The 2nd meeting of the Subcommittee on Natural Resources of the Interim Joint Committee on Agriculture and Natural Resources was held on Wednesday, July 9, 2003, at 10:30 AM, in Room 149 of the Capitol Annex. Representative James Gooch, Chair, called the meeting to order, and the secretary called the roll.
Present were:
Members: Senator Ernie Harris, Co-Chair; Representative James Gooch, Co-Chair; Senator Paul Herron Jr; Representatives Rocky Adkins, Tim Couch, Brandon Smith, and Brent Yonts.
Guests: Commissioner Frank Delzer and Holly McCoy, Department of Mines and Minerals; Rick Bender, Director Oil and Gas Division.
LRC Staff: Tanya Monsanto and Kelly Blevins.
Rep. Gooch noted that the subcommittee did not establish a quorum. Rep. Pullin, co-chair for the Special Subcommittee on Energy, thanked the Natural Resources subcommittee for welcoming the members from the Special Subcommittee on Energy. Rep. Gooch remarked on the importance of developing coalbed methane (CBM) as a viable resource to reduce dependence on natural gas and help the coal mining industry of Kentucky. Rep. Gooch then called the first presenters to the table.
Commissioner Frank Delzer and Rick Bender with the Department of Mines and Minerals provided an update on the Coalbed Methane Initiatives Working Group. Commissioner Delzer described the membership and goals of the working group. He said the group is trying to develop a consensus on key issues. Then Commissioner Delzer discussed speakers and topics from past meetings. Commissioner Delzer identified where compromises need to be reached among the affected parties. There are three key issues: CBM ownership, state primacy over regulation of CBM, and incentives to encourage testing for CBM. Commissioner Delzer noted that the group feels the time is right for developing a legislative package to encourage CBM extraction.
Commissioner Delzer then introduced Rick Bender, Director of the Oil and Gas Division in Mines and Minerals. Mr. Bender described the geophysical properties of CBM and some of the technical issues involved in CBM extraction. Ownership is an issue because CBM is found in the coal seam itself; therefore, CBM could belong to coal companies or to gas companies. Mr. Bender said that in other states, the courts have decided the ownership issue, but a method of escrow was created so that CBM would be developed during the litigation process. Notification is also an issue as well along with spacing and pooling of wellheads. Mr. Bender proposed a minimum spacing of 40 acres with flexibility and variances. Hydraulic fracturing, a process that uses water to fracture seams and increase permeability, is also a technical issue because of concerns that this technology may weaken the walls of coal mines and impact coal mining operations. The issue of produced waters must be addressed and the potential for dewatering impacting water supplies. Modifications in law may also be needed to permit horizontal drilling, bonding and reclamation, and wellhead stimulation. Mr. Bender discussed a grant proposal brought by Kentucky Geological Survey (KGS) to analyze coal seams in Western Kentucky.
Rep. Yonts asked two questions. First, does data exist that quantifies how much methane is contained in coal? Second, will you file a declaratory suit to resolve the ownership issue in advance? Mr. Bender replied that there are only best guesses regarding CBM quantities. Regarding the declaratory suit, there is an escrowing process in statute, but it doesn’t address the particulars of the CBM ownership issue.
Rep. Pullin asked about the federal primacy issue and whether this would be a hindrance to developing CBM in the Commonwealth. Mr. Bender stated that the federal government doesn’t want responsibility for primacy. Kentucky is one of the few states that doesn’t have primacy. I don’t think obtaining primacy will be a serious obstacle.
Rep. Gooch asked a series of questions. Is the methane is in pockets or below the coal seam? Will drilling and fracturing will cause the gas to flow to the well? Do current regulations prohibit mining within 500 ft of a wellhead? Is there a court case pending to determine ownership of CBM? Regarding location of CBM, Mr. Bender stated that CBM is in the coal seam itself. Coal is porous and the gas is trapped in the coal. Regarding drilling and fracturing, Mr. Bender replied that gas amounts are smaller in CBM and that production increases when the seam is dewatered. Mr. Bender stated that oftentimes gas extraction preceded coal mining but they can be done simultaneously. Legislation to permit CBM extraction must accommodate both mining and gas concerns. Lastly, there is no court ruling on CBM in Kentucky; however, most states have had a ruling dealing with ownership. Mr. Bender then discussed court outcomes in Eastern states and Western states.
Sen. Harris asked for clarification on the 500 ft setback from wellheads. Can you mine inside a 500 ft radius of the wellhead? Mr. Bender said yes but spacing between wellheads is very important to prevent producing from too many locations. If you have too many points of withdrawal then it depletes the reservoir’s energy and lowers production.
Sen. Harris then asked a series of questions. First, is CBM generated below or within a few hundred feet of the mine? Second, how many acres are required for a CBM operation to be economically viable? Third, do we have any large CBM mines? Mr. Bender replied that Mines and Minerals doesn’t have good data on the acreage needed to have an economically viable operation. However, it isn’t the size of the mine that counts. It is the size of the seam that counts and we have many good sized seams in the Commonwealth. There is interest in both Western and Eastern Kentucky.
Sen. Harris asked whether the working group would want to get very detailed in the legislation or leave much of the detail to regulations? Mr. Bender replied that there must be detail in the legislation because they need statutory authority for many of these programs. There will be regulations too. Sen. Harris then thanked our guests.
Rep. Buckingham asked about information on CBM development and the KGS study in particular. He also asked for a definition of horizontal drilling. Mr. Bender discussed the KGS study and how it will gather data from the region including Kentucky. He also explained that horizontal drilling is different than well spacing.
Rep. Gooch commented that the Natural Resources subcommittee may have another meeting on CBM. Then Rep. Gooch asked Commissioner Delzer to update the subcommittee on the implementation of HB 524.
Commissioner Delzer stated that Mines and Minerals is required statutorily to promulgate administrative regulations implementing a statewide program for oil and gas regulation by December 24, 2003. Research revealed that the Public Service Commission has regulations on gathering lines, but Kentucky will be the first state to regulate gathering lines. We need to identify existing laws and the jurisdictions to prevent federal-state overlap. Additional resources may be required to implement the regulations.
Sen. Harris asked whether Mines and Minerals can meet the December 24 deadline. Mr. Bender replied that the definition for gathering lines is lengthy and that they should be able to get a regulation in place.
Sen. Harris asked if the process is complicated. Mr. Bender said yes. Mines and Minerals must prevent overlap. Commissioner Delzer remarked that once draft regulations are in place, they will determine if more funds are needed.
Rep. Gooch noted that there was no quorum to approve minutes so they would be taken up at the next meeting. The meeting was adjourned.