23rd Legislature(2003-2004)
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HOUSE OIL & GAS
Feb 05, 2004
Number 0120
CHAIR KOHRING announced that the first order of business would
be HOUSE BILL NO. 395, "An Act relating to shallow natural gas
leasing and the regulation of shallow natural gas operations."
Number 0171
TOM WRIGHT, Staff to Representative John Harris, Alaska State
Legislature, presented HB 395 on behalf of Representative
Harris, prime sponsor. He noted that during the summer,
meetings were held to discuss coal bed methane; when he'd
attended the first meeting in [the Matanuska-Susitna area], he
was a little skeptical at first, expecting to see people who
didn't want any development in their area, but discovered that
the concerns expressed by the 300-plus participants seemed
valid. Those concerns primarily related to lack of local
government input in discussions involving coal bed methane,
public notice requirements, drinking water contamination, and
private property rights. Later that fall, meetings were held in
the Homer area, where a number of the same concerns were
expressed; he suggested Representative Seaton may want to
discuss those with the committee.
MR. WRIGHT offered the belief that the Department of Natural
Resources (DNR) had instituted a good public policy process, but
said there were limitations under which [DNR] could actually go
forth; although concerns had been expressed about that, he
suggested DNR should be thanked for its efforts in getting
citizens involved in this process.
MR. WRIGHT reported that during the fall, Representatives
Stoltze, Gatto, Seaton, and Harris met to discuss these issues
and try to find solutions. The bill is an effort to discuss
some of those issues and isn't a finished product. He explained
that it doesn't include "buy-back" [of leases], although a
number of people want to see that happen in the Sutton and Homer
areas. Noting that other legislation has been introduced to
address that issue, he said, "I think at this point in time we'd
just as soon see what's going to happen with that legislation
and see where it's going to go before we start instituting buy-
backs into the process that we've developed thus far."
MR. WRIGHT acknowledged Barbara Bitney for involving him in this
process when she worked for Representative Stoltze. He also
introduced Rick VanderKolk, who he said has worked extensively
on this bill along with staff to Representatives Gatto, Seaton,
and Stoltze.
CHAIR KOHRING announced that Representatives Heinze and Kerttula
had joined the meeting. He also recognized the presence of
Representative Chenault.
Number 0520
RICHARD VANDERKOLK, Staff to Representative John Harris, Alaska
State Legislature, began by addressing Section 1, which contains
assurance about water quality and integrity with regard to
hydraulic fracturing. He explained that hydraulic fracturing is
a technique used by the oil and gas industry to improve the
efficiency of production wells, including CBM [coal bed methane]
production wells. The hydraulically created fracture acts as a
conduit in the rock or coal formation, allowing the oil or gas
to travel more freely from the rock pores. To create such a
fracture, a [viscous] water-based fluid is sometimes pumped into
the coal seam under high pressures until a fracture is created.
These fluids consist primarily of water, but in some cases
contain various additives such as diesel fuel.
MR. VANDERKOLK said there are at least three arguments for
establishing Section 1. Reading in part from the sectional
analysis for HB 395, he explained that Section 1 adds to the
authority of the Alaska Oil and Gas Conservation Commission
(AOGCC) the ability to regulate hydraulic fracturing associated
with exploration for and recovery of shallow natural gas to
assure that reinjected water doesn't contaminate supplies of
drinking water or water for agricultural purposes. He pointed
out that there has been a great deal of public concern about the
quality of people's water.
Number 0650
MR. VANDERKOLK addressed a second reason for Section 1: it
conforms to recent case law. Referring to a handout relating to
a 9th Circuit Court of Appeals decision from 2003, he said it
sets the tone of allowing states to regulate CBM operations and
how water is handled. [The handout was a memorandum dated
February 2, 2004, to Mr. VanderKolk from Jack Chenoweth,
Assistant Revisor of Statutes, with an enclosed decision from
Northern Plains Resource Council v. Fidelity Exploration and
Development Company.]
MR. VANDERKOLK read from the above-referenced memorandum, which
states in part:
In that decision, a three-member Circuit Court panel
unanimously concluded that water from a coal bed
methane operation is a pollutant even if unaltered.
The court rejected application of an earlier decision
that the emission of biological wastes involving
farmed shellfish operations is not a discharge of
pollutants as applicable precedent. Instead, the
court declared the water, salty when discharged, was
"an unwanted byproduct" of the coal bed methane
extraction process, that it was "produced water" that
could qualify for a Clean Water Act permit discharge
exemption only if disposed of underground, and that
the water, when discharged, might degrade and restrict
the receiving waters (in the Montana case, of course,
to freshwater rivers and creeks).
MR. VANDERKOLK ended with the words "only if disposed of
underground" and remarked, "So there is our precedent." He
observed that this took place relatively recently; he mentioned
HB 69 and said it's more appropriate now to look at that case.
Number 0774
MR. VANDERKOLK addressed a third element [of Section 1]: it
enshrines a good business practice. Referring to a memorandum
of agreement between the U.S. Environmental Protection Agency
(EPA) and three companies [BJ Services Company, Halliburton
Energy Services, Inc., and Schlumberger Technology Corporation,
dated December 12, 2003], he said it was a voluntary agreement
that they no longer would use diesel fuel and hydraulic
fracturing fluids injected into CBM production wells "for any of
the water tables." Suggesting this is extremely important
because it sets a kind of business-practice precedent and is a
model for others to follow, he added, "They recognize that it's
a sensitive issue and that mountains of litigation are possible.
And so, rather than hashing it out that way, they assumed it was
better to enter a voluntary agreement."
MR. VANDERKOLK said for the past several months there have been
hundreds of residents attending local meetings, voicing concern
about potential impacts. With regard to the case law, he
summarized by saying the discharge of water must be separated
from surrounding water tables - the reinjection - which [the
bill] does. As for public participation, he remarked, "It's a
necessary part to put in that memorandum of agreement."
Number 0886
MR. VANDERKOLK paraphrased the first paragraph of the sectional
analysis for Section 2. It states:
In conjunction with shallow natural gas exploration
and recovery, this section adds a new provision
directing the Alaska Oil and Gas Conservation
Commission to initiate a public forum process to
informally resolve issues of public health, safety,
welfare, and environmental complaints.
MR. VANDERKOLK remarked, "This is where we initiate a public
forum in Sections 2 and 4." He said one long-term complaint
from many residents has been that it's not very lengthy or
thorough, and they'd like an opportunity for a "lecture" from
the company, an explanation, "without trying to delay the
leasing process."
Number 0916
MR. VANDERKOLK addressed Sections 3 and 9, noting that this
applies to Section 6 as well. Saying this standardizes and
defines what is meant by "shallow natural gas lease," he
paraphrased the sectional analysis for Sections 3 and 9. It
states:
The amendments made in each of these sections
eliminate, in the respective definitions of "shallow
natural gas", the reference to recovery of natural gas
from a depth of up to 4,000 feet and replace it with a
reference to 3,000 feet. The amendment standardizes
references to depth of recovery.
[The sectional analysis for Section 6 reads, "Adds language to
clarify that gas recoverable from a depth of more than 3,000
feet may occur only under a conventional lease issued under
AS 38.05.180."]
MR. VANDERKOLK paraphrased the sectional analysis for Section 5.
It states [original punctuation provided]:
Amends AS 38.05.177(f) to add a series of additional
requirements that must be inserted in a shallow
natural gas lease, to include (in paragraph (2))
required payments of fees by a lessee to an owner;
(3) setbacks applicable to compressor stations that
are appropriate to the lease; (4) appropriate noise
mitigation measures; and (5) surface restoration
requirements, if the surface is disturbed by
exploration or development operations.
MR. VANDERKOLK noted that Section 7 provides for reasonable
access. He paraphrased the sectional analysis for Section 7.
That analysis states [original punctuation provided]:
In instances in which an owner and a lessee cannot
reach agreement for the latter's entry on to property
to explore for and develop shallow natural gas and the
lessee seeks to post a bond to permit entry, the
amendment (page 6, lines 9 - 17) adds a further
requirement that the lessee demonstrate "that access
and entry upon the land of the owner is reasonable
necessary or convenient" to secure the lessee's
rights.
MR. VANDERKOLK said basically this will show justification for
the lessee's proposal.
Number 1025
MR. VANDERKOLK paraphrased the first portion of the sectional
analysis for Section 8. It states:
Adds two new subsections.
The language of subsection (p) expands upon the
procedures currently applicable to securing protection
against damages insofar as those procedures relate to
shallow natural gas exploration and development
activities:
[The sectional analysis goes on to discuss subparagraphs (1)(A),
(1)(B), (2)(A), and (2)(B), as well as subsection (q).]
MR. VANDERKOLK paraphrased the sectional analysis for Sections
10 and 11. It states [with Mr. VanderKolk's clarification added
in brackets]:
AS 31.05.125 and AS 38.05.177(n), added in 2003,
authorized the commissioner of natural resources to
approve a waiver of local planning authority approval
and requirements relating to compliance with local
ordinances and regulations if the Department of
Natural Resources clearly demonstrates an overriding
state interest. These provisions are proposed for
repeal [in this bill]. In the same 2003 vehicle that
added these provisions, language adding section 7 to
the bill's legislative findings was inserted. The
amendment made in bill section 10 reverses that
addition.
MR. VANDERKOLK offered to answer questions, noting that there
was a lot more background material as well.
MR. WRIGHT pointed out that Representatives Gatto, Seaton, and
Stoltze were present and could answer questions.
Number 1156
REPRESENTATIVE PAUL SEATON, Alaska State Legislature, cosponsor
of HB 395, told members:
These are corrective actions that we're trying to
take. What has happened is, the shallow natural gas
regulations went forward under one set of ideas, that
is, rural development, shallow in nature, ... with
very streamlined regulations, ... extremely
streamlined. And at the time, the thought was that
these were going to be small wells that were going to
be ... water-drilling kind of rigs that would be in
place for less than a week on a pad.
And what has happened is that this has morphed beyond
what anyone really intended. ... Actually, the
language, as it came out, ... it turned out that DNR
was not able to consider public comments ... that were
offered, by statute. And DNR was not happy about
that, ... and no one else was - ... those unintended
consequences. ...
Also, the reason we are putting back in the 3,000 feet
is because what is happening in the Homer area is that
this is turning into a conventional gas play, not
water well-size rigs, but ... full-blown rigs to full
depth - if anything can be shown to exist about 3,000
feet - and ... these large rigs could be in place for
extended periods of time with directional drilling,
et cetera.
So ... what we're trying to do is get back with these
provisions so that the best interest of the state is
again considered. And ... we're not saying that
anyone intended to make this happen, but it was an
unintended consequence of looking at a rural situation
and trying to develop energy sources, and then having
that applied in [an] urban area. And ... that's been
the frustration that's come forward.
Number 1300
REPRESENTATIVE HEINZE asked where language about the reasonable
justification to cross someone's land is found in the bill.
MR. VANDERKOLK said its Section 7.
REPRESENTATIVE HEINZE asked how "reasonable" is defined.
REPRESENTATIVE SEATON explained:
What we're doing is trying to get some balance back in
the situation here. This is relating to a surety
bond. If there is a lease and a surface holder who is
not the subsurface holder, and ... we've leased the
subsurface rights, there's supposed to be a surface-
use agreement.
The way it works right now is if the surface holder
and the subsurface right holder can't come to an
agreement, the subsurface right holder goes to the
commissioner of DNR, and the DNR's only ability is to
say, "Okay, what absolute damages are [there] going to
be, by drilling in this person's front yard or their
backyard or in the schoolyard, or wherever this
drilling happens to be," and posting a bond for the
physical damage that would occur and the
rehabilitation of that piece of property. What isn't
related here is, is it necessary for the company to
use that person's front yard when there's 15 acres of
undeveloped land sitting right next to it.
REPRESENTATIVE SEATON went on to say that the oil leaseholder
has to just demonstrate to the commissioner of DNR that it's
reasonably necessary or convenient to use that particular piece
of ground to put a drilling rig or compressor station on, and
that there aren't other reasonable sources. Reporting that this
language is taken right out of the current statute, he said it
gives the commissioner some flexibility to weigh and consider
the surface use and the subsurface rights.
REPRESENTATIVE SEATON concluded by saying state law and the
constitution obviously allow for the subsurface right to have
precedence. This brings it back to DNR so [the commissioner]
can balance it and ask whether that particular piece of ground
is needed for "access to the subsurface rights that we've given
you." Noting that those are the criteria of "reasonably
necessary and convenient," he said that's all the mineral right
holder would have to show to the DNR commissioner and then the
surety bond would be (indisc.).
Number 1509
REPRESENTATIVE HEINZE remarked that in the past there have been
DNR commissioners who were "friendly to development" and some
who weren't. She suggested that there is a precarious balance
and that it's a lot of power to put in one person's hands.
REPRESENTATIVE SEATON responded:
We didn't want to bring this out and try to balance
weights. What we did want to do was give some
discretion to the commissioner of DNR to consider
whether it's reasonable and necessary for them to use
that particular piece of property. ... So this just
throws in some consideration, and the commissioner of
DNR, whose responsibility is for developing our
natural resources, is going to do that.
But like I say, ... you might have a piece of ground
and you might have a canyon and acreage on the other
side of that ground that's available. Well, it would
be very inconvenient for the oil company or gas
company to come in and have to cross a canyon to do
that. So I would presume DNR would say, "No, you've
shown me that it's reasonably necessary and convenient
for you to use this person's front yard." But it
could also be the situation in which you have many
vying pieces of property around and for some reason, a
driller - not the ones that we know right now, because
the ones that we know right now are fairly responsible
- could come in and say, "I want to put it in your
front yard ... just because I want to put it there."
And the way the law is written right now, the
commissioner of DNR, ... all he does is say, "Well,
the rehabilitation amount for having that in your
front yard is going to be this, and the surety bond,"
and you have absolute right to put it there without
any consideration to the property owner.
CHAIR HEINZE remarked that it troubles her.
Number 1630
REPRESENTATIVE KERTTULA requested an explanation at some point
of how "reasonably necessary or convenient" is interpreted and
will be applied. Noting that it is broad, she expressed concern
that it doesn't say "and convenient".
Number 1695
CHAIR KOHRING cautioned against having any legislation that
moves out of this committee hinder the industry, but also
highlighted the need to make sure there are adequate protections
for property owners. Offering his belief that a lot was
accomplished last year with HB 69 [which he sponsored] in terms
of streamlining the permitting process to encourage resource
development, he advised members, "As opposed to rolling back
what we did, I'd like to just look at this whole effort here as
a way to add protections."
CHAIR KOHRING announced a tentative plan to roll HB 395 and
HB 420 together in the near future. [HB 395 was held over.]
HB 420-SHALLOW NATURAL GAS RECOVERY ACTIVITIES
[Contains discussion of HB 69, which became law last year, and
HB 395]
CHAIR KOHRING announced that the next order of business would be
HOUSE BILL NO. 420, "An Act relating to recovery of shallow
natural gas; and providing for an effective date."
