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AOGCC, ConocoPhillips win in court Alaska Supreme Court issues opinion on 10-year legal case that could have set a precedent for challenging AOGCC decisions Alan Bailey Petroleum News
The Alaska Supreme Court has affirmed the judgment of the Alaska Superior Court in favor of the Alaska Oil and Gas Commission and ConocoPhillips in a long-standing legal case raised by Monte Allen and others. Monte Allen is a veteran Alaska leaseholder. Danco Inc., one of the petitioners in the case, is headed by Dan Donkel, an active investor in Alaska leases.
The case has related to two state oil and gas leases on the northern margin of the North Cook Inlet unit, in the waters of Cook Inlet west of the northern Kenai Peninsula.
The North Cook Inlet unit contains ConocoPhillips’ North Cook Inlet gas field. When the estimated gas reserves in the field more than doubled in the 1990s, the petitioners claimed that a revised boundary for the productive gas pool should pass through two leases in which they owned overriding royalty interests.
One day before the disputed leases expired in 1996, Allen and Donkel applied to AOGCC to enforce inclusion of the leases in the North Cook Inlet unit. The petitioners claimed drainage of gas from the leases as a reason to expand the unit. The petitioners have also cited the proven existence of a deeper, non-producing oil pool, variously known as the Sunfish or Tyonek Deep, as a reason for unit expansion. This oil pool, the petitioners claimed, extends under the disputed leases.
Extension of the unit would have entitled the petitioners to a share of royalties from the North Cook Inlet field.
Rejection by AOGCC AOGCC rejected the petition initially on the grounds that the leases had expired immediately after the petition was filed and that the Alaska Department of Natural Resources could not re-instate the leases. However, the Alaska Supreme Court overruled that position.
Then, after hearings in 2001, AOGCC issued another denial decision in 2002.
In this final decision, AOGCC cited legal and technical reasons for the denial. The commission said that unitization is intended to prevent waste, ensure greater ultimate recovery and protect correlative rights, rather than to deal with issues of hydrocarbon drainage from adjacent tracts.
“The traditional remedy for drainage,” the commission said, “is the much more direct self-help expedient of drilling a well on one’s own land.”
And the commission questioned the quality of the technical evidence that the petitioners presented regarding the drainage question. The commission also commented that compulsory unitization typically addresses the question of forcing into a unit “minority tract owners who do not want to join, rather than to force majority tract owners to accept minority tract owners who do want to join.”
The petitioners appealed to the Superior Court and when that court affirmed the commission’s decision the petitioners appealed to the Alaska Supreme Court.
Trial de novo In oral argument before the Supreme Court justices in September 2005 the petitioners’ attorney Jim Gottstein requested what is known as a trial de novo — a completely new trial in appeals court that takes a fresh look at the case. A trial de novo is often used in review of administrative proceedings or judgments of a small claims court. Trial de novo admits new evidence, whereas a regular “on the record” appeal only considers evidence presented at an earlier hearing.
“We live or die on this question of de novo trial,” Gottstein told the Supreme Court justices (in 2002 the Superior Court denied an Allen and Danco petition to hear the case in a trial de novo at that time).
Granting of the right to trial de novo could have set a precedent for resolving future disputes over AOGCC decisions.
But AOGCC decisions involve technical expertise regarding oil and gas fields — at the heart of the case were the disputed facts regarding the extent of the North Cook Inlet field gas reservoir and the petitioners’ claims about gas drainage from the disputed leases.
“The productive gas reservoir in the North Cook Inlet unit does not extend under the two oil and gas leases subject to the appellants overriding royalty interest,” Robert Mintz, the Alaska assistant attorney general representing AOGCC, told the justices. “That’s what the commission found after an exhaustive analysis of geological, geophysical and engineering data. … So all the appellants’ talk about uncompensated drainage is simply beside the point — there is no drainage in this case.”
The petitioners also asserted that, in not enforcing unitization around the Tyonek Deep oil accumulation, AOGCC was not fulfilling a duty to protect royalty and leaseholder rights, rather than just ensure conservation of Alaska oil and gas.
Superior Court judgment affirmed But the Supreme Court justices have upheld the judgment of the Superior Court on all aspects of the case.
On the question of trial de novo, the justices affirmed that an Alaska statute defining the jurisdiction of the Superior Court gives that court discretion in when to grant trial de novo. The justices said that this statute in effect repeals the wording in an earlier statute that granted the right to a trial de novo in an appeal to an AOGCC order. Case law in Alaska supports the view that the legislative intent of new Alaska legislation implies the repeal of earlier legislation that conflicts with the new legislation, the justices said.
The justices also commented that “it seems that a right to trial de novo would be wholly inconsistent with the legislature’s creation of an independent commission with a great deal of expertise.”
The justices also concluded that AOGCC had correctly applied the Alaska statutes relating to involuntary unitization, in considering whether to force the inclusion of the disputed leases in the North Cook Inlet unit. In their argument to the Supreme Court, the petitioners had used rules that apply to voluntary unitization though the Alaska Department of Natural Resources as a justification for involuntary unitization by AOGCC, the justices said.
The justices also found that AOGCC “has exhaustively explored the issue. Its finding that no part of either productive reservoir extended under the leases was supported by extensive testimony and review of proprietary seismic data.”
The justices also commented on “thousands of pages of pre-filed testimony and data, the vast majority of which supports the commission’s findings.”
And, because the justices upheld the AOGCC finding that the disputed leases did not contain any portion of the gas pool for the North Cook Inlet field or the Tyonek Deep oil pool, the justices also found that the commission had not breached its duty to protect the rights of owners of land overlying a hydrocarbon pool.
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