Legislature(2003 - 2004)

04/19/2004 01:57 PM RES

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
HB 531-CONVENTIONAL & NONCONVENTIONAL GAS LEASES                                                                              
                                                                                                                                
CO-CHAIR MASEK announced  that the first order  of business would                                                               
be  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."                                                                                
                                                                                                                                
Number 0085                                                                                                                     
                                                                                                                                
CO-CHAIR DAHLSTROM  moved that the  committee rescind  its action                                                               
in reporting  CSHB 531, Version 23-LS1818\V,  Chenoweth, 4/15/04,                                                               
from  committee on  April 16,  2004.   There being  no objection,                                                               
Version V was before the committee.                                                                                             
                                                                                                                                
[Although the motion originally referred to Version U, the                                                                      
committee, before taking any action on Amendment 1, corrected                                                                   
the motion to refer to Version V.]                                                                                              
                                                                                                                                
CO-CHAIR MASEK noted that Representative Kerttula wanted to                                                                     
offer amendments.                                                                                                               
                                                                                                                                
REPRESENTATIVE KERTTULA offered [Amendment 1], which read                                                                       
[original punctuation provided]:                                                                                                
                                                                                                                                
     Page 39, Line 31 - Page 40, Line 11;                                                                                       
          Delete all material and insert:                                                                                       
               "(3) for a nonconventional gas lease, rights                                                                     
     under the  reservation as set  out in AS  38.05.125 may                                                                    
     not be exercised under the lease unless                                                                                    
                    (A) the owner and the state and its                                                                         
          lessees, successors, or assigns reach a prior                                                                         
          written agreement under which the state and its                                                                       
          lessees, successors, or assigns may enter upon                                                                        
          the land in the exercise of the reserved right;                                                                       
          only one written agreement authorizing entry onto                                                                     
          the land may be required under this subparagraph                                                                      
          to authorize activity by the state and its                                                                            
          lessees, successors, or assigns, or by their                                                                          
          agents, attorneys, and servants as allowed under                                                                      
          this subsection; an agreement entered into under                                                                      
          this subparagraph is                                                                                                  
                              (i) for the duration of the                                                                       
                    period of production or recovery                                                                            
                    operations unless the parties agree to                                                                      
                    a different duration; and                                                                                   
                              (ii) a covenant running with                                                                      
                    the land;                                                                                                   
                    (B) the director, after notice and an                                                                       
          opportunity to be heard, determines that, to                                                                          
          exercise rights under the reservation and the                                                                         
          lease, the lessee has no other reasonable means                                                                       
          of entry than access and entry upon the land of                                                                       
          the owner; the lessee has the burden of                                                                               
          demonstrating compliance with this subparagraph;                                                                      
          and                                                                                                                   
                    (C) the state, its lessees, successors,                                                                     
          or assigns make provisions to pay the owner of                                                                        
          the land full payment for all damages sustained                                                                       
          by the owner by reason of entering upon the land                                                                      
          for the purpose of exercising rights under the                                                                        
          lease, by posting a surety bond determined by the                                                                     
          owner and by the state, its lessees, successors,                                                                      
          or assigns to be sufficient as to form, amount                                                                        
          and security to secure to the owner payment for                                                                       
          all damages, subject to the following:                                                                                
                         (i) if a provision of this                                                                             
                    subparagraph conflicts with a                                                                               
                    requirement of AS 38.05.130, the                                                                            
                    provision of this subparagraph                                                                              
                    prevails; and                                                                                               
                         (ii) in addition to the coverage                                                                       
                    for actual damages required by AS                                                                           
                    38.05.130 or this subparagraph, as                                                                          
                    appropriate, the parties shall make                                                                         
                    provision for payment of reasonable                                                                         
                    compensation to the owner for any loss                                                                      
                    by the owner of the owner's use and                                                                         
                    enjoyment of the property."                                                                                 
                                                                                                                                
REPRESENTATIVE KERTTULA explained that  since the legislation has                                                               
been changed to refer to  nonconventional gas rather than shallow                                                               
natural  gas, the  owner  and the  state need  to  reach a  prior                                                               
written agreement  so that people can  enter upon the land.   She                                                               
acknowledged  that it's  undecided  with regard  to whether  such                                                               
prior   written  agreement   can  be   required.     She  further                                                               
acknowledged concern  regarding how stringently to  require it in                                                               
order that  it remains constitutional.   "But my reading  on this                                                               
is that  I would rather that  the landowners have this  power and                                                               
that if  there is going  to be a  lawsuit, that they're  the ones                                                               
that start out  holding the right," she opined.   Therefore, this                                                               
amendment  is  to  place  the  authority  in  the  hands  of  the                                                               
landowners.                                                                                                                     
                                                                                                                                
REPRESENTATIVE STEPOVICH asked if the  agreement would be in lieu                                                               
of payment as well.                                                                                                             
                                                                                                                                
REPRESENTATIVE KERTTULA  answered that  such would  have to  be a                                                               
separate  agreement.    [Amendment  1]  merely  requires  written                                                               
agreement before anyone can enter the land.                                                                                     
                                                                                                                                
REPRESENTATIVE STEPOVICH  inquired as  to whether Amendment  1 is                                                               
constitutional.                                                                                                                 
                                                                                                                                
Number 0365                                                                                                                     
                                                                                                                                
MARIE  CROSLEY, Natural  Resource Specialist,  Division of  Oil &                                                               
Gas,  Department  of Natural  Resources  (DNR),  deferred to  the                                                               
Department of Law.                                                                                                              
                                                                                                                                
CO-CHAIR MASEK  noted that  there was  not a  representative from                                                               
the Department of Law.                                                                                                          
                                                                                                                                
REPRESENTATIVE  KERTTULA  acknowledged  that   there  will  be  a                                                               
constitutional  issue because  of  the reserved  rights, but  she                                                               
felt that it's  more appropriate to place the  property owners in                                                               
the top position.                                                                                                               
                                                                                                                                
REPRESENTATIVE KERTTULA  related that Amendment 1  was offered in                                                               
the subcommittee,  but it  was the  desire of  the chair  [of the                                                               
subcommittee] to hold it and place it before the full committee.                                                                
                                                                                                                                
REPRESENTATIVE  HEINZE asked  if there  is any  way to  determine                                                               
whether Amendment 1 would be constitutional or not.                                                                             
                                                                                                                                
CO-CHAIR  MASEK   recalled  the  testimony  of   Jack  Chenoweth,                                                               
Attorney,  Legislative  Legal  and Research  Services,  and  Mark                                                               
Myers, Director, Division  of Oil & Gas, at a  prior hearing when                                                               
they said it would be unconstitutional.                                                                                         
                                                                                                                                
REPRESENTATIVE  KERTTULA  interjected   that  Mr.  Chenoweth  was                                                               
concerned,  but  didn't   know  how  the  courts   will  rule  on                                                               
[Amendment 1] because there is no case law on the matter.                                                                       
                                                                                                                                
REPRESENTATIVE  KERTTULA  opined  that adoption  of  Amendment  1                                                               
would  be a  strong  statement that  the  committee believes  the                                                               
property owners should  be in the driver's seat.   She noted that                                                               
she has a  possible conflict of interest on any  coal bed methane                                                               
matter  because her  family  owns  property that  may  be in  the                                                               
leasing area.                                                                                                                   
                                                                                                                                
Number 0916                                                                                                                     
                                                                                                                                
REPRESENTATIVE  STEPOVICH  commented  that   he  liked  the  idea                                                               
encompassed  in Amendment  1, but  was concerned  with regard  to                                                               
wasting  time and  money if  it's unconstitutional.   He  said he                                                               
would like to here from other  committee members on the matter of                                                               
passing legislation that may be frivolous.                                                                                      
                                                                                                                                
REPRESENTATIVE  GATTO inquired  as to  what would  happen if  the                                                               
amendment was determined to be unconstitutional.                                                                                
                                                                                                                                
REPRESENTATIVE KERTTULA said  that the state could  choose not to                                                               
enforce  it  or  it  could  be  severed  from  the  rest  of  the                                                               
legislation.   Representative Kerttula  said she  understands the                                                               
concern,  but without  any case  law  directly on  the matter  it                                                               
would be more appropriate to adopt Amendment 1.                                                                                 
                                                                                                                                
REPRESENTATIVE WOLF opined that there  are probably people in the                                                               
Legislative  Legal   and  Research  Division  and   the  Attorney                                                               
General's  Office  who  could  answer   whether  Amendment  1  is                                                               
constitutional.   Therefore,  he  requested that  Amendment 1  be                                                               
withdrawn until the answer can be obtained.                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA declined to withdraw the amendment.                                                                     
                                                                                                                                
Number 1133                                                                                                                     
                                                                                                                                
REPRESENTATIVE HEINZE  remarked that the entire  coal bed methane                                                               
issue seems to  boil down to the people  [property owners], their                                                               
land, and  their rights.   "I  know we're  in murky  waters right                                                               
now, but  if there's  a clarity  out there  somewhere and  it ...                                                               
puts the  people in the  driver's seat,  ... that's what  this is                                                               
all about ...," she opined.                                                                                                     
                                                                                                                                
CO-CHAIR  DAHLSTROM commented  that those  committee members  not                                                               
present last  Friday are  at a  disadvantage because  they didn't                                                               
here Mr.  Chenoweth's statements.  Although  Mr. Chenoweth didn't                                                               
specifically say  that Amendment 1 would  be unconstitutional, he                                                               
gave the  strong impression  that there  would be  many problems.                                                               
Co-Chair Dahlstrom  related her understanding that  Mr. Chenoweth                                                               
was suggesting that the committee "not act in that manner."                                                                     
                                                                                                                                
REPRESENTATIVE  GUTTENBERG reminded  the  committee that  voters,                                                               
citizens,  and  landowners  of   the  state  have  voiced  strong                                                               
objection  to  [their]  lack  of   involvement  in  the  process.                                                               
Barring any clear legal opinion,  property owners deserve to have                                                               
a say  in who  enters their  property and  barring that,  to also                                                               
have their day  in court.  Therefore, he felt  that this might be                                                               
a good place to make the bright line decision.                                                                                  
                                                                                                                                
REPRESENTATIVE  STEPOVICH related  that the  surface owners,  the                                                               
property owners,  and the subsurface  owners, the state,  will be                                                               
competing to sell the resources.                                                                                                
                                                                                                                                
CO-CHAIR  MASEK  interjected  that  Amendment  1  would  also  be                                                               
problematic with the Statehood Act.                                                                                             
                                                                                                                                
CO-CHAIR DAHLSTROM turned  to a memorandum Mr.  Chenoweth sent to                                                               
the Senate Resources Standing Committee,  from which she read the                                                               
following:                                                                                                                      
                                                                                                                                
     Taken together,  the state must abide  by provisions of                                                                    
     federal  law,  the  Alaska  Statehood  Act,  and  State                                                                    
     Constitutional  provisions under  which  the state  has                                                                    
     consented  to the  terms and  conditions applicable  to                                                                    
     Statehood  Act land  grants  and  has a  constitutional                                                                    
     obligation  to   provide  what   I  believe   would  be                                                                    
     determined  by  the court  to  amount  to a  guaranteed                                                                    
     access  to  the  resources  that  underlay  those  land                                                                    
     grants.  To  the extent that the  property owner's bill                                                                    
     of  rights  would  propose  to  make  access  to  those                                                                    
     resources fully dependent on  the surface owner's prior                                                                    
     written   consent,   it   would  raise   questions   of                                                                    
     compliance with  terms and conditions of  the Statehood                                                                    
     Act.                                                                                                                       
                                                                                                                                
CO-CHAIR DAHLSTROM remarked that there  has been no discussion of                                                               
the  subsurface rights  on the  North Slope,  although subsurface                                                               
rights across the state will be impacted by this.                                                                               
                                                                                                                                
REPRESENTATIVE  KERTTULA  reiterated  that there  isn't  a  clear                                                               
answer regarding  whether Amendment  1 is unconstitutional.   Mr.                                                               
Chenoweth would've said  it was if that was the  case, she noted.                                                               
Therefore, she said she didn't  believe Amendment 1 is frivolous.                                                               
She reiterated her  belief that the property  owners should "have                                                               
the leg up" in this situation.                                                                                                  
                                                                                                                                
CO-CHAIR DAHLSTROM objected to Amendment 1.                                                                                     
                                                                                                                                
A  roll  call  vote  was   taken.    Representatives  Guttenberg,                                                               
Kerttula, and Gatto  voted in favor of the  adoption Amendment 1.                                                               
Representatives  Wolf,   Lynn,  Dahlstrom,  Masek,   Heinze,  and                                                               
Stepovich voted against  it.  Therefore, Amendment 1  failed by a                                                               
vote of 3-6.                                                                                                                    
                                                                                                                                
REPRESENTATIVE  STEPOVICH reiterated  that he  likes the  idea of                                                               
Amendment 1,  and added  that perhaps in  the future  surface and                                                               
subsurface rights could be addressed.                                                                                           
                                                                                                                                
Number 1812                                                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA moved that  the committee adopt Amendment                                                               
2, which read [original punctuation provided]:                                                                                  
                                                                                                                                
     Page  47, Line  31; after  "AS 46.04.900(25)",  insert,                                                                    
     "AS 46.40.205"                                                                                                             
                                                                                                                                
     Page 48, Line 11 - Line 12; delete all language                                                                            
                                                                                                                                
CO-CHAIR MASEK objected.                                                                                                        
                                                                                                                                
REPRESENTATIVE KERTTULA reminded the  committee that part of what                                                               
the legislature  did last  year with  SB 69  was to  remove local                                                               
control  from  these  decisions through  the  coastal  management                                                               
program.   However, the  entire leasing  program no  longer falls                                                               
under  the ambit  of coastal  zone  review and  the coastal  zone                                                               
management program  has been  changed significantly.   Therefore,                                                               
the first  part of Amendment  2 would bring coastal  leasing back                                                               
under  some sort  of coastal  zone management  review.   She then                                                               
turned to the  second part of Amendment 2 and  page 48, lines 11-                                                               
12,  of  Version V.    The  language  on  page 48,  lines  11-12,                                                               
basically  says that  lease applications  under  the old  shallow                                                               
natural gas program  that were received by DNR  before January 1,                                                               
2004, would proceed  as under the old program.   Therefore, about                                                               
80,000 acres would be left under  the old program.  She clarified                                                               
that these  applications haven't been processed  or approved, and                                                               
therefore she  opined that any  applications should have  to come                                                               
under   any  new   program  that   the  legislature   institutes.                                                               
Amendment 2 would provide the state more control, she noted.                                                                    
                                                                                                                                
Number 1952                                                                                                                     
                                                                                                                                
MS.   CROSLEY  acknowledged   that  DNR   has  received   certain                                                               
applications  prior to  the  December 31st  deadline.   From  the                                                               
department's perspective, it's an  issue of fairness, she opined.                                                               
She  informed  the  committee that  there  are  five  applicants,                                                               
including Usibelli Coal  Mine, Inc., and Holitna  Energy who have                                                               
filed  shallow  gas applications  prior  to  the deadline.    The                                                               
leases  would've  normally already  have  been  issued under  the                                                               
existing program, but  DNR put in place a moratorium  and began a                                                               
public  process   to  address   concerns  held  by   the  public.                                                               
Therefore,  DNR  felt  it  was   fair  to  grandfather  in  lease                                                               
applications  filed by  a certain  date.   The specified  date is                                                               
necessary in  order to avoid  any party from taking  advantage of                                                               
whatever the legislature decides.                                                                                               
                                                                                                                                
CO-CHAIR DAHLSTROM  asked if the  cutoff dates coincide  with the                                                               
dates  specified  in the  legislation,  which  Amendment 2  would                                                               
delete.                                                                                                                         
                                                                                                                                
MS.  CROSLEY said  that Version  V mirrors  the cutoff  dates DNR                                                               
thought  would  be  fair.     In  further  response  to  Co-Chair                                                               
Dahlstrom, Ms.  Crosley confirmed that  the language on  page 48,                                                               
lines 11-12,  should remain in  the legislation.  In  response to                                                               
Representative   Guttenberg,    Ms.   Crosley    specified   that                                                               
approximately   157,000  acres   would   be   impacted  by   this                                                               
moratorium.   The  acreage is  in  the Matanuska-Susitna  Valley,                                                               
Healy, and Holitna.                                                                                                             
                                                                                                                                
Number 2154                                                                                                                     
                                                                                                                                
CO-CHAIR DAHLSTROM objected to Amendment 2.                                                                                     
                                                                                                                                
REPRESENTATIVE KERTTULA  said she  respected what Ms.  Crosley is                                                               
saying.  However, she reminded  the committee that the moratorium                                                               
is arbitrary  to begin  with.  She  reiterated that  80,000 acres                                                               
are in the  Matanuska-Susitna Valley.  If there's  a concern with                                                               
regard to  a certain geographic  area, perhaps a  geographic area                                                               
needs  to  be exempt.    "I  think  that,  again, it's  a  really                                                               
important  statement  that  we  expect  this  program  to  change                                                               
because  it  certainly  hasn't  worked  for  our  citizens,"  she                                                               
remarked.                                                                                                                       
                                                                                                                                
REPRESENTATIVE GUTTENBERG  asked if Ms.  Crosley has been  in any                                                               
discussion  with the  lease applicants  regarding  the status  of                                                               
their lease.   He asked  if the  lease applicants are  looking to                                                               
withdraw  their lease  or  change  the conditions  of  it if  the                                                               
situation were to change.                                                                                                       
                                                                                                                                
MS. CROSLEY said she didn't  believe so, and therefore she didn't                                                               
know what would happen if the situation changed.                                                                                
                                                                                                                                
Number 2276                                                                                                                     
                                                                                                                                
REPRESENTATIVE GATTO  declared a conflict of  interest because he                                                               
is  a resident  of the  Matanuska-Susitna Valley  and has  leases                                                               
under his property.                                                                                                             
                                                                                                                                
CO-CHAIR  MASEK   reminded  the  committee  that   there  was  an                                                               
objection to Amendment 2, and therefore requested a roll call.                                                                  
                                                                                                                                
A roll  call vote  was taken.   Representatives  Kerttula, Gatto,                                                               
Heinze,  and  Guttenberg  voted  in  favor  of  the  adoption  of                                                               
Amendment 2.  Representatives  Lynn, Stepovich, Masek, Dahlstrom,                                                               
and Wolf  voted against it.   Therefore, Amendment 2 failed  by a                                                               
vote of 4-5.                                                                                                                    
                                                                                                                                
Number 2349                                                                                                                     
                                                                                                                                
CO-CHAIR  DAHLSTROM  moved  to   report  CSHB  531,  Version  23-                                                               
LS1818\V,  Chenoweth,  4/15/04,  out   of  committee  again  with                                                               
individual recommendations and the accompanying fiscal notes.                                                                   
                                                                                                                                
REPRESENTATIVE LYNN objected.                                                                                                   
                                                                                                                                
A  roll call  vote  was taken.    Representatives Gatto,  Heinze,                                                               
Stepovich,  Wolf,  Guttenberg,  Kerttula,  Masek,  and  Dahlstrom                                                               
voted  in favor  of  reporting Version  V  from committee  again.                                                               
Representative Lynn voted against  it.  Therefore, CSHB 531(RES),                                                               
Version  V,  was  again  reported  out  of  the  House  Resources                                                               
Standing Committee by a vote of 8-1.                                                                                            
                                                                                                                                
The committee took an at-ease from 2:32 p.m. to 2:37 p.m.                                                                       
                                                                                                                                

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