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Update from Alaska Legislature: Shallow gas permitting back in House
Kristen Nelson, Petroleum News editor-in-chief
The Alaska House of Representatives began discussing Senate changes to House Bill 69, permitting for shallow gas leasing, but the bill was returned to the House’s unfinished business file April 30 after objections were raised to provisions in the Senate version giving the state primacy over local communities in shallow gas permitting.
The Senate version, bill-sponsor Vic Kohring, R-Wasilla told the House, added legislative findings on the importance of shallow gas development and a definition of shallow gas. The Senate also exempted shallow gas from oil spill contingency planning requirements unless the Alaska Oil and Gas Conservation Commission determines a shallow gas well could potentially drill into an oil-bearing formation, and from consistency determinations under the Alaska Coastal Management Program.
Kohring said the standards required for shallow well permits are the same as under the coastal management program, but shallow gas projects receiving state permits will be deemed consistent with the coastal program.
The Senate version also adds language confirming that the state has primacy “over local governments when it comes to developing the state’s natural resources,” Kohring said. The Alaska Municipal League has looked at that provision and has no problem with it, he said.
There were objections to concurrence with the Senate changes.
Ethan Berkowitz, D-Anchorage, questioned provisions in the Senate version allowing the commissioner of the Department of Natural Resources to approve a waiver of local planning authority if the department demonstrates an overriding state interest. “Doesn’t that substitute state judgement for local judgement and is that not a step away from local control?” he asked.
Paul Seaton, R-Homer, said he was concerned because shallow gas drilling was a possibility for the Homer area.
“I would ask that the body delay this until we have a chance to analyze this with our local communities,” he said.
At that point the motion to approve the Senate version was withdrawn and HB 69 was returned to the House’s “limbo file.” Bill to increase non-North Slope exploration acres on the move The administration’s bill to increase the amount of onshore non-North Slope exploration acreage a company can hold is moving in the Alaska House of Representatives, as are proposals to use railroad bonding for a gas pipeline and to reduce royalties for oil from aging Cook Inlet platforms.
House Bill 246, increasing the amount of lease acreage a company can hold south of the Umiat baseline, moved through the House Special Committee on Oil and Gas in about 15 minutes April 29.
The bill increases the onshore exploration acreage a company can hold from 500,000 acres to 750,000 acres, although only 500,000 of those acres can be on the North Slope.
Mark Myers, director of the Alaska Division of Oil and Gas, presented the bill for the administration. He told the committee that the bill reflects changes in the state’s oil and gas leasing programs and also changes in views of the economics of some of the state’s Interior basins and Brooks Range Foothills’ gas potential.
The current limit of 500,000 onshore non-unitized acres was enacted to encourage competition by limiting the undeveloped acreage a single company could hold, Myers said. But there have been changes since that law was enacted, particularly new state programs.
Exploration licensing allows a company to have up to 500,000 acres in a license and can be converted to oil and gas leases. “That means a company with a single exploration license in an Interior basin might use their entire statewide accumulation in converting those to leases, which would make them ineligible” to take lease acreage in other areas, Myers said.
The other new state program is the shallow gas leasing program which allows a company to hold up to 100,000 acres. Those leases, Myers said, also count against a company’s onshore limit of 500,000 non-unitized acres.
Several of the state’s explorers and developers are near or at the 500,000 acre limit, he said. The goal, he said, is “to expand the ability of current companies that are at or near their limit and encourage companies to pick up maybe two exploration licenses.” Myers said the companies at or close to the limit now are Anadarko Petroleum and Petro-Canada. ConocoPhillips, he said, is just under the limit.
He said that in frontier basins where companies are tying to attract capital, “a company needs to be able to acquire a substantial position to justify the exploration capital risk and then to capitalize a significant quantity of oil and gas.”
The committee moved the bill. It goes next to House Resources, where it is scheduled to be heard May 5. Platform royalty relief proposed House Bill 198, reducing royalties on oil from Cook Inlet platforms, has moved out of House Oil and Gas and is scheduled to be heard in House Resources. Bill sponsor Vic Kohring said the Cook Inlet platform situation was brought to his attention by Gary Carlson of Forest Oil. The bill provides a royalty break on oil from platforms where production falls below 1,200 barrels a day. The royalty reduction is on a sliding scale and could go as low as 5 percent. The royalty would rise if production from a platform increased.
Carlson told the committee that maintenance of “critical and scarce infrastructure” may allow the development of new discoveries which couldn’t support the cost of installing new infrastructure.
“Anything that can be done to extend the life of platforms will help develop other possible projects,” he said. Forest is not the operator of any of the older platforms, he said, “but is concerned about losing infrastructure … that could allow development of new discoveries.” Railroad bonds for gas House Bill 267, use of Alaska Railroad bonds for natural gas transport, moved out of House Oil and Gas April 24. Its next committee is House Resources. The bill provides a financing option for a gas pipeline, Kohring said. Paul Fuhs, representing Yukon Pacific, said the bonding “is an important tool.” It’s always been seen as “non-recourse bonding,” he said, with no recourse of any lender against the state. It’s a peculiar piece of tax law that “came about as the railroad was transferred to the state,” Fuhs said.
Wendy King of ConocoPhillips Alaska told the committee that ConocoPhillips supports having as many options as possible for financing a gasline project.
Roger Marks of the Alaska Department of Revenue said the department has done detailed modeling of this financing option. He noted that the first step is an economic project and then financing. If railroad bonds are available to the sponsors they could save as much as $4 billion in financing charges, he said, depending on the degree to which the option is used. The department, he said, supports the bill as a way of moving a gasline forward.
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