Placer terminated
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Unitized in 2011, ASRC Exploration commits to production in 2022
Kay Cashman Petroleum News
The increasingly bitter dispute between Alaska’s Division of Oil and Gas and ASRC Exploration appears to focus on two related issues.
For AEX, a subsidiary of Arctic Slope Regional Corp., the issue seems to be the challenge of developing the small oil field (small by North Slope elephant standards) at a pace its corporate leadership is obviously not comfortable with. One of the reasons for that discomfort is clear from AEX’s filings with the division: The Placer unit cannot support its own standalone processing facility and is 100% owned by AEX, whereas most North Slope oil fields are explored and developed with partners that help shoulder the costs and risks.
For the division, part of the Alaska Department of Natural Resources, the issue is the length of time it is taking AEX to get its state leases into production. Discovered in 2004 by former operator ConocoPhillips and unitized in 2011 by new operator AEX, the latest proposed plan of development for the Placer unit puts it in production in 2022, at the earliest, whereas other unit operators make the effort to bring their fields online within a shorter timeframe. In fact, most operators complain about the length of time permitting takes in Alaska to bring a discovery to production.
A law degree would have been an asset during Petroleum News’ review of the filings by AEX and subsequent decisions by the division, because the agency’s July 2 decision to terminate the Placer unit and reject the company’s latest proposed plan of development appears to partly ignore DNR Commissioner Corri Feige’s April 18 ruling on a Sept. 28 appeal from AEX.
One of the primary complaints in AEX’s appeal to the commissioner, which followed the division’s approval of the company’s 2018 plan of development, or POD, was the division’s continued insistence that a POD, by statute or regulation, required “on-the-ground” activity, or field work to advance a unit to production when office-based analysis and planning was all that was sometimes needed.
AEX asked Feige to direct the division to stop demanding on-the-ground activities for approval of unit plans - a requirement that threatened the Placer unit’s existence and thus the retention of its leases by AEX.
Field work not required Agreeing with AEX on that, but not all, points raised by the company, the commissioner told the division in her ruling that Alaska law does not require field work, or on-the-ground activity, to be contained within a POD to preserve a unit.
“Although field work is a valid consideration among other variables, field work by itself is not one of the specific criteria listed and required … under 11 AAC 83.303. In Alaska’s regulations related to unitization, there is no definition of ‘operations,’” she wrote in her decision.
The division’s interpretation of its regulations requiring on-the-ground activity as the definition of operations for a POD approval is “reversed, with limitations,” Feige ruled seven months after the appeal was filed. (The delay was likely due to the fact the Sept. 28 appeal was filed with former DNR Commissioner Andy Mack, but when a new governor, Mike Dunleavy, was sworn in Dec. 3 and Feige was named commissioner, the appeal was shuffled to her.)
The limitations Feige noted in her decision included the division’s right to require field work to help advance a unit to production.
“To be clear,” she wrote, “the division is within its authority to apply the criteria in 11 AAC 83.303 et. seq. and determine that on-the-ground field work is necessary to progress a unit with a certified well toward production and thus condition approval of a proposed plan of development accordingly.”
Missed deadline leads to termination AEX told the commissioner in the appeal that it “reluctantly” included in the 2018 and third POD the re-entry of Placer No. 3 in order to satisfy the division’s insistence that on-the-ground activity was necessary to preserve the unit.
The company did not re-enter the well as promised in the winter of 2019-20.
The July 2 letter from the division’s acting director advising AEX of the termination of the Placer unit was based on AEX’s failure to re-enter the Placer No. 3 well and conduct bottom-hole pressure testing. It also alerted the company to another July 2 letter denying its latest and fourth POD.
The termination letter said, “In approving the 2017 POD, the division raised concerns that AEX did not include any unit operations in its POD. The division pointed out that AEX’s plans for office-based work of analysis and planning activities were not unit operations,” noting the last “operations” were done in 2016 when the company first drilled and tested Placer No. 3.
The situation is further complicated by a Feb. 28 letter from AEX to the division with the first amendment to the third POD that said, “AEX is currently waiting on the division to approve the amended plan of operations submitted on January 8, 2019. Based on the 30-day approval period we anticipated the POO approval by February 7, 2019 in order to commence our operations in a timely manner. To date, AEX has received all other permits necessary to conduct the testing operations with the exception of the ADEC MG-2 permit, which can be authorized in 1-day, and the USFWS Polar Bear LOA, which may not be required. AEX has been communicating with the division throughout the permitting process and were told that the amended POO was complete and awaiting final approval. It now appears that the division has been with-holding its approval of our amended POO until AEX provides an amendment to the 3rd POD, instead of approving the amended POO and requesting the amendment to the 3rd POD simultaneously to the POO approval. Without an approved POO, AEX cannot go ahead with its Placer #3 testing operation this winter.”
A POO is a plan of operations, yet another issue raised in the flurry of filings and decisions.
AEX has 20 days to file an appeal with the commissioner.
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