Legislature(2003 - 2004)

04/26/2004 02:18 PM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= 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.                                                                                                                  
                                                                                                                                

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