SENATE SPECIAL COMMITTEE ON OIL & GAS January 25, 1994 3:45 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Bert Sharp Senator Judith Salo MEMBERS ABSENT Senator Rick Halford Senator Al Adams COMMITTEE CALENDAR CSSB 150(FIN) AM(FLD S) "An Act relating to the exploration and production of oil and gas and related hydrocarbons, to oil and gas exploration licenses and to oil and gas leases in certain areas of the state, and to the proof of financial responsibility required for the operation of facilities for the production of crude oil and associated hydrocarbons and facilities for exploration for oil and gas and related hydrocarbons; and extending the period in which a sale on the five-year oil and gas lease sale schedule may be delayed; and providing for an effective date." SENATE BILL NO. 239 "An Act relating to evidence of financial responsibility provided by persons who conduct noncrude oil operations; and providing for an effective date." PREVIOUS ACTION SB 150 - See Oil & Gas minutes dated 3/16/93, 3/23/93, 4/1/93, 4/8/93, and 4/13/93. SB 239 - See Oil & Gas minutes dated 1/24/94. WITNESS REGISTER Cliff Berglin P.O.Box 131 Fairbanks, Ak. 99707 POSITION STATEMENT: Opposed SB 239. Ken Boyd, Deputy Director Division of Oil and Gas Department of Natural Resources P.O. Box 107034 Anchorage, Ak. 99510-0734 POSITION STATEMENT: Commented on SB 239. Mead Treadwell, Deputy Commissioner Department of Environmental Conservation 410 Willoughby Ave., Suite 105 Juneau, Ak. 99801-1795 POSITION STATEMENT: Supported SB 239. Ray Gillespie Petro Marine, Crowley Marine, Delta Western 9478 Riverbend Court Juneau, Ak. 99801 POSITION STATEMENT: Supported SB 239. Bill Schoephoester Refined Oil distributors 311 C Street, #500 Anchorage, Ak. 99503 POSITION STATEMENT: Supported SB 239. ACTION NARRATIVE TAPE 94-2, SIDE A Number 001 SENATOR LEMAN called the Special Committee on Oil and Gas work session to order at 3:45 p.m. and announced SB 150 (OIL & GAS EXPLORATION LICENSES/LEASES) to be up for consideration. He said the bill was not formally in the committee, but they wanted to work on the amendments to where they would feel comfortable with taking action on the floor of the Senate. SENATOR SALO asked on page 3, lines 12 - 14, if deleting this language doesn't release the exploration company from starting exploration. SENATOR LEMAN said it was his intent for the explorers to have a plan and to follow it. Each year the bonding for the work commitment will change. The proposed language accomplishes the proposed change in the bonding requirements. CLIFF BERGLIN, Fairbanks, opposed SB 150. He said he would send written comments to the Committee. He said the people who have been meeting on this bill for the last 2 years are the who's who of the world's oil companies. Therefore, it can't be in the best interest of the people of the State of Alaska. He also asked what would happen to the mental health issue and to surface rights. Number 308 SENATOR SHARP asked what was the size of the standard lease under competitive bid? KEN BOYD, Anchorage, answered the maximum size of the lease is 5,760 acres (3 miles square). Leases vary in size, because of the shape of land ownership. SENATOR SHARP said he couldn't understand why they raised the minimum to 20,000 acres. He asked when a license is converted to a lease at the end of the explorat ion process, would it be convertible to 5,760 acre leases. MR. BOYD said that is correct. He explained that the leased acres have to be contiguous according to law. Number 344 SENATOR SALO asked who decided what land is to be relinquished. MR. BOYD explained that the Commissioner would decide if the company didn't. SENATOR LEMAN announced the Committee would end the "work session" and begin the hearing portion of the meeting and brought SB 239 (NONCRUDE OIL OPERATIONS:FINANC'L RESPB'TY) up for consideration. Number 394 MEAD TREADWELL, Deputy Director, Department of Environmental Conservation, explained that the law requires people providing insurance as a form of financial responsibility have a policy which allows the insurer to be sued in a state court. Prior to Exxon Valdez no one had a problem getting this direct action insurance. After the Exxon Valdez, OPA '90 was passed requiring direct action insurance nationally. At that time, the London insurance market had stopped writing this kind of insurance as widely as it had. DEC was faced with a situation where they had to be able to grant waivers to small companies who could not get this kind of insurance or shut them down under the law. The legislature allowed them to grant waivers quarterly if people could not get direct action. In summary, MR. TREADWELL said, they support the intent of this bill and suggest a simple amendment in Section 1 making the waiver provision permanent. He explained that the waiver provision is very strictly enforced. SENATOR SALO remarked that the direct action insurance is available to some, but not to others and asked what is the difference. MR. TREADWELL answered part of it has to do with the position taken by the P&I clubs. He said approximately 12 people have been able to get it and about 20 haven't. He added that DEC enforces the general law on financial responsibility rigorously and there is 100% compliance. Number 506 RAY GILLESPIE, Petro Marine Services, Crowley Maritime, and Delta Western, said his companies do a good percentage of distribution of refined oil products in the state. Unavailability of direct action insurance has been a consistent problem since right after the Exxon Valdez. Prior to the Exxon Valdez direct action insurance has been available, but not through the London market which provides an indemnification type of contract reimbursing operators' claims. They have never agreed to be sued in every state. Companies satisfied the requirement prior to Exxon Valdez with an insurance product that was sold in the U.S. domestic insurance market. It was a binder of sorts that satisfied the direct action requirement. After the Exxon Valdez, that market dried up. No company that operates vessels or shore- side tank farms has gotten a direct action policy. Those that have been written are for the upland facilities and some of the larger exploration companies that fall under another risk category for insurance than his operators do. He supported the testimony from DEC and urged them to adopt the CS as distributed by staff. Number 544 BILL SCHOEPHOESTER, Petro Marine Service and Association of Refined Oil Distributors, said he has been working directly with his insurance company and has not been able to come up with any direct action insurance he can buy. He urged the committee to eliminate the temporary nature of the waiver. SENATOR LEMAN said they would take up SB 239 at their next meeting and hoped to move it from Committee and adjourned the meeting at 4:07 p.m.