A look back -- and forward -- at coal-bed methane development in the Mat-Su

MAT-SU -- Some Mat-Su residents are hanging up their activist battle gear after Texas-based Pioneer Natural Resources announced Thursday its plans to relinquish all its shallow-gas holdings in the borough.

"I hate politics -- I'm glad they made the right choice," said Hatcher Pass area resident Scott Haan, who has argued at numerous public meetings against coal-bed methane development in area neighborhoods. Earlier this summer, a test well was dug in Haan's neighborhood. Haan said with the leases relinquished, he feels his concerns about potential development will be addressed. "I'm going back to being a peaceful resident … they're not going to make that same mistake. If they're not going to invade my neighborhood, I'm not going to worry about it anymore."

Haan said he's learned a few things through the process, and he said he hopes potential developers and area legislators have learned, as well.

"I just wanted the people who I helped get elected to represent me," Haan said. "It's given me a jaded outlook on the world -- a developer's going to do what a developer's going to do, a politically appointed official is going to do what a politically appointed official is going to do."

How did we get here?

For more than a year, CBM has been on the lips of many property owners, keeping some awake at night for fear their property -- or neighboring property -- would be developed and their slice of paradise would become noisy, dusty, water-deprived and, perhaps most fearful of all, contaminated by toxins.

Evergreen Resources Inc. leased about 300,000 acres of land under the state's shallow gas and conventional oil and gas leasing programs, with the bulk of the leasing done in 2003.

When property owners in the Sutton area found out their area had been leased, they started researching CBM development -- and were shocked at what they found. A group of Sutton-area residents met to discuss the potential impacts, then asked state officials and others to participate in a community meeting. More than 340 people attended, and several other meetings were held around the borough -- all well-attended. Evergreen Resources chief executive officer Mark Sexton held informational meetings, too, and discussed the benefits his company's development would bring to the area.

Shortly after the informational meetings began, officials from the Department of Natural Resources announced plans to address property owners' concerns and announced a moratorium on new leases. Work began on developing enforceable standards for the Mat-Su. The Mat-Su Borough also began work on an ordinance addressing CBM development, and property owners went to work trying to get legislators to address their concerns through legislation.

Several bills were written, some were combined and others were dropped but, at the end of the session, House Bill 531 was passed, essentially placing coal-bed methane leases back under the same restrictions as conventional oil and gas leases.

Mat-Su property owners said they supported the bill, but it didn't address their concerns, because Mat-Su acreage was leased under the shallow-gas leasing program, which retained the exemptions 531 addressed. They clamored for the leases to be bought back by the state, an act they said would put Mat-Su (and property owners in Homer, whose land was also leased under the shallow-gas leasing program) on a level playing field with property owners around the state.

State officials and legislators rejected the idea of a buyback, stating that it would be simply too expensive. At a press conference Thursday announcing Pioneer's decision to relinquish the leases, Gov. Frank Murkowski asked Division of Oil and Gas Director Mark Myers how much he estimated a buyback would have cost the state. Myers said acquiring the leases would have meant paying Evergreen about $27,000 in fees they'd paid to obtain the leases, plus $1 per leased acre, but that was just the beginning.

"They had spent a lot of money on legitimate exploration activities, and normally a company would be compensated for that," Myers said. He added that often, buybacks also include compensation for potential development profits, so the buyback could have cost multiple millions of dollars.

As property owners fought for more ground, Evergreen Resources announced its plans to merge with Pioneer Natural Resources Inc. The merger was made final Tuesday, and two days later, Murkowski and Pioneer both announced the decision to relinquish leases.

Pioneer's best-interest finding

Many have speculated in the last few days as to why Pioneer relinquished the leases, at no cost to the state, about one month prior to the statewide election and less than a week before an assembly election where candidates had taken opposing stances on this very issue.

Susan Spratlen, Pioneer's vice-president of corporate communications, said the decision wasn't based on politics, it simply made good business sense.

Pioneer, Spratlen said, is moving toward becoming a bigger player on the North Slope and hasn't yet decided how to approach its shallow-gas holdings. The company entered Alaska two years ago, as one of the first independents in the area. Spratlen said Pioneer discovered the Oooguruk field, northwest of the ARCO-operated Kuparuk field. The Irving, Texas-based company operates on more than 1 million acres, Spratlen said, and has partnered with some of the big players on the slope, such as Conoco-Phillips and Anadarko. The company, this week, opened an office in the Conoco-Phillips building in Anchorage to house its Alaska branch.

Their efforts to build a good reputation on the North Slope, Spratlen said, figured heavily into the company's decision to relinquish the leases.

"We have great relationships we have already built in Alaska," Spratlen said, adding that the company didn't want to come into Cook Inlet burdened by negative public perception. And, she said, the results from drilling done so far were been disappointing. "Why come into Cook Inlet with that controversy?"

The acquisition of Evergreen represents Pioneer's first venture into coal-bed methane production, but Spratlen said it wasn't Evergreen's efforts in Alaska that made the company desirable -- it was their successful holdings in Colorado. With limited investments made in Alaska and questionable returns, Spratlen said returning the leases and absorbing the loss seemed to be the best option.

"Evergreen had made a small investment in that area," Spratlen said. "For a company Pioneer's size, [the loss] was kind of immaterial."

Spratlen said the company retained the conventional oil and gas leases in the Pioneer unit, but currently has no timeline for development there. In the business of coal-bed methane production only three days, Spratlen said, the company is sticking to what it knows best for now.

"Our focus has been, and we expect it will continue to be, on the North Slope," Spratlen said. "[The Pioneer unit] hasn't been a focus and we don't expect it will be a focus … we haven't had time to analyze the potential."

The ripple effect

The announcement reached into several projects currently in progress in the Mat-Su. Friends of Mat-Su Board President Chris Whittington-Evans said Thursday the group would have to reevaluate its involvement in a lawsuit against the state over how the shallow-gas leases were initially leased.

Danny Cosenstein, executive director of Trustees for Alaska, who are working as attorneys for Friends of Mat-Su and the Kachemak Bay Conservation Society, said he believes there's still merit to the group's case.

"We believe the state violated Alaska's constitution and we went to court because we thought that the law was illegal," Cosenstein said. "We continue to believe that, and I think it's still important to get a ruling from the court … they relinquished a majority of the leases, but there are still leases out there."

Cosenstein said he's impressed by Pioneer's apparent willingness to recognize public concerns about the proposed development.

"I'm encouraged, too, that they're interested in listening to the public," Cosenstein said. "That this is important to them -- that the community is important."

The Mat-Su Borough Assembly, currently working on a coal-bed methane ordinance, will likely continue their efforts, said Mat-Su Borough Manager John Duffy.

"There are still leases in urban areas of Mat-Su. We still need to have some type of local ordinance to deal with the surface use," Duffy said. "I think it would be good if the borough got the rules of the game, so to speak, down and in writing, so that in the future, if other groups want to develop shallow-natural gas, they would know what to expect."

And both Alaska Department of Natural Resources Commissioner Tom Irwin and Myers said the state is continuing to work on their enforcement regulations. Myers said he expected the regulations to be released in two weeks to a month.

"We're continuing the process we started in working with the borough," Myers said.

Legislative shake-up

When discussing coal-bed methane production in the Mat-Su, the subject of local legislators' involvement in the issue invariably comes up. From sponsoring the bills that created, then expanded and finally restricted the shallow-gas leasing program, to working as a consultant for and being the subject of a recall because of perceived split loyalties, Valley legislators have played a large role in CBM development.

In 1996, representatives Scott Ogan and Norm Rokeberg sponsored House Bill 394, which created the shallow-gas leasing program. The program was touted as a potential avenue for new energy supplies in rural Alaska, but when changes were made in 2002 with Senate Bill 319, it made the program more commercially viable in developed areas. House Bill 69, which passed in 2003, was sponsored by Rep. Vic Kohring and co-sponsored by every Mat-Su legislator and several others around the state. It took the process a step further, limiting the ability of local governments to regulate CBM production.

After that bill's passage, Evergreen filed for local leases. Area property owners, after hearing their land had been leased, began researching coal-bed methane production activities Outside. At the same time, public discussions about a consulting job Ogan began with Evergreen Resources in 2001 heated up, and people clamored for Ogan to make a choice between working as a legislator or as a consultant.

In October 2003, Ogan stepped down as a consultant, but a move to recall the senator had already begun -- the first in the state's history. As work on developing local regulations for CBM development began, recall organizers obtained sufficient signatures to launch the recall effort and both efforts proceeded.

During the spring legislative session, a bill originally sponsored by the Senate Resources Committee, chaired by Ogan, passed. House Bill 531 splits CBM development in developed areas of Mat-Su out of the over-the-counter shallow-gas leasing program and returns it to a state-initiated leasing system.

The bill's passage didn't put an end to concerns about development in the Mat-Su -- in fact, some Mat-Su residents claimed it further hindered Mat-Su residents because the changes did not apply to land already leased under the shallow-gas leasing program. Those leases would remain in existence indefinitely and could be sold or developed by other companies without being subject to the now-more-stringent rules.

"Over 10,000 properties and their values remain jeopardized by the 320,000 acres of existing leases not subject to a best-interest finding and other provisions of the new law," Friends of Mat-Su Board President Chris Whittington-Evans said in a June 8 e-mailed letter.

The new bill also did not halt the effort to place on the November general election ballot the question of whether or not to recall Ogan. That effort proceeded and was approved to go on the ballot in August, but Ogan halted the effort himself by resigning from the position after an Anchorage Superior Court judge ruled the recall could proceed to the ballot.

Kohring, who played a significant role in passing CBM-related legislation and shared the distinction with Ogan of being hung in effigy outside the first community meeting in Sutton about CBM development, is campaigning for his sixth term as a representative. Prior to the primary election, Kohring said he doesn't believe his constituents are that concerned about CBM development. They're more concerned, he said, with unobtrusive government, good roads, good jobs and good schools.

Friday, while putting up campaign signs, Kohring said he's concerned about the tone the buyback sets for development in the Mat-Su. It's not a solution he said he favored, and he said he saw the lease return as a sign anti-development groups had got their way.

"I think [regulatory uncertainty] is the official reason they're giving, when my sense beyond that is that it scared them. They don't want to do business in an area where they don't feel welcome," Kohring said. "I think the result is that we're not going to see the development that w could have. People will think twice before investing a single dollar in the Mat-Su because of our track record."