CSSSHB 86(JUD) am-INJUNCTIONS AGAINST PERMITTED PROJECTS  CHAIR SEEKINS announced HB 86, version X.2, to be up for consideration. SENATOR THERRIAULT moved amendment 1. CHAIR SEEKINS objected for the purposes of discussion. SENATOR THERRIAULT said he was concerned about decreasing oil and gas production in Cook Inlet, but the Forest Oil Corporation activity has shown promise. After having fought lengthy legal challenges, they have permits in hand and are ramping up their production. Since they have jumped through all the hoops, the Legislature is saying once and for all that the project can go forward. SENATOR ELLIS asked if this would be intervening in an active lawsuit. SENATOR THERRIAULT replied that there has been a stream of challenges. MR. GARY CARLSON, Senior Vice President, Forest Oil, said they operate the Osprey Platform and are developing the Redoubt Shoal Oilfield in Cook Inlet south of Anchorage. It's the largest oil field to be developed in Cook Inlet since the early 70s and its production is vital to Forest Oil and is in the state's interest. They have invested over $200 million in this project to date (transporting about 35,000 barrels of oil per day) and they and the state are just beginning to see some return on the investment. They hope to increase production by another 10,000 barrels as additional wells are completed. All was accomplished in a safe manner using state of the art design, engineering and innovation to minimize environmental impacts of the project. The Osprey Project is the first platform in Cook Inlet to grind and inject all the drill cuttings eliminating the need to transport the materials to shore. They are the first platform to reinject produced fluids on location and the first platform to electrify the drilling rig using shore power thereby eliminating the need for diesel engines and reducing the associated air emissions. They are the first Cook Inlet operation to use soil borings for pipeline installation, which eliminates disturbances to the bluffs and shoreline. MR. CARLSON said they have done what the state has asked plus some. However, their development of the Redoubt Shoals has been the subject of continuing litigation since the leases were issued by the State of Alaska. He said, "The Alaska Supreme Court could issue an injunction at any time and, if it were to do so, the fiscal impacts for both Forest Oil and the State of Alaska would be dramatic and immediate." SENATOR ELLIS asked what they are in court for now and would this amendment resolve the matter. MR. CARLSON replied the special interest group, Trustees for Alaska, have sued the state for awarding permits to develop the Redoubt Shoal field. They asked the superior court for a stay to stop production, but they were turned down so they petitioned the Alaska Supreme Court. The basic case is being heard by superior court right now. SENATOR FRENCH said he too would be frustrated if he had been sued for 10 years, but he didn't know of any lawsuit that didn't have two sides and asked him what their argument was. MR. CARLSON replied they stated in superior court that they are basically against any development and listed a lot of issues that the state didn't administer to their satisfaction. SENATOR FRENCH asked if it had to do with the initial permitting. MR. KYLE PARKER, Pat & Boggs, Counsel for Forest Oil, said they have been working with Forest Oil since 1997. The leases that are the subject of the current lawsuit are now in their 10th year of litigation, originating in 1993 in a case known as Ninilchik Traditional Counsel v. State. That is where the state issued its best interest finding and coastal zone consistency determination and put the leases out for sale. He continued, In that litigation, the AC&P issues were litigated thoroughly. The next litigation that came along was 1995 and it was litigation over the general permit that governs all the discharges associated with oil and gas activities in Cook Inlet. That case was litigated again by Port Graham and Nanwalek Traditional Groups, represented again by Trustees for Alaska. The principal focus of the attack there was, again, the coastal zone consistency determination for the general permit that was issued for covering all discharges in Cook Inlet. The next set of litigation was the litigation challenging the exploration phase of the Redoubt Shoals Project, which Forest Oil has been pursing since it came into acquisition of leases in 1996. Many of you will remember that last year the [Alaska] Supreme Court entered an injunction stopping the project in its tracks, because it found that under the AC&P, the state had failed to consider the impacts of the discharges associated with the projects. That is the very same issue that had been litigated in the general permit litigation, which was completed prior to the [Alaska] Supreme Court entering the injunction last year. The Legislature, you will recall, acted last year and passed a bill that ratified the state's ability to rely on general permits when they are authorizing projects. No sooner had the litigation ended in May of last year, but the Trustees and Cook Inlet Keepers stepped forward with the next litigation. The next litigation we're currently involved in challenging the development phase of the project and, again, the focus of the attacks is on the AC&P consistency determination.... CHAIR SEEKINS said this is a classic case of what this bill intends to keep from happening. MR. TRAY WILSON, Senior Vice President, General Counsel and Secretary for Forest Oil Corporation, said he had a letter that he would summarize for the committee. It includes the amount of expenses they have incurred in defending the cases. TAPE 03-50, SIDE B    The most significant impact of this litigation has been uncertainty of outcome. If they were enjoined from continuing production at this point, the cost would be significant. They disclose the litigation in their filings with the Securities and Exchange Commission and the public is aware of the uncertainty associated with it and they believe it has had a negative effect on the valuation of their stock. They are also concerned about whether or not they should invest in additional projects in Alaska. SENATOR ELLIS asked if there are other companies in this same position and shouldn't everyone be helped or no one. Specifically, he asked whether other amendments would follow to help other companies close out litigation. CHAIR SEEKINS replied that this is the only one he has seen, but he would be willing to look at everything on a case-by-case basis. SENATOR THERRIAULT said his staff, Mr. Balash, has been dealing with drafters on Senator Ellis' issue and that the language is not project specific. SENATOR OGAN said this bill references the Cook Inlet Basin, which is a geographic area. MR. JOE BALASH, staff to Senator Therriault, said that Section 1 states the purpose and findings, which is: To legislatively authorize and approve all oil and gas projects located within the Cook Inlet Basin that have, as of the effective date of the act, a final authorization permit or other form of approval from DEC, Fish and Game, DNR or the former Division of Governmental Coordination at OMB. The new provision under AS 46.40.096 adding Section 3 supercedes and: Replaces any other form of approval previously required by law and a project approved under this new section shall remain subject to regulation by any agency having jurisdiction over the project consistent with the terms and requirements of the authorization permit or other approval issued by the agency. So, they are speaking to all oil and gas projects within the Cook Inlet Basin. This morning he spoke with a UNOCAL representative who is very supportive of the amendment. Marathon is also examining the amendment to see if it would help them, too. MR. BALASH said lines 12-15 say a project that is approved by this act shall remain subject to regulation, which means that just because they are ratifying the decisions made by the agencies, does not mean that the companies can ignore the terms and conditions of their permits. SENATOR FRENCH asked for a list of the Cook Inlet oil and gas projects that have a final authorization as of the effective date of this act. MR. BALASH said he would try to get one from the Division of Oil and Gas. CHAIR SEEKINS told Senator French that he was endorsing a concept in the bill that has no name attached regardless of the player. SENATOR FRENCH replied the language says: 'The purpose of these next two sections is to legislatively authorize and approve all oil and gas projects located within the Cook Inlet Basin that have, as of the effective date of this act, a final authorization permit or other form of approval.' So I guess what I need to know is how many of those are there... MR. BALASH replied he could think of a handful of current projects that are either in exploration, seismic testing or development - the Cosmopolitan project on the Kenai and additional exploration with UNOCAL. He said he would be happy to get the list for him. SENATOR FRENCH thanked him and asked what is meant by, "other form of approval." MR. BALASH replied the permitting process is very complex. There are consistency findings, best interest findings, and elevations, to name a few - and this was an easy term to use to catch everything. SENATOR FRENCH said he thought it could cover a telephone call that said, 'sure, go ahead,' and he did not want to give his legislative blessing to a telephone call. He thought "other form of approval" was too vague. SENATOR ELLIS asked Mr. Balash if the two other companies he mentioned have lawsuits going in addition to this one. MR. BALASH replied UNOCAL and Marathon are active players in the Cook Inlet Basin and would be subject to this bill. CHAIR SEEKINS reiterated that this bill is not company specific, but is geographically oriented. MR. BALASH said line 25 inserts a new section into the consistency review process, AS 46.40.096, and goes along with HB 191, which is the revision of the coastal management program. CHAIR SEEKINS noted that the language on lines 3-17 says this is in Alaska's best public interest, avoids costly litigation, provides jobs, creates local tax revenue, and fuels local economies. The processes that have already taken place have adequately protected the public interest. SENATOR THERRIAULT added that Section 3 says, "not withstanding any other provision except with respect to an appeal filed by the applicant or the affected coastal resource district." So, the coast districts still have the right to appeal. Otherwise they are saying if a company has fulfilled all the other lengthy requirements, they are allowed to proceed. SENATOR OGAN said he didn't think Section 3 applied to just the Cook Inlet area. It would apply to the coastal zone no matter where you are. MR. BALASH replied that he was correct. 3:16 - 3:18 p.m. - at ease CHAIR SEEKINS removed his objection to Senator Therriault's amendment. SENATOR ELLIS objected to wait for Senator French's information. CHAIR SEEKINS said he would hold HB 86 until tomorrow morning to get that information. There being no further business to come before the committee, he adjourned the meeting at 10:00 a.m.