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Companies sue over Spurr Dispute turns on who pays what to retire a CI platform no longer producing Wesley Loy For Petroleum News
The bankruptcy case of small Cook Inlet oil and gas producer Pacific Energy Resources Ltd. has spun off a court fight pitting two of the region’s largest players.
Marathon Oil and Chevron are tussling over who is responsible for the cost to decommission and abandon an aging offshore platform on the west side of Cook Inlet.
The dispute began when Marathon filed what’s known as an adversary proceeding in U.S. Bankruptcy Court in Delaware, where Pacific Energy’s Chapter 11 case is playing out.
Marathon brought the action in the bankruptcy court because it is a Pacific Energy creditor, and because Pacific Energy held a 50 percent stake in the Spurr platform. Marathon is the platform operator and holds the other 50 percent.
As part of its bankruptcy reorganization, Pacific Energy on May 11 asked the court for permission to abandon Spurr and related contracts. Lawyers for the company said Marathon had hit Pacific Energy with a demand for more than $453,000 toward initial decommissioning work on Spurr. The Pacific Energy motion said total decommissioning costs are projected to run between $21 million and $35 million.
Marathon subsequently filed its adversary proceeding complaint on June 1.
But Marathon named more than just Pacific Energy as a defendant. Marathon also sued two other companies, Chevron and Forest Oil, that previously owned a stake in Spurr.
Citing unit agreements, lease terms, certain business deals and Alaska law, Marathon argued that itself, Pacific Energy, Chevron and Forest all “may have proportionate responsibility to the State of Alaska” for decommissioning Spurr. Marathon asked the court for a “declaratory judgment” on each party’s responsibility.
Played-out platform Chevron and Forest contend they have no liability for Spurr decommissioning, court papers say.
Superior Oil and Texaco installed the Spurr platform and associated pipelines and processing equipment around 1968. Ownership in the platform has changed several times in the ensuing 41 years, with Marathon standing as operator since 1988.
The platform produced from the North Trading Bay unit and nearby acreage, sending oil and gas ashore at Granite Point. As its wells tapped out, production from Spurr ceased in 1992, and now it’s among a handful of elderly Cook Inlet platforms facing removal someday.
Marathon last year submitted an abandonment plan to the state Department of Natural Resources. As a start, the company aimed to abandon eight shut-in Spurr production wells.
On March 20 of this year, however, Marathon submitted a revised plan deferring the well abandonment work. The company cited three reasons for the deferral:
• The Alaska Oil and Gas Conservation Commission asked for additional downhole surveys prior to abandonment.
• Lack of logistical support due to the January sinking of the Monarch, a Cook Inlet offshore oil industry supply boat.
• The bankruptcy proceedings involving Marathon’s partner in the platform abandonment work, Pacific Energy.
Marathon did say it would go ahead with removal of Spurr’s drilling derricks this year, even though “this will create some financial exposure for Marathon.”
The company added: “Considering that the Spurr wells are secured with bottom cement plugs, Marathon prefers to defer their abandonments until the financial implications become clearer.”
Chevron sues; state intervenes Faced with Marathon’s action in the Delaware bankruptcy court, Chevron, acting through its Unocal subsidiary, on Aug. 17 filed suit against Marathon and the state in Superior Court in Anchorage.
Chevron argued in the suit that the matter doesn’t belong in the bankruptcy court, and asked for a judgment that the company “has no current liability for costs to decommission and abandon the Spurr facilities.”
Lawyers for the state likewise are seeking dismissal of Marathon’s complaint in the bankruptcy court and on July 27 filed a motion to intervene. The state’s lawyers argued the Spurr dispute deals purely with Alaska land, Alaska law and oil and gas properties within the state.
Allowed to play out, the Marathon complaint would “result in an adjudication of decommissioning duties, costs and liabilities under Alaska law and an Alaskan oil and gas lease, which bear acutely on Alaskan sovereign interests, such as local economic and commercial regulation, environmental protection, and public health and safety,” the state argued. “The appropriate judicial forum for the issue raised in the Marathon complaint, if any, should be in Alaska, not Delaware.”
Thus far, the Marathon complaint appears to still be alive in the bankruptcy court.
Meantime, Chevron’s state Superior Court lawsuit against Marathon has been transferred to U.S. District Court in Anchorage. Court papers explain the case is a civil action between companies of different states, with Chevron headquartered in California and Marathon in Texas.
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