HB 349-HEARING ESTABLISH DRILLING UNITS/SPACING  8:07:23 AM CO-CHAIR HANNAN announced that the first order of business would be HOUSE BILL NO. 349, "An Act relating to the establishment of oil and gas drilling units and patterns." 8:07:43 AM RYAN MCKEE, Staff, Representative George Rauscher, Alaska State Legislature, on behalf of Representative Rauscher, prime sponsor, noted those who would be giving invited testimony on HB 349. 8:08:54 AM JEREMY PRICE, Public Commissioner, Alaska Oil and Gas Conservation Commission, Department of Commerce, Community & Economic Development, described the intent and purpose of HB 349. He said HB 349 would reduce administrative barriers by removing the requirement under AS 31.05.100(a) and (b) that the Alaska Oil and Gas Conservation Commission (AOGCC) must hold hearings for any changes to oil and gas pool unit designations, rules, or spacing patterns, even where all relevant properties within a given pool belong to a single owner. He advised that the requirement causes unnecessary delay to pool owners and generates unnecessary cost to the state. He explained that this change is necessary because the concept of only one vertical well in a box on the map has been made obsolete by horizontal drilling. MR. PRICE said Section 2 would amend AS 31.05.100(e) to make it discretionary rather than mandatory for AOGCC to issue notice and hold a hearing in each instance where an exception is granted to the rule or spacing pattern proscribed to a particular pool. With the proposed change, he explained, AOGCC could allow the operator to drill additional wells within the same pool without going through 30 days of notice and comments followed by the issuance of a conservation order. He reported that from 2016-2020, AOGCC publicly noticed 47 hearings on noncontroversial well spacing exceptions; these hearings were not requested by the public, and no testimony was submitted. Mr. Price pointed to a resolution [20 AAC 25.055, regarding drilling units and well spacing, shown on slide 1 of a PowerPoint in the committee packet], and he highlighted that there would be protection from draining resources from adjacent owners. 8:12:57 AM JESSIE CHMIELOWSKI, Engineering Commissioner, Alaska Oil and Gas Conservation Commission, Department of Commerce, Community & Economic Development, stated that HB 349 would change a statute that has not been changed since its adoption in 1955, and it would not affect AOGCC's ability to fulfill its mission. She said the legislation addresses how far one well must be from another in the subsurface, in the targeted, productive reservoirs. She explained the history of vertical wells and how pressure would drop when people drilled too close to other wells. She mentioned a Conservation Act of the 1930s and prevention of waste through default drilling units. With today's geology, it is common for wells to drill closer for greater recovery. When Prudhoe Bay started 44 years ago, the estimated recoverable reserve was about 9 billion barrels of oil; today, with advancements in drilling and reservoir management, recoverable reserves are an estimated 14 billion barrels. MS. CHMIELOWSKI referred to the PowerPoint utilized by Mr. Price. She explained that the reference to "sections" have to do with governmental grids. She showed how drilling is down from land and going offshore. She showed "a colorful drawing" [slide 2 of the PowerPoint] depicting the side view of one of the wells in the Cosmopolitan Unit, and she pointed to "the mother board." She talked about lateral drilling and echoed the remarks of Mr. Price about the administrative burden of so many notifications. 8:19:03 AM MS. CHMIELOWSKI, in response to a question from Co-Chair Hannan, clarified that in a case where there are seven spacing exceptions on one well, each would require a [notice of] hearing, because each is considered a separate well bore. In response to follow-up questions, she said the hearings could be scheduled on one day. The area that would benefit from HB 349 would be Cook Inlet because the fields on the North Slope are much larger. She offered her understanding that AOGCC has never turned down a request for an exception. She added that careful review is always done, and she noted that the cost to well owners is significant, thus, they are careful about [the drilling exception they seek]. 8:24:03 AM MS. CHMIELOWSKI returned to her presentation, directing the committee's attention to slide 4, which showed a bird's eye view of the Rendezvous oil pool development plan, and she noted the grid pattern and indicator of oil pool in the subsurface. Also shown are planned wells to be drilled; every well has multiple sections. She talked about using reservoir characteristics to plan a well. She referred to a drill pad. She drew attention to slide 5, which shows a zoomed in view [of the Rendezvous oil pool development plan] and the alternating of "injectors" and "producers," which is a method of recovering more oil. She said this is another example of the administrative burden. She said with passage of HB 349, AOGCC would continue its mission to prevent waste of hydrocarbon resources. She then offered feedback from a presentation given at a prior meeting. 8:30:57 AM MS. CHMIELOWSKI, in response to Co-Chair Schrage, confirmed that HB 349 would pertain to all other areas beside Cook Inlet; Cook Inlet happens to be the primary location where [the requirement for hearings] is causing an issue. She mentioned that AOGCC sometimes issues guidelines for how best to use a reservoir. In response to another question from Co-Chair Schrage, she confirmed that there is a separate section pertaining to public notice that is being addressed. In response to a third question, she said it is unlikely that someone would use an old method of drilling many vertical wells, and she pointed out that AOGCC has the option to notice a hearing at any time. She assured Co-Chair Schrage that even with Sections 3 and 4 struck from HB 349, AOGCC would still have the right to notice a hearing at its discretion. She echoed Mr. Price's comment that the bill changes the notice from being mandatory to being discretionary. 8:36:29 AM MR. PRICE added that AS 31.05.060 states that any member of the public can request a hearing. He noted the technical aspect of having a hearing on spacing issues. He stated that the Department of Natural Resources (DNR) has "a very robust process and multiple opportunities for public comment long before the issue comes before the AOGCC." 8:38:02 AM CO-CHAIR HANNAN, to clarify discussion on statute and regulation, asked for confirmation that the handout given by Mr. Price [shown on slide 1] relates to regulation. MR. PRICE answered that's correct. In response to a follow-up question, he indicated that [the language of the resolution] offers what the language might look like [in statute, under HB 349]. CO-CHAIR HANNAN pointed out that "this is not an absolute." She requested a citation from Mr. Price, and she explained that she wants to ensure the committee understands the regulation in relation to the statute that would be changed under HB 349. 8:40:50 AM CO-CHAIR HANNAN asked Graham Smith, from DNR, to describe the public notice requirements as they stand currently and under HB 349, and to address any concerns DNR has regarding well spacing. 8:41:38 AM GRAHAM SMITH, Petroleum Land Manager, Division of Oil and Gas, Department of Natural Resources, replied that the constitutional obligation under Article 8, Section 10, states that no disposal to state interest shall be made without public notice. He said DNR has a robust public notice process before beginning the leasing process. He said the public notice requirements in AS 38.05 are "fairly prescriptive" on the issue of public notice. Further, each phase of development has a public notice, and he described actions within those phases that would also get publicly noticed. He mentioned Sullivan v. Red, a 2013 court decision that determined that each phase must have its own assessment. He offered further details regarding public notice, explaining that DNR, in addition to statutorily mandated public notice, also gives discretionary public notice when warranted. 8:46:05 AM MR. SMITH, in response to a question from Representative McCarty about possible overlap in public notice topics between AOGCC and DNR, explained that AOGCC is primarily interested in subsurface issues, while DNR focuses on surface issues. To a follow-up question, he indicated that the proposed legislation would not adversely affect DNR's process. He opined that the bill makes sense, because "a lot of things can be more onerous in nature than [is] proportional to the value that they provide to the public." 8:48:16 AM CO-CHAIR HANNAN inquired whether DNR held an official position on HB 349. MR. SMITH answered that he was not aware of a formulated position; however, he offered to check and get back to the committee with an answer. CO-CHAIR HANNAN indicated she would be asking the same question of AOGCC. She then noted that Emily Nauman, from Legislative Legal Services, was available for questions. 8:49:22 AM EMILY NAUMAN, Deputy Director, Legislative Legal Services, Legislative Affairs Agency, in response to a question from Representative McCarty, explained that the changes proposed under HB 349 from "that" to "which" are to modernize the language according to the drafting manual. 8:51:07 AM CO-CHAIR HANNAN opened public testimony on HB 349. After ascertaining there was no one who wished to testify, she closed public testimony. 8:51:44 AM CO-CHAIR HANNAN announced HB 349 was held over.