOGCC is
currently involved in adjudication of some very heated disputes
among operators and land owners. The modest inspection staff is
being stretched to the max and more are needed. In the big
picture the increased activity is very positive.
CO-CHAIR MICCICHE commented that the impact of not having enough
inspectors is a key issue that the legislature will be working
on.
SENATOR MCGUIRE asked if it is in the budget to include more
inspectors.
CO-CHAIR MICCICHE noted that the positions are funded by the
industry. He shared consequences of decreased regulatory
oversight, delays to the industry, mandatory tests, overtime
costs, and risk of an accident or injury from exhaustion.
MS. FOERSTER said AOGCC has put in a request for an additional
field inspector.
MS. FOERSTER described the increase in North Slope activity:
winter exploration drilling, increased work in oil fields,
viscous oil, CD-5, and Pt. Thomson. It is the winter exploration
season and Conoco is drilling one exploratory well and Repsol is
drilling five wells, which is putting a regulatory strain on
field inspectors, engineers, and geologists.
She said activity in the legacy fields is also up. For example,
over the past year, Prudhoe Bay has experience a 35 percent
increase in well work activity and Kuparuk has experienced an 18
percent increase. The annual decline rate for Prudhoe Bay and
Kuparuk appears to be slowing with Prudhoe at 2 percent and
Kuparuk at 4 percent, compared to their usual decline of 6
percent. Both Conoco and BP continue to work at unlocking the
enormous potential of viscous oil on the slope, and Conoco is
working toward development of CD-5, an expansion of its Colville
development. She said AOGCC expects renewed well work activity,
possibly next year, from Exxon as it moves toward start-up of
its Pt. Thomson gas cycling pilot. Finally, AOGCC is hopeful
that, as Great Bear completes its evaluation of the exploratory
data it gathered, they will be back with positive results and a
plan to bring Alaska into the shale business.
4:02:05 PM
MS. FOERSTER addressed hydraulic fracturing, which has become a
nationwide topic of interest. It is not new to Alaska where it
has been done for over 40 years. Right now, about 24 percent of
Alaska's wells have been hydraulically fractured and the number
is increasing. She said AOGCC has been regulating hydraulic
fracturing since the beginning and has just completed a multi-
year effort to modify its regulations, first to keep up with
technology advances, second to address fracturing fluids
disclosure and water quality monitoring, and third, to gather
all regulatory requirements into one section in order to make it
easier for the public to understand hydraulic fracturing. She
asked legislators to refer their constituents to AOGCC for
information.
4:03:31 PM
SENATOR GARDNER asked whether an impediment to expansion of
hydraulic fracturing is access to water. She asked if it will be
a problem for Great Bear's expansion.
MS. FOERSTER said it is not an issue in Alaska.
CO-CHAIR MICCICHE inquired how to provide a best practices
program due to the change from traditional producers to new
players.
MS. FOERSTER explained that AOGCC reaches out to new players in
order to explain regulations to engineering and operating
management and refers them to mentors, informally.
CO-CHAIR MICCICHE suggested the legislature might want to
provide formal training for new operators.
MS. FOERSTER related that when DNR gives someone a lease there
is no vetting to demonstrate solutions and money if problems
arise or if the company has the ability to avoid potential
problems. She suggested asking DNR to vet operators new to the
state.
4:06:34 PM
CO-CHAIR MICCICHE said he has been in the field with large and
small companies. He opined that large companies bring expertise
that should be shared with newer players.
MS. FOERSTER agreed. She addressed suspended, orphaned, and BLM
well clean-up. She said states like Texas and Oklahoma have
thousands of orphaned wells; Alaska has only a handful. AOGCC
has a constant effort to hold operators accountable for properly
plugging and abandoning wells that have no further utility. The
only operator AOGCC has a problem with is the federal
government's BLM travesty wells. She said the bad news is that
those wells are still a problem. The good news is that, thanks
to the legislature and Senator Murkowski, Congress has provided
$50 million to BLM for their clean-up. BLM is working closely
and cooperatively with AOGCC and ADEC to ensure that the clean-
up meets state standards, which are significantly higher than
their own.
4:08:37 PM
SENATOR FAIRCLOUGH said Ms. Foerster has reported that BLM has
done the right thing, but the Senate Resource Committee has been
not happy with BLM's past practice. She thanked those at BLM who
are responding to Alaska's concerns and looked forward to a
future with better relationships.
MS. FOERSTER turned to AOGCC's role in North Slope gas sales in
order to prevent hydrocarbon waste and ensure greater ultimate
recovery of total hydrocarbons. She said those two charges have
enormous implications for North Slope gas sales. In the world of
petroleum engineering, it is a simple truism that taking gas
from an oil field puts ultimate oil recovery at risk. Prudhoe
Bay is an oil field with about 2 billion barrels left to produce
and Pt. Thomson is also an oil field, so AOGCC is responsible
for determining when and how much gas can be taken from those
oil fields so that waste does not occur and greater ultimate
recovery is achieved.
MS. FOERSTER referred to the white papers AOGCC developed to
describe its role in gas offtake determination and the concerns
it has with Prudhoe Bay and Pt. Thomson. She said it is possible
that the best use of the Pt. Thomason gas will be to inject it
into the Prudhoe Bay gas cap to get an added half billion
barrels out of the Prudhoe Bay reservoir. As Conoco and BP work
to find ways to unlock the huge potential of viscous oil
resource, it is highly likely that gas will be part of the
solution. The USGS estimates roughly 150TCF of undiscovered gas
on the North Slope. If there is the reality of a market for that
gas, then the exploration work needed to realize those
discoveries will likely result.
She said the question was asked whether the gas that is burned
off is wasted. She reminded the committee that the gas BTU
content, out until 2028, is producing a more valuable field-
burning product than the product being used to get it out of the
ground. It won't be until 2028, on a BTU basis, "that we're
using as much gas as we're getting oil." She concluded that the
dollar value to those two products is off the graph.
4:13:13 PM
CHAIR MICCICHE asked for a copy of the graph. He asked if it was
based on current decline rates.
MS. FOERSTER said it uses the 6 percent decline rate. She handed
out the BTU graph. She stressed that the operators are doing the
best thing for the state by using gas to produce more oil.
CO-CHAIR MICCICHE noted there are other options of lifting the
hydrocarbons.
MS. FOERSTER agreed. She concluded that, "The monkey's on the
operator's backs to demonstrate to us, and to you, that selling
the gas from Prudhoe Bay and Pt. Thomson is the best answer for
preventing waste and ensuring greater ultimate hydrocarbon
recovery." She said AOGCC is looking to BP and Exxon to do that.
She continued to say, "I guarantee they are not going to spend
big bucks to build a line, if they don't think they are going to
be able to prove to us that it's the right thing to do. If it's
the right thing to do for them, it's the right thing to do for
us."
CO-CHAIR MICCICHE said it is an interesting comment and not a
lot of people realize that.
4:15:29 PM
SENATOR MCGUIRE thanked Ms. Foerster for her work. She asked if
there is anything the committee needs to know about oil and gas
development. She reflected on the debate over AGIA where AOGCC
was not contacted or asked to participate. She asked Ms.
Foerster to comment on that. She also asked Ms. Foerster to
comment on the proposed gas line bill or any other bills.
4:17:12 PM
MS. FOERSTER said she respects the legislative process and
recognizes that they reach out when necessary. She opined that
with the gas line, in general, "the later it is and the lower
the rate, the less the losses will be." The less oil that is
left in the ground, the lower the losses will be. The more
things that the operator plans and puts in place to mitigate
those losses, such as their current process of gas cap water
injection, looking to see if CO2 can be used as EOR, and other
tried and proven tactics, the better off Alaska will be. She
reiterated the statement that the large companies are not going
to go forward if it is not financially beneficial to them. If
they make more money, the state will make more money. She
concluded that AOGCC's job will be to ensure that companies have
"dotted the i's and crossed the t's."
4:18:50 PM
SENATOR GARDNER referred to an article in Petroleum News and
asked if gas will be needed to develop heavy oil and viscous oil
more than is used currently.
MS.FOERSTER said there will likely be a greater need for
gas/fuel for reduction of viscosity. AOGCC has communicated to
BP and Conoco that they are looking to them to see where gas
fits into their viscous oil development. Gas is likely to be
instrumental to viscous oil recovery.
SENATOR GARDNER summarized that viscous oil would be
instrumental in increasing production, as opposed to reducing
the decline. She asked if that adversely impacts options for gas
export.
MS. FOERSTER maintained that viscous oil will never stop the
decline.
SENATOR FAIRCLOUGH wished people to know that there is a 2
percent decline, rather than a 6 percent decline in Prudhoe Bay.
MS. FOERSTER pointed out that the legislature has done a lot to
incentivize the increase in production.
CO-CHAIR MICCICHE thanked AOGCC for the presentation.
4:22:04 PM
There being nothing further to come before the committee the
Senate Special Committee on TAPS Throughput was adjourned at
4:22 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| AOGCC Presentation.PDF |
STTP 4/8/2014 3:30:00 PM |
|
| Point Thomson White Paper.pdf |
STTP 4/8/2014 3:30:00 PM |
|
| Prudhoe Bay Gas Offtake White Paper.pdf |
STTP 4/8/2014 3:30:00 PM |
|
| North Slope Gas Sales White Paper.pdf |
STTP 4/8/2014 3:30:00 PM |