SENATE BILL NO. 59 "An Act relating to approval for oil and gas or gas only exploration and development in a geographical area; and providing for an effective date." 9:11:14 AM DANIEL SULLIVAN, COMMISSIONER, DEPARTMENT OF NATURAL RESOURCES, provided an overview of the legislation. He believed that the issue of permitting reform and the effort to modernize the permitting process was critical for the future of the state, as well as the issue of Trans-Alaska Pipeline System (TAPS) throughput. He related that Department of Natural Resources (DNR) had been focused on a four part plan to help turn around TAPS throughput: making the state more competitive; incentivizing and facilitating the next phases of North Slope development; promoting Alaska's resources; and making the permitting system more efficient, timely, and certain. He shared that discussions with the oil industry had highlighted the need for permitting reform within the state. He stated that the bill aimed to provide a statutory change to the Division of Oil and Gas so that it could provide public notice of oil and gas exploration and development phases across geographic areas without regard to lease boundaries. He believed that this would allow a comprehensive review of oil and gas activities before exploration or development began, while protecting the public interest with public notice and an opportunity to comment during review phases. Additionally, the project approval process would be streamlined by the elimination of redundant elements. He offered that DNR could achieve permitting reform while still maintaining the highest standards in environmental protection. He addressed several issues that were raise in prior committee hearings. He thought that the changes proposed by the legislation would provide the opportunity for public input at the beginning of each phase of exploration and development, which was the time when such input would be most meaningful. He said that DNR had been working closely with the North Slope Borough on integrating the permitting processes and information exchange. He added that the permitting process would present an initial plan and that the public would have significant input at that stage; laying out parameters of exploration and mitigation measures. 9:15:52 AM Commissioner Sullivan relayed that is was legally possible that the department already had statutory authority to approve the exploration and development; however, the department decided to come directly to the legislature to seek direct authority to stave off questions of legality in the future. He pointed to a recent ruling by the Alaska Supreme Court in the case of Red Oil v. Sullivan and stated that he would be glad to answer questions regarding how DNR viewed the ruling, as well as its effect on the bill; he offered that the preliminary analysis indicated that the ruling would not affect the legislation. 9:18:57 AM Co-Chair Meyer stated that he was unfamiliar with the court ruling and requested further explanation. Commissioner Sullivan responded that there had been a Superior Court ruling dictating that DNR was required to do a best interest finding at each stage of a project's development. He stated that the ruling would add years to the permitting process of undertaking resource development in the state. He concluded that the group of people that bought the case forward was against any development in the state. He related that the Supreme Court reversed the Superior Court's decision with the caveat the DNR examine cumulative impacts with regard to the development of oil and gas areas. He shared that the plaintiffs had wanted DNR to do a full National Environmental Policy Act (NEPA) review of cumulative environmental impact; DNR argued that such a formal review was not necessary. The Supreme Court agreed that a less formal, "hard look" should be taken. The Supreme Court had left the details of how the review should be conducted in the power of the legislature. He thought the bill was consistent with the court ruling; however, DNR was still attempting to clarify the ruling. 9:24:27 AM Co-Chair Meyer noted that he had a copy of the ruling. 9:24:36 AM Co-Chair Kelly asked which section of the Alaska State Constitution dictated that DNR had to perform the cumulative impact study. Commissioner Sullivan responded that language that spoke to the cumulative impact requirement held in Article 8. 9:27:03 AM Senator Hoffman pointed to page 1, lines 7, 8, and 9. He queried the language on line 7, "without regard to lease boundaries." He wondered what would be accomplished by the 10 year retroactivity of the leasing program. He noted that the people of Bristol Bay had similar concerns as the people on the North Slope because of the value of the Red Salmon fishery. He asked if DNR had talked with the people of Bristol Bay about the legislation. Commissioner Sullivan replied no. He said that the bill would largely impact the North Slope. He said that DNR had focused on the North Slope for community outreach and had not briefed the people of Bristol Bay. He stressed that the bill would only affect areas where there were current oil and gas lease sales in the state. He noted that another area that could be impacted was Cook Inlet. 9:30:18 AM WILLIAM BARRON, DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES, offered that the presentation would provide answers the Senator's questions. 9:30:57 AM Mr. Barron related that the division was attempting to approach all projects in a more holistic manner through program management rather than isolated project management. 9:32:59 AM WENDY WOOLF, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES (via teleconference), stated that SB 59 would allow the Division of Oil and Gas to look at exploration holistically in a geographic area. She directed committee attention to the presentation, " SB 59: Oil & Gas Exploration and Development Approval By Geographical Area"(copy on file). 9:33:31 AM Ms. Woolf discussed Slide 2, which illustrated the five areas that the department offered area-wide oil and gas lease sales: Beaufort Sea, North Slope, North Slope Foothills, Cook Inlet, and Alaska Peninsula. She stated that there was not an area in the Bristol Bay Region currently under discussion and that the closest would be the Alaska Peninsula. 9:34:20 AM Ms. Woolf stated that SB 59 would make a statutory requirement to provide public notice at the beginning of a multi-stage project and clarified that DNR would review each phase across a geographic area, rather than conducting finite reviews for each individual project. She said that this would bring certainty to the public and to industry as to the type of activities that could occur in the geographic area. 9:35:17 AM Ms. Woolf spoke to Slide 4: What does SB 59 do?  •It clarifies the Department of Natural Resources can authorize oil and gas exploration and development activities within a geographical area. •It preserves public notice and review at the beginning of an exploration or development phase. •It ensures certainty when an approval has been granted for exploration or development activities.   What does SB 59 do? How does this benefit the public?  •It allows the public to comprehensively evaluate oil and gas activities within a geographical area. •It provides an opportunity for input at the beginning of an exploration or development phase. •It safeguards environmental concerns through special stipulations and conditions. How does this benefit industry?  •It allows a project to be planned within approved parameters and conditions. •It provides certainty that plans of operations meeting those defined criteria can proceed. •It ensures predictable project approvals for subsequent exploration or development activity. 9:36:35 AM Ms. Woolf Spoke to slide 5 titled "Oil and Gas Lease Sale Process": •Proposed Areawide Oil and Gas Lease Sale  Public Notice and Opportunity to Comment Evaluate Statutory Criteria Develop Mitigation Measures •Final Finding of the Director to Lease Oil and Gas  •Exploration Phase  Public Notice and Opportunity to Comment •Development Phase  Public Notice and Opportunity to Comment •Transportation (Pipelines)  Public Notice and Opportunity to Comment 9:38:11 AM Ms. Woolf spoke to slide 6 titled "Life of an Oil and Gas Lease": Year 0 •Final Finding of the Director - Areawide Oil and Gas Lease Sale •Lease Issued (10-Year Term) Year 3 •Initial Exploration - Seismic Program (multiple leases) •Public Notice and Comment Period (30 day public  notice)  Year 5 •Lease Plan of Operations - Exploration Well •Public Notice and Comment Period (30 day public  notice)  Year 6 •Lease Plan of Operations - Exploration Well •Public Notice and Comment Period (30 day public  notice)  Year 7 •Lease Plan of Development - Conceptual Development Plan Year 8 •Lease Plan of Operations - Initial Development Plans •Public Notice and Comment Period (30 day public  notice)  •Lease Plan of Operations - Modified Development Plans •Public Notice and Comment Period (30 day public  notice)  •Pipeline Application (AS 38.05.850 or AS 38.35) •Public Notice and Comment Period (30 day public  notice)  Year 10 •Production •Lease Plan of Operations - Additional Development Plans •Public Notice and Comment Period (30 day public  notice)  9:41:57 AM Ms. Woolf continued to Slide 7, "Example Geographical Areas for Exploration Activities." She related that the types of activities under discussion were ice roads, ice pads, portable developing equipment, off-road vehicle use, and temporary housing. She said that the geographical area would be defined as including all or a portion of the statewide lease depending on the type of activity being considered. She shared that the development of the western North Slope would be looked at differently than the development of the area encompassing Prudhoe. She stated that exploration activities could also be examined in the undeveloped shale areas so that the public could provide input before development began. Ms. Woolf discussed Slide 8, "Example Geographical Areas for Development Activities." She stated that development involved more specific activities which would focus on a small group of leases. She relayed that the decision would address the development across an entire areas so that the public could address the entire area that could be affected. She added that small additions to already existing larger developments would be subject to public comment. She stressed that all of the areas were hypothetical. 9:46:10 AM Ms. Woolf addressed Slide 9, "Life of an Oil and Gas Lease under SB 59": Year 0 •Final Finding of the Director - Areawide Oil and Gas Lease Sale •Lease Issued (10-Year Term) Lessee develops exploration plans Year 3 •Initial Exploration - Seismic Program (multiple leases) •Public Notice and Comment Period (30 day public notice) Year 5 •Lease Plan of Operations - Exploration Well •Public Notice and Comment Period (30 day public notice) Year 6 •Lease Plan of Operations - Exploration Well Exploration Phase Public Notice & Comment Period (30 day public notice) Saves 60 to 90 days for each project in the geographical area Discovery - Lessee formulates development plan Year 7 •Lease Plan of Development - Conceptual Development Plan Year 8 •Lease Plan of Operations - Initial Development Plans •Public Notice and Comment Period (30 day public notice) •Lease Plan of Operations - Modified Development Plans •Public Notice and Comment Period (30 day public notice) •Pipeline Application (AS 38.05.850 or AS 38.35) •Public Notice and Comment Period (30-60 day public notice) Year 10 •Production •Lease Plan of Operations - Additional Development Plans Development Phase Public Notice & Comment Period (30 day public notice) Saves 60 to 90 days for each project in the geographical area 9:50:55 AM Ms. Woolf spoke to Slide 10, "Results": Exploration Phase Public Notice & Comment Period •SB 59 provides for a comprehensive review before exploration or development. •SB 59 preserves public participation in the process. •SB 59 allows stipulations to be approved before a company develops site specific plans for exploration or development activities. Development Phase Public Notice & Comment Period Ms. Woolf reiterated that the bill would give all parties; public, state, federal, local agencies and industry and opportunity to review and evaluate oil and gas activities holistically and across a defined area, which would bring certainty as to how state lands were developed for oil and gas. She explained that the division would define a geographical area for exploration and then prepare public notice. She relayed that the public notice would include the type of exploration activities and any special stipulations, and following public comment, the plan would be approved. Once the exploration phase was approved the division could proceed to approve the substantive plans of operation for exploration activities that were in compliance with the specified conditions in the exploration phase approval, without additional public notice. She shared that all the individual plans of operation could proceed without public notice, but they would have agency review and department approval. She explained that the development phase would follow similar suit. 9:53:15 AM Co-Chair Kelly noted that the lease plan slides showed approximately 10 years from exploration to development. He wondered if the legislation would speed up the process. Mr. Barron responded that it could take from 1 year on up. He stated that the drilling seasons on the North Slope could be accelerated. He explained that the bill would work across 3x3 leases and that the leases were limited in the primary term for up to 10 years. He hoped that activities could be done concurrently between two different companies in the same geographic area. He thought that the legislation would save time for every company working within the specific geographic area. 9:55:03 AM Commissioner Sullivan interjected that when there was public notice and comment the companies would need to have time to respond, which could take some time. He stressed that DNR was attempting to make the development more strategic by minimizing the public comment opportunities after the initial permitting requirements were met. 9:56:10 AM Mr. Barron replied that the division hoped to develop projects in a 5 to 7 year period, rather than 10 years. 9:56:47 AM Senator Bishop surmised that the statutes already allowed for industry and the department to work together, but that the bill was expected to offer more certainty for industry. He understood that the goal was to maximize the state's assets, while still maintaining due diligence to the public process and the environment. He discussed his experience on the North Slope and stressed that time was of the essence when it came to the work being done in the area. Commissioner Sullivan agreed, but added that bringing certainty to the process at the outset would help with the investment climate. He offered that the timelines and the uncertainty were limited to the winter season for the most part and that if you compared Alaska to Texas or North Dakota, it was a disadvantage. He offered that the bill would the provide DNR with clear authorization and would help in the issue. 10:00:31 AM Co-Chair Kelly noted the state got "slammed" with lawsuits every time it tried to anything development related. He thought that the courts had rejected direction from the legislature. He reiterated for the record that the committee was trying to collapse the timeframe that it took to get projects to meet completion. He expressed a lack of respect for the court system and opined that judges wanted to be legislators. He contended that it was not the job of the courts to set public policy. Commissioner Sullivan suggested that the intent of the legislation was to define how to expedite the leasing process, which the courts had stated was in the realm of the legislature. He said the department would not allow the REDOIL case to hinder resource development in the state. 10:02:56 AM Senator Hoffman requested a clarification regarding the approval of the oil and gas or gas only leases the up to 10 years prior. Mr. Barron replied that the intent of the 10 years was to provide a period of time that the director could not exceeded. He added that there was a 10 year statutory primary lease term. 10:04:03 AM Senator Hoffman pointed to page 2 of the bill and the immediate effective date; however, the fiscal note had a different date. He inquired why there was a specific date in the analysis but not in the legislation. Ms. Barron replied that the intent of the fiscal note was to give the department the proper resources to establish the program and regulations. 10:05:00 AM AT EASE 10:09:40 AM RECONVENED Co-Chair Meyer OPENED public testimony. 10:10:07 AM JAMES SULLIVAN, SOUTHEAST ALASKA CONSERVATION COUNCIL, expressed concern with the legislation. He acknowledged the at an exploration stage the intent was that the land be explored; however the council had problems with only one comment period at the development stage. He offered that the council had an issue with the redefining of a geographic area, particularly multi-use areas. He pointed out that anytime there was a planned development that would affect the people living in the area, there should be an appropriate notice and access to adequate information on the project. He stated that in Cook Inlet the public the possible effects of a particular project could not be projected into the future. He stressed that plans could change and contended that once a company reached the development stage it would be impossible to predict possible disasters. He understood that efficiency was an important part of the permitting process, but felt that bill created uncertainty, and put the onus on the public to speculate what could happen. He added that the state was planning to move into shale development and that DNR might have to make changes to its permitting process. He concluded that the bill did not represent the best approach for the state. 10:14:53 AM JACK RODERICK, SELF, ANCHORAGE (via teleconference), expressed support for SB 59. 10:15:32 AM Co-Chair Meyer CLOSED the public testimony. 10:15:42 AM Co-Chair Meyer discussed the fiscal note attached to the bill. 10:16:17 AM SB 59 was HEARD and HELD in committee for further consideration. AT EASE 10:19:22 AM RECONVENED