SB 59-OIL & GAS EXPLORATION/DEVELOPMENT AREAS  4:16:42 PM CHAIR GIESSEL announced SB 59 to be up for consideration. DAN SULLIVAN, Commissioner, Department of Natural Resources (DNR), Juneau, Alaska, provided an overview of SB 59. In the broader context he said arresting the TAPS throughput decline is the most urgent issue facing the state economically. 4:17:54 PM Enhancing Alaska's competitiveness across a whole number of areas, in particular tax reform, also includes promoting Alaska's resources and resource base throughout the entire world, and facilitating and incentivizing the next phase of North Slope development. Another key element of that comprehensive strategy is ensuring a permitting process that is more efficient, timely, and more certain, and that is what SB 59 is focused on. 4:19:10 PM COMMISSIONER SULLIVAN said in talking to different companies throughout the country and the world the issue of competitiveness comes up, but the issues of permitting, timeliness and certainty of Alaska's permitting system also come up. Repsol recently had very senior officials come in from Madrid to talk about a number of things and they saw the work the legislature has taken up regarding taxes and permitting reform, particularly as they looked at moving into development. He said that one of the other things he has testified previously on was the Governor's Comprehensive Permitting Reform Modernization Plan and that includes an entire suite of permitting reform efforts that has very strong bipartisan support. Whether it's TAPS throughput, gasline commercialization off the North Slope, Interior energy plan, Cook Inlet energy issues, strategic and critical minerals, the work they are trying to do on permitting reform and modernization touches all of those critical interests of the state. COMMISSIONER SULLIVAN said it is encouraging when you start to see things move. Last week he put out a press release because the Frasier Institute that does an annual survey of mining competitiveness had moved Alaska up in its ranking significantly, and for two major reasons: the statewide mineral assessment and the significant improvements in labor and skilled force training in the mining sector (which Senator Bishop had a lot to do with). 4:22:31 PM He said the state certainly wants to maintain its high standards of environmental protection and encouraging responsible development, but none of the governor's bill diminishes from that. He explained that there has also been the issue of public input and this goes to leases that have already been determined through best interest findings that there is going to be oil and gas development; the leases have already been issued. The best interest findings have an enormous public input process. This is trying to get public input at the beginning of exploration phases and at the beginning of development phases; it is in many ways more meaningful than at the smaller points throughout each of the phases. This also brings certainty to exploration and development which is not only good for the public to know what's happening, but it does encourage more investment and it's good with regard to industry's outlook on developing responsible resource development in the state. 4:24:11 PM COMMISSIONER SULLIVAN said that Representative Hawker brought up a good point on the companion bill in House Resources that DNR arguably already has the authority to do this. But that authority is not clear and he wants it absolutely clear that the department has the authority from the legislative branch rather than going to court. 4:26:07 PM SENATOR BISHOP asked how much the gap in permitting time would close from enacting this legislation. COMMISSIONER SULLIVAN answered that it closes up public notice times that are 30, 60 and 90 days currently. He explained that a lot of their permitting reform efforts are focused on making a very comprehensive public input process up front at the exploration phase and the development phase with very specific parameters within those plans that are approved by public notice and comment rather than changing something in the middle of the plan - so everyone knows where the certainty is. But they think it might have a much more positive impact than just the specific window of days that are being removed. 4:28:23 PM BILL BARRON, Director, Division of Oil and Gas, Department of Natural Resources (DNR), said over the last several years they had tried to take a real hard look at land management issues and processes they can modify to encourage dialogue, transmission of information and data between the public sector and the private sector. In this bill they are trying to figure out another tool to manage state land. One of the common themes they have heard in several discussions with the North Slope Borough, specifically, is that they really want to understand on a broader basis what will happen in a geographic area rather than a project by project approach. MR. BARRON said they took a page out of their play book from area wide lease sales in which they go through a robust discussion and identify state lands that would be made available for state leases for oil and gas development. The understanding is that this land well be developed and it's really a question then of how to develop it. The next logical step is to identify smaller areas for exploration and even smaller areas for development than the area wide lease is. The public would engage upfront with a broader understanding of the activities that could take place and probably will take place and be able to identify areas of concern (before plans are approved) and let the identify mitigation issues and set standards for companies. He said this is not something they would do across all state lands; it's just a tool they would have available. 4:32:54 PM WENDY WOOLF, Office Assistant, Division of Oil and Gas, Department of Natural Resources (DNR), said she would go through how exploration and development activities are approved today and how this bill will change the process. She started with how they offer lands for sale and explained that the department has five oil and gas lease sales in the state: the North Slope, the Beaufort Sea, the North Slope Foothills, Cook Inlet and the Alaska Peninsula. These are the area wide lease sales the bill is addressing. She said that SB 59 takes the statutory requirement to provide a public notice at the beginning of each phase of a multi-phased project and clarifies that DNR can review the phase in each geographic area. In this context, "project" is not the individual activity on the land; it is oil and gas development in general, because the "project" is the lease sale area. She said the best interest findings indicate the department is going to do a multi-phased project review, the first phase being a lease disposal phase, the second phase being exploration and the third phase being development. When the word "project" is used in this context it means a general project not one that is site specific. The last one is actually transportation, which is the pipelines. MS. WOOLF said their best interest finding is when they decide that oil and gas development will occur in the area and it is done at the initial leasing phase. The question then becomes how oil and gas development will occur and that's done through the exploration and development phase decisions. This bill allows them to take a look at a broader geographical area when evaluating exploration and development, but it will not change how they evaluate the transportation phase. 4:35:06 PM MS. WOOLF explained that this measure will allow the public to look at exploration and development across the broader geographic area and provide input about how a particular area should be developed before the development occurs. They can identify their concerns at the very beginning before they need to respond to a project that is already happening in their neighborhood. She said industry benefits by knowing what parameters they need to operate under while they are in the design phase of their site-specific activities and coming forward with their plan of operation. So they submit a plan of operation that is in compliance with not only the lease mitigation measures that come out in the best interest finding, but in compliance with an exploration decision that says these are the parameters under which you can explore. In the event that a project doesn't meet the parameters, the department would go out for another public notice and comment. 4:37:19 PM MS. WOOLF explained that the best interest finding is a broad public process: it has extensive public and state/federal agency participation and the impacts associated with oil and gas development are evaluated based on statutory criteria. The resulting decision has concrete mitigation measures that the operators who are successful in acquiring leases in the area must comply with. It also says they are doing a multi-phased project review, so that it is only addressing the leasing phase. Before subsequent phases are approved, the division would do a public notice of opportunity to comment. Those phases are defined in statute as "exploration, development, and transportation." 4:38:30 PM To implement that requirement, the public is accustomed to the department taking the requirement to provide public notice and opportunity to comment at the beginning of an exploration or development phase down to a site specific activity on a lease by lease basis from a particular operator. And what happens is that the lease is disposed of in the lease sale and then the lessee will come in probably a few years later with a plan of operation for their seismic program (that may go across multiple leases). The department would go out to public notice for comments and come up with approval for their seismic program that includes any special stipulations that might be necessary. If they are successful with that, the operator will come in with their next plan of operation for an exploration well; again the department will go out with a public notice of comment and issue the approval for the plan of operation for exploration. If the same operator wants to come in with another exploration plan - even for the same lease - the department will go out again for another public notice and comment before approving it. If the operator is successful and has a discovery, they will come in and describe their conceptual development plans, but then at the point that they come in with their actual plan of development for their initial development the department will go out with the public review. After that public comment period and the plan is approved, if the operator needs to modify it, they will go out with another public notice, even though it is in the same area being developed and do another public notice with comment before approving the modified plan. Pipeline applications will continue being a separate process and is dealt with in a separate statute; that won't change. If the operator is successful and wants to have enhanced recovery or additional development (a satellite pad), even in a fully developed lease, the department will go out with another public comment period. 4:41:17 PM If the adjoining lease's operator comes in and wants to put an exploration well in, the process is started over again, even though the lease to the north is in full development. Then when they come in with a development plan, again, the department will go out for a public notice and comment before approving the plan of operation. Transportation will continue to be noticed separately. As Ms. Woolf said, that is how the process works today and it's very redundant if you're in a small geographic area. If you're in a totally separate area it's not. MS. WOOLF explained that when you're talking about a geographic area where there's activity going on, it's nice to be able to look at something much more holistically than to focus on each individual project. In the past the public has wanted to know more about what is happening in an area before they even provide comments for the first plan. 4:46:46 PM Under SB 59, operators' plans would still have agency review (as today). The development phase goes through a public notice period and the activities are described; a phase analysis is done when the department has a conceptual plan of development from an operator. When the plans are implemented, subsequent public notices will occur. The pipeline applications will continue to have their separate public notices. MS. WOOLF said it's important to remember that the plans of operation are not automatically approved by these phasing decisions. The department is required to review them to make sure they are in compliance with the regulations, the mitigation measures and sister agency comments. Part of what these decisions will allow the operators to do is to plan ahead and hopefully by the time the department gets the plans of operation its concerns will have been addressed. So, at the end of the day, the department would come out with their exploration phase decision and have a public notice and comment on a little geographic area. They'd go through the process and come up with the special stipulations, and then when an operator comes in with their particular plans of operation for their exploration phase, those pieces could go through without public notice. The plans will still require approvals, but they won't require the public notice. She explained that the department goes out with a decision for the development phase outlining all the criteria and the parameters, but once they have gotten through that process, each individual plan of operation that is implementing the development plan can proceed without the additional public notices. As always, any time there are changes or concerns in the plans of operation that weren't considered in the first phase analysis they can always go out with individual public notices for them. This is just a tool the department can use; it's not a requirement, so it doesn't prevent them from going out individually. 4:49:29 PM MS. WOOLF said the time savings will be for both the state and the companies, because now they may go out for an agency review and then the public notice and comments; and then they tell the company their concerns and how to address them. For the state that takes 30-60 days, but it might take 6 months for the companies, because they have had to modify their plans to incorporate those concerns. She said they are trying to provide certainty for everybody going into a development. In the beginning industry can also say it can't comply and come up with some other plan, and then the department would see if it could go forward or not. This is really about how development occurs on state land; it doesn't change any of the other regulatory processes that exist and it doesn't change the opportunity to appeal a decision the department has made in error. Those decisions are being more accessible, but they are public and anyone can come in and look at them. 4:51:11 PM SENATOR FRENCH asked her to compare slides 6 and 9. On slide 6 it looks like there are seven opportunities for public notice and comment in the normal course of a lease and exploration and development plan that, but slide 9 looks like there would be only two opportunities under this bill. MS. WOLF replied yes, but he was omitting the important initial opportunity at the best interest decision. It's important to remember the extensive notices those go through and the lengthy mitigation measures that are put in place. In order for an operator to even submit his plan, he has to go through each mitigation measure in that area and tell her how they are complying with it. SENATOR FRENCH said in slide 6 that would be something that happened before the final finding of the director. 4:52:48 PM MS. WOOLF said that was correct. She added that every year they go out to ask for any new information in the sale areas that could be needed for their best interest findings. At that point the public could say there is way too much exploration going on and why. SENATOR FRENCH asked how much area they are covering with the second phase after the best interest finding. MR. BARRONS said he couldn't answer that question yet, because they are trying to basically put out a systematic approach towards this process. They intend to fully to establish those areas through a regulation process. So, they would engage the public upfront. For instance, someone could come in through that process and ask for a larger area to be broken into smaller portions and the department could do that. He explained that the area wide lease sale is "pretty darn big" and the exploration areas should not be as big (although it should be fairly big because the impacts are ice roads and ice pads and very limited exposure kinds of operations). They really want to concentrate on the development portion and those areas could be incredibly small like the size of a single unit. SENATOR FRENCH commented that this will have some strong and fantastic applications on the North Slope where there are few people and few other impacts, where 95 percent of the state would say yes, let's explore this. But he thought there would be more conflicts in the Cook Inlet where there are more people and more recreational and hunting/fishing users. His concern was giving the department a huge new opportunity to develop without that same amount of public input in densely populated areas. MR. BARRONS said he appreciated that insight and that they had considered that. Even now some people come in with an amendment to their plan that is too great and the department has required them to go back out for public notice and comment and that would still be the practice of the division. He explained that they might choose not to do it in multi-use areas; Kenai's east side would be a good example. But this would be a great tool to use on the west side, which has a less dense population. They are just trying to get the clear authority to use it. 4:58:09 PM SENATOR MICCICHE cautioned him to not use the word "Kenai" too broadly and that "middle of the Inlet" would be a perfect application. The process in SB 60 was a safer way to understand the larger environmental community impacts and he liked that. He also liked that it is separated in phases and the public would be lot more comfortable knowing it does require a new evaluation for significant scope or impact changes. Best, he liked the added efficiency, because if you're doing the same thing, it's not only more efficient for human resources at the department but also for NGOs and individuals who are looking at a larger area. 4:59:02 PM CHAIR GIESSEL asked Mr. Barron if he had been operating under this method and felt that he had this authority already, but wanted it clarified in statute. MR. BARRON replied no; they had been doing exactly as Ms. Woolf described: the public process at every step. But they want to make sure they understand clearly what this body wants them to operate. 5:00:23 PM JAMES SULLIVAN, lobbyist, Southeast Alaska Conservation Council (SEACC), Juneau, Alaska, said he was becoming more uncertain about how SB 59 would affect large portions of the state the more he heard the department's presentations. It's particularly problematic to not be able to comment on changes within a small geographic area (as the public is currently allowed) and how this would be applied in the Cook Inlet area in particular. CHAIR GIESSEL thanked everyone for their testimony. She closed public testimony and held SB 59 in committee.