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CIRI appeals AOGCC Kenai Loop permits Appeal in Superior Court cites ‘illegal drainage’ by Buccaneer in producing Kenai Loop 1-1, 1-3 wells ‘without a pooling agreement’ Kristen Nelson Petroleum News
Cook Inlet Region Inc. is petitioning the Alaska Oil and Gas Conservation Commission “for relief from the illegal drainage caused by Buccaneer producing gas” from two wells in the Kenai Loop field, the Kenai Loop 1-1 and the Kenai Loop 1-3, which the commission allowed Buccaneer to drill and produce in 2012 and 2013.
CIRI’s appeal is based on its rights as subsurface owner of 200 acres which it says has been and will be “adversely affected by Buccaneer’s illegal production of natural gas from the KL 1-1 and KL 1-3 wells in the absence of a pooling agreement.”
CIRI also cites an Alaska Administrative Code requirement that gas production cannot begin from a property smaller than a governmental section unless drilling rights of owners within the governmental section have been pooled.
The commission authorized spacing exceptions for production from the KL 1-1 and KL 1-3 wells, CIRI said, but required Buccaneer to comply with Alaska law.
“Buccaneer did not comply with applicable Alaska law prior to beginning production,” CIRI said, because interests in governmental section 33 of township 6 north, range 11 west, Seward Meridian, from which production occurred, had not been pooled.
The wells Buccaneer has in production KL 1-1 and KL 1-3, are both in section 33, as are KL 1-4 and KL 1-4ST, the wells which were the subject of the AOGCC’s August hearing and recent commission decisions (see story in Sept. 29 issue of Petroleum News). While not part of this appeal, CIRI has also objected to spacing exceptions Buccaneer requested for the KL 1-4 and KL 1-4ST wells, which the commission granted subject to conditions.
In its appeal on the KL 1-1 and 1-3 wells, CIRI said AOGCC “is charged with protecting landowners’ correlative rights.” CIRI said Buccaneer benefitted from illegal production of natural gas from the two wells “without a mechanism to protect the correlative rights of adjacent landowners within the governmental section.”
Buccaneer began production from the KL 1-1 well in early 2012; production from the KL 1-3 well began in February 2013.
Escrow request In at least two prior instances, AOGCC has ordered operators to escrow production where pooling agreements were not yet in place, CIRI said, citing conservation orders from 2000 and 2004 for gas production from the West Foreland field, where CIRI, the Alaska Department of Natural Resources and the U.S. Bureau of Land Management were landowners in the producing or adjacent tracts. In those cases the commission required escrowing of proceeds from a portion of gas production until agreements were reached.
In the Kenai Loop appeal, CIRI is requesting that the commission direct Buccaneer to establish an escrow account and deposit a sum equivalent to the value of 31.25 percent of all the gas produced since the start of production at the KL 1-1 and KL 1-3 wells, and for the future, an amount equivalent to 31.25 percent of the value of gas produced from the wells for each month going forward.
That action by the commission would “fulfill its statutory duties, cure any improper authorization of Buccaneer production of gas from wells in the absence of a proper pooling agreement, and adequately protect CIRI’s and other subsurface landowners’ correlative rights until an allocation of production between the lands is determined either by agreement among Buccaneer, CIRI, the State and the AMHTA (Alaska Mental Health Trust Authority) or by the Commission pursuant to a separate petition for compulsory pooling,” CIRI said in its Oct. 8 petition.
CIRI had not filed for compulsory pooling when this issue of Petroleum News went to print.
Kenai Loop issue As Petroleum News reported Sept. 29, the commission held a hearing in August and issued orders on requests from Buccaneer for spacing exceptions for the Kenai Loop 1-4 and 1-4ST wells.
The hearing was the result of objections the commission received from CIRI.
The Department of Natural Resources’ Division of Oil and Gas objected after the hearing, telling the commission Buccaneer was in violation of DNR regulations for failure to submit a plan of operations “and because the absence of pool rules jeopardizes DNR’s correlative rights.”
Buccaneer disputes the division’s contention that it is in violation of DNR regulations.
The commission required Buccaneer to share information from drilling the KL 1-4 and KL 1-4ST wells with CIRI, the division and the Mental Health Trust.
In an Aug. 26 response to questions from the Aug. 13 AOGCC hearing, Colleen Miller, CIRI’s resource manager, told the commission that its regulations appear to establish “a presumption that a gas well within 1,500 feet of a property line will adversely impact the correlative rights of the adjacent landowner. CIRI’s acreage is within hundreds of feet of each of the proposed wells.”
Miller said that the commission’s regulations prohibit regular production from the existing wells, KL 1-1 and KL 1-3 because the property is smaller than a governmental section and interests of parties with drilling rights in the section have not been pooled.
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