Legislature(2003 - 2004)
04/26/2004 02:18 PM FIN
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
HOUSE BILL NO. 531 An Act relating to natural gas exploration and development and to nonconventional gas, and amending the section under which shallow natural gas leases may be issued; and providing for an effective date. REPRESENTATIVE BEVERLY MASEK, SPONSOR, commented that the House Oil and Gas and Resources Committees did a lot of work on CSHB 531(RES) and there have been several versions of the bill. Representative Masek read the sponsor statement as follows: "The intent of original shallow gas leasing legislation in 1995, HB 394, was to expand development of our state's marketable natural gas resources, as well as to promote private-sector employment, generate less expensive energy alternatives for rural Alaskan consumers, and enhance local tax bases for municipalities. Shallow gas legislation was inspired by the need to tailor the particular economies of this resource opportunity to available market opportunities. This type of gas extraction does not conform to the same economies of scale as conventional deep-hole oil and gas drilling. Original legislation provided for leasing on a first-come, first-served basis so that development of the resource in areas away from the energy grid could take place. With a well-known shortage of natural gas development opportunities in South Central Alaska, prospects of leasing on-shore fields in the Cook Inlet Basin became very attractive. Two unintended consequences of this sudden interest materialized. One, it sparked leasing of the state-owned subsurface mineral estate in uneconomic areas, and two, it encouraged leasing in areas where divergent interests between gas development and established local residential and business activities came into conflict. Without HB 531, a subsequent gas development entity could immediately lease land relinquished by the original lessee. In addition, land not currently leased remains subject to current over-the-counter standards. This bill initiates a permanent solution to these problems. It has been brought forward in response to strong citizen interest in the Mat-Su Valley and on the Kenai Peninsula, with input from several public meetings held at one time or another by the Alaska Department of Natural Resources (DNR), and the Senate Resources Committee. Legislation Highlights Eliminates over-the-counter, first-come, first-served shallow gas leases and replaces it with area-wide leasing or exploration licensing. Requires a best-interest finding before any oil and gas leasing or exploration licensing. This will give DNR control of what land is leased, avoiding unnecessary surface-owner conflicts. Best-interest finds are a time-tested public process. Creates a gas-only section of area-wide leasing and exploration licensing identified in a best-interest finding by DNR. Differentiates conventional and non-conventional gas resources for the purposes of lease rentals. Defines conventional and non-conventional gas development, and treats each distinctly. Recognizes that lease rights should not be determined by a depth criteria only. Enhances production opportunities. Encourages exploration licenses with a best-interest finding as the method for nonconventional gas exploration outside of the area-wide leasing in rural Alaska. Makes leasing and regulatory criteria fit the appropriate activity. Ensures competitive processes, thereby, maximizing the state's interests." CHRIS WHITTINGTON-EVANS, FRIENDS OF MAT-SU, A NONPROFIT CITIZENS GROUP, VIA TELECONFERENCE, expressed support for the bill but voiced that it has problems that he would like to see addressed. Currently there are 157,000 acres of land that have been applied to be leased, with about 80,000 acres located in the Mat-Su Valley. The land is not currently under contract and a lease is not pending on it. He said that the reforms in this bill are very important, but the bill should not move forward with the additional 157,000 acres excluded from the provisions of the best interest finding, adequate notice and other policy reforms in the bill. It is in the best interest of the citizens living adjacent to and on the leased lands that the bill includes those lands as well. He implored the Committee not to bifurcate the bill into an urban and rural divide by giving a best interest finding in the Mat-Su, Kenai, Anchorage and Fairbanks areas. He felt that it would create animosity in rural areas. He noted that people are unhappy over the Holitna River and Healy area lands that have been applied for but are not active leases. Co-Chair Harris asked where in the bill to include these leases that are available but not yet acted upon by the State. Mr. Whittington-Evans replied that the last part of the bill in Section 59 relates to exclusion of active leases and those that have been applied for. Co-Chair Harris thought that leases issued under AS 38.05.177 and in effect on December 31, 2003 [Sec. 59, page 48, line 10] would be exempt under the provisions of this bill. MRYL THOMPSON, REPRESENTING SELF VIA TELECONFERENCE, agreed with the comments of Mr. Whittington-Evans. He referred to page 2, line 30 through page 3, line 1 regarding regulation of hydraulic fluid. He explained that he had wanted to add toxic fluid language to the bill but previous committees did not support it. The 10% hydrochloric acid that is part of every fracting load [hydrofracturing through acid or diesel] amounts to half a gallon per load, and in some wells there could be up to 26 seams of coal. He felt that it is a large amount of toxic fluid that should be addressed by language in the bill. He reiterated for the record that HB 531 does not affect any portion of the Mat-Su Valley leases. MARK MEYERS, DIRECTOR, DIVISION OF OIL AND GAS, DEPARTMENT OF NATURAL RESOURCES (DNR), VIA TELECONFERENCE, ANCHORAGE, clarified that retroactivity is in Sec. 59 on page 48, line 11, "(2) lease applications under AS 38.05.177 that were received by the Department of Natural Resources before January 1, 2004." Mr. Meyers explained that the DNR slowed the process of issuing leases on applications that were mostly filed prior to the fall [of 2003]. The Department has not issued those leases because its priority was the regulatory process in the [Mat-Su] Valley. The lease applications were in the Holitna Basin, the Matanuska Valley, and Healy. There are currently no shallow gas leases in either the Healy or Holitna areas although there are pending applications. The logic behind the grandfather date of January 1, 2004 [page 48, line 12] was to allow for those applications to be processed under the regulatory framework that will exist, at least in case of Mat-Su, at the time the Department issues the leases after the public process is complete. Co-Chair Harris asked why the Department would oppose changing to the best interest finding for the lease applications that are still unprocessed, since there was opposition to the prior process. Mr. Meyers replied that the Department is not opposed to it, but because of the fairness issue, it has slowed down the process by a self-imposed moratorium. The concern would be in the Healy [Usibelli] and Holitna [Holitna Energy] areas where there are efforts to develop projects with power, and, to some degree, Evergreen's operations in the Matanuska Valley. He stated that it is a legislative policy issue. Co-Chair Harris asked if the leases are all in areas with mining operations. Mr. Meyers affirmed, with the exception of the Evergreen Resources applications in the Matanuska Valley, the Healy and Holitna areas. In response to a question by Co-Chair Harris, Mr. Meyers explained that Healy is populated around the mine site, but is less densely populated than the Matanuska Valley, and Holitna has low population density with no active coal leases. Co-Chair Harris asked if the available leases in the Matanuska Valley are in a populated area. Mr. Meyers responded that it's moderately populated, with pockets of higher density in subdivisions. In response to a question by Co-Chair Harris, he said that eleven applications for permits are pending in that area. Co-Chair Harris advised that he is weighing the problems with not going to the best interest findings, which he supports, since there is so much difficulty with the current program. Representative Fate requested that someone be available at a later hearing on the bill to answer technical questions regarding the statutes pertaining to University lands. Representative Masek pointed out that recently the DNR closed out public notices in the Mat-Su Valley and provided the Legislature with a draft review of their enforceable standards for coal bed methane development of State-owned resources in the Mat-Su Valley. She had reviewed the report and felt that the public workshops led to good enforceable standards that the Administration can implement. The draft report clears up issues of concern to the public including standards regarding public notice and standards for future leases. Co-Chair Harris commented that coal bed methane shallow gas leasing is not new, and he felt that the Department has been extremely slow in promulgating the needed regulations. He asked if HB 531 requires a timetable for the DNR to write regulations. Representative Masek answered that the bill does not. The Department will hold more public hearings before finalizing their standards. HB 531 was heard and HELD in Committee for further consideration.