Courts likely to see another PT appeal

Alaska Oil and Gas Conservation Commission denies ExxonMobil reconsideration request on Point Thomson compulsory unitization

Kristen Nelson

Petroleum News

With the Alaska Oil and Gas Conservation Commission denying a reconsideration application from ExxonMobil, another part of the state’s dispute with ExxonMobil and the other former Point Thomson unit owners has completed the administrative appeal process and appears set to go on to Alaska Superior Court.

The dispute began with the Alaska Department of Natural Resources Division of Oil and Gas, which for years has been trying to get the Point Thomson unit owners — the unit was formed in 1977 — to put the field into production. DNR terminated the unit for lack of production in late 2006 and took back the leases in 2007. The termination of the leases is still under administrative appeal in DNR; the unit termination is in superior court.

AOGCC was dragged into the fray in 2007 when ExxonMobil petitioned the commission for involuntary unitization of the Point Thomson sands.

The commission has the authority to create involuntary units when lease owners cannot agree on voluntary unitization. Unitization ensures the most efficient development of oil or gas pools by joining the owners in a unit for production, avoiding the competing drilling and production found in areas developed before conservation laws were enacted. Competing drilling and production in a field results in too rapid depletion of the reservoir, with fewer hydrocarbons produced.

ExxonMobil’s attorney said at the commission’s February hearing on the involuntary unitization application that if the petition was dismissed the commission would become one more case in Superior Court.

After the commission dismissed the unitization petition in April, ExxonMobil said at the beginning of its application for reconsideration that the reconsideration application was a requirement before the decision could be appealed to Superior Court.

The commission denied the reconsideration application in early May.

Exxon’s arguments

ExxonMobil told the commission “AOGCC has a broad statutory grant of jurisdiction,” which includes the duty to consider requests for involuntary unitization. It cited a case in which the court held that the commission erred by dismissing a petition for involuntary unitization “for purported lack of jurisdiction without hearing on the merits of unitization,” and told the commission it has the jurisdiction and must consider the facts before concluding whether relief should be granted.

ExxonMobil also said Alaska statutes do not require ongoing production in order for the commission to unitize. “The prevention of waste, ensuring greater ultimate recovery and protection of correlative rights are far broader mandates for the AOGCC than merely providing for production,” ExxonMobil said.

The company called Point Thomson “a classic case for unitization. Failure to unitize would impair the correlative rights of the parties since the entire reservoir can be produced from a few wells on a few leases.”

If the commission wishes to give DNR an opportunity to voluntarily unitize Point Thomson, then a stay would be in the public interest, the company said.

ExxonMobil said further staying the proceedings — a reference to a stay the commission had earlier placed on its proceedings — would not harm DNR.

“The only potential harm DNR has alleged is that the stay places the status of the leases in question and complicates ongoing litigation, pointing to an appeal before the superior court involving the Expansion Leases as its example of the latter claim. But it is the litigation arising from the termination of the PTU and other actions by DNR, and not the stay, that places the status of the leases in question,” ExxonMobil said.

Attorneys for ExxonMobil requested that DNR’s motion to dismiss the petition be denied; that the stay be continued until the outcome of the appeal of DNR’s termination of the unit.

“In the alternative, the AOGCC should proceed to consider the merits of ExxonMobil’s petition for compulsory unitization of the Point Thomson Sand Unit.”

AOGCC rejection

The commission said ExxonMobil’s reference to a case in which the court found it in error for dismissing a petition for involuntary unitization without a hearing on the merits was not applicable. In that case, the commission said, the court held that a crucial element in the commission’s dismissal, rejection of the potential retroactivity of a unitization order, reflected on the merits of the petition.

“In the present case, by contrast, the grounds for dismissal have nothing to do with the merits of ExxonMobil’s petition, and a hearing on the merits could shed no light on the appropriateness of dismissal,” the commission said.

On the issue of a requirement for ongoing production, the commission said it “did not and does not adopt that proposition,” and if its order is unclear, it “takes this opportunity to clarify the issue.”

The commission said that under its statutes “compulsory unitization is available only for purposes of production and not also for exploration, but that does not mean that the initiation of compulsory unitization proceedings must wait until production begins.”

The commission said that in these circumstances, where DNR has terminated a nonproducing oil and gas unit, the commission should not hear a petition for compulsory unitization unless it appears production will go forward without a DNR-approved unitization, potentially affecting conservation goals in the commission’s statutes.

The commission said its order did not suggest that commission action would have to wait until production begins, only that production is far enough in the future that the commission does not need to take immediate action.

“ExxonMobil obviously does not dispute this point,” the commission said, “since it urges that a stay of proceedings in this matter should continue in effect.”

On ExxonMobil’s point that the Point Thomson sand is a classic case for unitization, the commission said its order assumes that unitization may be necessary to achieve the conservation purposes of its statutes “and addresses rather how to reconcile the protection of those conservation purposes with the appropriate recognition of DNR’s land management authority.”

On the issue of harm arising from further staying the proceedings, the commission said ExxonMobil argued that litigation over termination of the Point Thomson unit has put the status of the leases in question, but “it appeared that the existence of this compulsory unitization petition was potentially affecting that litigation, and the stay was preventing consideration of whether or not the petition should be dismissed.” The commission said if dismissal had not been appropriate, then the compulsory unitization petition’s potential affect on other litigation “would merely be a fact of life and not a source of harm, and a further stay would no doubt be appropriate.”

The commission said since it had determined that dismissal was appropriate, it’s dismissal of the petition was appropriate.