HB 349-HEARING ESTABLISH DRILLING UNITS/SPACING  8:35:21 AM CO-CHAIR HANNAN announced that the next order of business would be HOUSE BILL NO. 349, "An Act relating to the establishment of oil and gas drilling units and patterns." 8:35:48 AM REPRESENTATIVE GEORGE RAUSCHER, Alaska State Legislature, as prime sponsor of HB 349, paraphrased the sponsor statement, which read as follows [original punctuation provided]: HB 349 was written because the way we search for and produce oil in the 21st century, has changed since the 1950's. During that time, policymakers were worried that oil companies might drill too many vertical wells that were spaced too tightly together, resulting in oil left in the ground that could no longer be recovered. Try googling Spindletop images. Today, no one is spending millions of dollars to drill unnecessary wells in Alaska. In the decades since the early days of the industry, advancements in drilling technology allows wells to be directionally drilled underground, sometimes with multiple lateral wells from a single motherbore or parent well. Holes can be a few thousand feet deep, yet tens of thousands of feet long to recover greater amounts of oil and gas. Unfortunately, our outdated statutes have not kept up with the advancements in the oil and gas industry. The statutes being amended by this legislation were originally designed to provide oversight by involving another step, to provide assurance that perforations into the ground were not going to be too close, jeopardizing substructure integrity of the field or zone. This extra oversight is no longer necessary, slows down development and costs the state time and money. HB 349 eliminates needless regulatory red tape, as drilling and production processes have fundamentally changed since the statue was written. 8:38:40 AM The committee took an at-ease from 8:38 a.m. to 8:41 a.m. 8:41:17 AM RYAN MCKEE, Staff, Representative George Rauscher, Alaska State Legislature, read the sectional analysis to HB 349 [included in the committee packet] on behalf of Representative Rauscher, prime sponsor. 8:43:03 AM REPRESENTATIVE MCCARTY questioned the significance of a change from "that" to "which". MR. MCKEE suggested someone from the Alaska Oil and Gas Conservation Commission (AOGCC) should be able to explain. 8:43:31 AM REPRESENTATIVE DRUMMOND remarked that the sectional analysis should explain what would happen to law as a result of the change from "which" to "that", and she said she was not sure the sectional analysis would "stand up to scrutiny." 8:44:00 AM CO-CHAIR HANNAN noted that the change from "which" to "that" is found in Section 1, on [page 1], line 6, and asked a representative from AOGCC to offer explanation. 8:44:24 AM JEREMY PRICE, Chair/Commissioner, Alaska Oil and Gas Conservation Commission, Department of Commerce, Community & Economic Development, told Co-Chair Hannan that that particular change had been made by [Legislative Legal Services] rather than requested by AOGCC. In response to a follow-up request from Co- Chair Hannan, he offered his understanding that the goal of the legislation is to no longer require a holding of a hearing in instances of well spacing and regarding drilling. He said AOGCC is pleased to see the substantive change, in Section 1, from "may" to "shall" in direction of the commission establishing a drilling unit for each pool. He offered further clarification as to the process of discovery and drilling and spacing exceptions. 8:47:36 AM JESSIE CHMIELOWSKI, Engineering Commissioner, Alaska Oil and Gas Conservation Commission, Department of Commerce, Community & Economic Development, specified the changes requested by AOGCC are relatively small and occur on page 1, lines 7-8, the deletion of "shall" and insertion of "may"; and on page 1, lines 14-15, the deletion of "after notice and hearings". She said those changes give AOGCC more flexibility and help it change its goal. 8:48:33 AM CO-CHAIR HANNAN mentioned news coverage regarding a gas leak that happened the day before, and she interpreted the article to indicate that there had not been well spacing that was adequately evaluated. She said she thought this is the problem that well spacing language is meant to prevent. She asked whether a hearing [of the commission] could have prevented that occurrence and whether well spacing has "anything to do with that discharge of gas." 8:50:27 AM MS. CHMIELOWSKI indicated that the well in question would not have qualified for an exemption. She offered further details. In response to a follow-up question regarding the protection of economic development alongside assurance of no risk to the public, she first explained that what is being talked about is not the distance of the well from another well's surface, but rather where the well penetrates the reservoir. She noted that when a well is drained too quickly, it results in waste, and AOGCC encourages "ultimate maximum recovery from a reservoir." It monitors where wells are drilled. Wells are built based on geology and reservoir characteristics; default drilling sections based on governmental sections are out of date, she explained. She described a well that goes down vertically and then changes to horizontal, crossing multiple governmental sections. There can be multiple, long lateral [drills]. She said building more than one well in a governmental section does not promote waste; it allows for more recovery from the reservoir, which is a goal of AOGCC. She explained that [through HB 349], AOGCC is asking the legislature to relieve the commission from an administrative burden. She noted that the protection of owners to receive their share of the resource would remain unchanged under the proposed legislation. 8:56:40 AM MR. PRICE proffered that a governmental section is 160 acres of subsurface distance around a well. He said at this point in time, when a company finds oil and gas, it has to "settle in for a while" before it is able to drill additional wells, in order to "jump through these hoops that are largely unnecessary at this point in time." 8:58:25 AM MS. CHMIELOWSKI, in response to Representative Prax, confirmed that the spacing of the well in the aforementioned event of yesterday was not the issue. What happened was a surprise that could not have been predicted. 8:59:00 AM REPRESENTATIVE RAUSCHER, in response to a query from Representative Prax, said he would bring photos showing how wells were drilled [on the North Slope], where he worked in the '70s and '80s, with comparison to how wells are drilled now. He clarified that the proposed legislation would clean up language to avoid requiring an unnecessary process. 9:01:46 AM CO-CHAIR HANNAN noted this is not a North Slope issue but a Cook Inlet one, and she said she would like the committee to understand the problem being faced in that location. She mentioned "spindle tops" in Allegheny, New York, which have been in existence since the 1860s. 9:03:10 AM REPRESENTATIVE DRUMMOND reflected on the number of drilling sites she has seen in the Kern River oil field, in Bakersfield, California. 9:04:01 AM CO-CHAIR HANNAN announced that HB 349 was held over.