|
AOGCC hears Kenai Loop escrow issues Agreement that natural gas is being produced from acreage surrounding Buccaneer’s tract; disagreement on what to do about Kristen Nelson Petroleum News
All parties in the Kenai Loop dispute are agreed that drainage is occurring from adjacent properties; they just don’t agree on what to do about it.
Drainage issues — in this case production of natural gas from adjacent acreage not controlled by the field’s operator — were aired at a Jan. 30 hearing before the Alaska Oil and Gas Conservation Commission. The commission began hearing Kenai Loop disputes in August, after Cook Inlet Region Inc. challenged an application by the field’s producer, Buccaneer Alaska, to drill adjacent to CIRI acreage.
CIRI has petitioned the commission to require an escrow fund since there is no pooling agreement for gas production from the field. CIRI and the Alaska Department of Natural Resources have acreage adjacent to the Alaska Mental Health Trust lease from which Buccaneer Alaska is producing. DNR asked that funds also be escrowed to secure royalty on production from the wells.
Agreement on drainage Commission Chair Cathy Foerster began the Jan. 30 hearing by asking legal representatives of the parties — CIRI, DNR, Buccaneer and MHT — the views of the party they represented on whether drainage was occurring from CIRI and DNR land.
All said there was drainage.
CIRI had contested a spacing exception for the Kenai Loop 1-4 well last summer — at that time Buccaneer said a fault separated CIRI’s acreage from the MHT tract from which it was producing gas.
Ethan Schutt, CIRI’s senior vice president for land and energy development, told the commission that CIRI did not contest spacing exceptions for earlier wells — KL 1-1, KL 1-2 and KL 1-3 have been drilled; KL 1-1 and 1-3 are in production — because it had been assured that there was no drainage.
The current agreement that there is drainage is based on communication between the Kenai Loop 1-1, 1-3 and 1-4 wells, which became evident when the KL 1-4 was tested; that well is not in production, pending agreement on pooling.
Asked by Foerster when Buccaneer determined that Kenai Loop drilling was impacting CIRI acreage, Mark Landt, Buccaneer Alaska vice president of land and business development, said that occurred when the Kenai Loop 1-4 was tested.
Buccaneer geologist Gary Rinehart said Buccaneer didn’t initially think CIRI was being drained because a fault was believed to separate the MHT lease from the CIRI lease.
The first two wells, the producing KL 1-1 and a dry hole, KL 1-2, were drilled based on 2-D seismic. Following the dry hole at KL 1-2, Buccaneer shot several million dollars worth of seismic, Rinehart said.
The KL 1-4 well was drilled to what Buccaneer believed were new reserves, Rinehart said, adding that if Buccaneer had known the KL 1-4 was in communication with the two wells already producing the company would not have drilled the well.
No agreement on what to do Asked by Commissioner Dan Seamount if CIRI was working with Buccaneer on resolution, Schutt said there have been brief and not particularly productive meetings and the two have exchanged settlement documents, but he said they were “very, very far apart.”
Jim Torgerson of Stoel Rives, representing CIRI, told the commission that establishment of an escrow account would change incentives. He said there had been no progress in negotiations between the parties and said escrowing money would provide an incentive for everyone to come to an agreement.
The unit issue Buccaneer’s attorney, Jon Katchen of Crowell Moring, argued that without a unit in place there is no way to allocate production. He also argued that Buccaneer’s actions have been validated by the commission since there is a quarter-quarter-section drilling unit in place for the MHT lease based on its former inclusion in the Cannery Loop field and MHT owns all of the subsurface in the drilling unit.
Buccaneer has appealed a decision by DNR’s Division of Oil and Gas denying establishment of a unit at Kenai Loop.
Richard Todd of the Department of Law, representing DNR, objected to Buccaneer’s characterization of the unitization issue, and asked for a continuance of the hearing so that DNR could present a witness on that issue.
DNR has also said it planned to petition the commission proposing modifications to the conservation orders under which Kenai Loop wells are producing, proposing an allocation of production, a pooling agreement, pool rules and resolution of any other issues arising from production at the field. Kenai Loop issues are also before the Alaska Superior Court and the DNR commissioner.
At one time Buccaneer held a CIRI lease adjacent to the lease from which it is producing. CIRI terminated that lease in January 2013. CIRI and Buccaneer are contesting the lease issue in Alaska Superior Court.
A continuation of the AOGCC hearing has been scheduled for April 8 at 9:30 at the commission’s Anchorage office.
| 