|
AOGCC dragged into permitting issues ExxonMobil has applied for drilling permits for Point Thomson; also asked DNR for reconsideration of ice road permit denial Kristen Nelson Petroleum News
There is a new front in the great Point Thomson permit war, with the Alaska Oil and Gas Conservation Commission now dragged into the fray.
Meanwhile, in its continuing battle with the Alaska Department of Natural Resources, ExxonMobil has requested reconsideration of DNR’s mid-November denial of a permit for an ice road to transport a drilling rig to Point Thomson for winter drilling, arguing that the leases had not been terminated when the permit applications were filed.
ExxonMobil, operator at Point Thomson, and the other working interest owners are in administrative appeal, in litigation — and negotiation — with DNR over the department’s rejection of the latest plan of development for the unit and the department’s subsequent termination of the unit and the leases.
The issue at the commission is drilling permits.
DNR Commissioner Tom Irwin wrote Dan Seamount, the commission chair, on Oct. 29, asking to be heard on applications ExxonMobil made to the commission for drilling permits. Irwin said DNR, as landowner, is an affected party entitled to notice under Alaska statutes.
“DNR requests notice and an opportunity to be heard” before the commission grants drilling permits, Irwin said.
Notice not required In a Nov. 6 response, Seamount said the Alaska Superior Court has ruled the commission is not required to give notice, but under the present circumstances he said the commission “would find it helpful” to hear from DNR and the applicant “on the issue that we assume underlies your request.”
Seamount said the commission had been officially notified that DNR terminated 44 of the 45 leases “in the area formerly known as the Point Thomson Unit.”
The applications to drill were filed “well before that notification but have not been withdrawn. We understand that ExxonMobil is disputing DNR’s determination regarding lease status,” he said, and invited DNR and ExxonMobil “to submit written argument on the question of what action” the commission should take on the drilling application. Seamount noted that the commission’s regulations provide that permits to drill are “not valid at a location where the applicant does not have a right to drill for oil and gas,” while courts have found that a drilling permit “grants no affirmative rights to the permittee to occupy the property,” merely removing conservation laws and regulations as a bar to drilling. The same ruling said the commission (in that case the Texas Railroad Commission) “should not do the useless thing of granting a permit to one who does not claim the property in good faith.”
DNR argument The commission asked for a DNR response on Nov. 21, copied to ExxonMobil, and a response from ExxonMobil on Dec. 5.
Irwin said in DNR’s Nov. 21 response that on the issue of notice, while an Alaska Superior Court ruling cited by the commission did not require it to give public notice, it “did not say that a property owner was not entitled to a hearing. DNR, as the steward of the state’s interests in development of the mineral resources on its lands, has the same right as any other landowner to be advised when the AOGCC is considering an application to drill on its lands.” Irwin cited the judge’s ruling as interpreting state statute to require the commission to give notice — and an opportunity to be heard — to a person with a protected property interest in the action.
State statute requires the commission to determine — before issuing a permit — whether a proposed well is contrary to state law or its regulations, he said, and therefore requires the commission to consider not only whether a proposed well meets the conservation objectives in its statute, “but also to investigate whether the applicant has a legal right to drill.”
Irwin said it would be contrary to law to permit drilling because the leases have expired, a decision ExxonMobil is appealing administratively with a hearing scheduled for January. ExxonMobil is appealing other lease terminations through the courts.
“Although DNR and ExxonMobil disagree about the status of the leases, until I hear the evidence and issue a contrary decision, or a court overturns the Division’s termination decisions, no working interest owners have the legal right to operate at Point Thomson,” Irwin said. “It is unlawful to conduct oil and gas operations on state land north of the Umiat baseline without a valid lease or without the state’s approval. To the contrary, ExxonMobil has been repeatedly advised that the state does not allow any party to drill on its lands without a valid oil and gas lease,” he said.
Irwin said state law also prohibits drilling on state land without an approved plan of operations. “The Division of Oil and Gas rejected ExxonMobil’s proposed plan of operations in August 2008.” He said that decision has been appealed to him.
More duties for commission On the issue of what the commission should do when considering issuance of a drilling permit, since state statute says the commission must consider whether a proposed well is “contrary to law,” that must mean, Irwin argued, that the Legislature intended for the commission to do more than comply with its regulations and statutory conservation objectives when issuing a drilling permit.
This would likely require the commission to “investigate whether an applicant has a legal right to drill,” which, Irwin said, in most cases would involve the landowner simply acknowledging it had consented. “In those cases where the landowner has not consented, the agency will have a record to support its decision denying the permit,” he said.
While the commission’s past practice has not been to consider legal right to drill, and the commission’s regulations state that a permit to drill is invalid if the applicant does not have the right to drill for oil and gas, Irwin noted “this practice seems to conflict with AS 44.662.020 and .030, which provide that a regulation, or interpretation of regulation, cannot conflict with a statute,” and AS 31.05.090(d) which “mandates that the AOGCC consider whether the proposed well is ‘contrary to law’ when evaluating a permit application, (thus) it follows that the AOGCC cannot issue a permit to drill when it knows that the lessee currently has no legal right to drill wells on state land.”
Appeal of permit denial In ExxonMobil’s Nov. 18 appeal to Irwin for reconsideration of the Nov. 14 denial of its application for a permit to build an ice road to move a drilling rig to Point Thomson, the company said that despite its “repeated requests to DNR that it process the permit applications and approve the permits, DNR has denied or suspended the processing of those permit applications and rejected ExxonMobil’s Plan of Operations applications related to Point Thomson,” with the denial of the ice road permit being the most recent of such actions.
ExxonMobil said “the leases in the PTU have not terminated,” and DNR “wrongfully” denied the ice road permit for lack of leases. The company said it held the leases on July 10 when it submitted the ice road permit application. “The leases remain in force for so long as ExxonMobil is conducting drilling operations on the leases, and for so long thereafter as ExxonMobil is prevented by an act of the State from conducting such operations,” the company said.
ExxonMobil argued that since it is “being denied the opportunity to conduct drilling on the leases,” that extends the leases until such time as the permits are approved.
DNR preventing drilling ExxonMobil said that by denying the ice road permit and other permits applied for by the company, “DNR is preventing drilling in the Point Thomson area against the State’s best interest. DNR should not be allowed to publicly claim it wants drilling at Point Thomson and then turn around and deny permits that are necessary to conduct drilling,” the company said.
ExxonMobil said the ice road permit should be issued because even if the Point Thomson unit has terminated, the company “is entitled to conduct drilling operations under the terms of the leases and applicable regulations governing oil and gas leasing.”
“ExxonMobil commenced drilling operations by applying” for the ice road permit and other permits and authorizations, “and by conducting work pursuant to permits and authorizations issues, prior to the termination of the leases,” the company said, arguing that terms of the leases were extended by “these ongoing drilling operations” based on provisions in the leases and in state regulations.
ExxonMobil said that if DNR does not intend to issue the ice road permit, the commissioner “should take clear, final agency action so ExxonMobil can seek appropriate review and relief from any such action.”
| 