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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2009

Vol. 14, No. 15 Week of April 12, 2009

AOGCC dismisses unitization petition

Alaska Oil and Gas Conservation Commission denies ExxonMobil unitization petition, citing differences in statutory authority

Kristen Nelson

Petroleum News

The Alaska Oil and Gas Conservation Commission has dismissed — without prejudice — a petition Exxon Mobil Corp. filed in 2007 for compulsory unitization of the Point Thomson sand unit under the commission’s statutes.

ExxonMobil petitioned the commission for compulsory unitization after the voluntary Point Thomson unit formed in 1977 with Department of Natural Resources approval was terminated by DNR. The commission stayed its proceedings in April 2008 and then held a hearing on the issues in February of this year.

In its April 6 order dismissing the petition the commission said that when it stayed proceedings on the petition in 2008, it noted the challenging legal issues raised by the case involving the relationship between the commission and DNR and said considerations of administrative and judicial economy, avoidance of potential unnecessary litigation costs and premature decision-making argued for the stay.

The commission said an additional prerequisite for the stay was a “belief that a stay would not harm any party.”

“That prerequisite is no longer satisfied,” the commission said April 6, because the petition for compulsory unitization was being “relied upon in other forums as a basis for certain of ExxonMobil’s contentions regarding the status of state oil and gas leases that is the subject of dispute with DNR.”

The commission said it was not taking a position on the validity of those contentions, but if DNR’s motion to dismiss the petition was well founded, then the petition should be dismissed “lest an erroneous continuation of this compulsory unitization case harm (to) DNR by becoming a potential basis for decisions in other forums.”

The commission also said that the public interest would not be served if its failure to deal with DNR’s arguments further complicated or confused the complex Point Thomson litigation between ExxonMobil and DNR.

DNR’s arguments

DNR argued, the commission said, that ExxonMobil’s petition to use the commission’s compulsory unitization authority “impermissibly attempts to circumvent DNR’s statutory responsibility to manage the state’s oil and gas leasing program.”

The commission said its unitization provisions under Title 31 and DNR’s under Title 38 each represents “a complete unitization law within its own domain.” The commission’s provisions are based on the model statute of the Interstate Oil and Gas Compact Commission and on conservation statutes found in states like Oklahoma were production is typically from private land.

DNR’s provisions, on the other hand, are based on the federal Mineral Leasing Act, under which the U.S. Department of the Interior comprehensively manages oil and gas on federal land.

If both unitization laws were applied to their full extents on state land there would be inconsistent results, the commission said, citing as an example that its statutes allow voluntary units while DNR’s statutes do not allow voluntary unit formation unless DNR approves.

The 1996 opinion

A 1996 Alaska Attorney General opinion discussed the relationship between the two unitization authorities and the commission said that while the particular issue addressed in that opinion was different from the current issue, it set out general considerations that are relevant.

The opinion noted that the commission’s statutory authority is focused on conservation, primarily the prevention of waste, and the related goals of greater ultimate recovery and protecting correlative rights.

DNR’s responsibilities are broader and while they include conservation they extend to all factors that may be considered in determining land management issues that best serve the interests of the state.

The opinion also stated that where there is a conflict between a specific statutory provision and a general one, the accepted rule of statutory construction is that the specific provision controls.

And, where there is the potential for conflict between the administration of two sets of laws, comity and deference argue for implementing each statute in a way that minimizes its impact on the policies of the other statute.

“All of these considerations argue against exercising compulsory unitization powers under AS 31.05.110(b) here,” the commission said, referring to its own unitization statute.

Collision with DNR

The commission said for it to order compulsory unitization “would clearly and directly collide with DNR’s land management decision to terminate the pre-existing unit.” Conversely, neither DNR’s decision nor the commission’s refusal to entertain the petition threatens the conservation goals of the commission’s statute because the reservoir is not currently under production and is still being delineated.

The commission said that while DNR unitization can and frequently does occur at the exploration stage, the commission’s compulsory unitization is limited to a defined pool or pools that have been determined to be productive and to situations where unitized management is necessary for “pressure control, pressure-maintenance or repressuring operations, cycling operations, water flooding operations, or any combination of these, or any form of joint effort calculated to substantially increase the ultimate recovery of oil and gas from the pool.”

The commission also said that since all of the Point Thomson leases are on state land, DNR’s approval is required for development operations, “irrespective of the status of unitization efforts.”

The commission did not agree with all of DNR’s arguments, and agreed with a motion by ExxonMobil to lift the stay, allowing the company to file a revised plan of development as part of the record before reaching its decision.

Parties have 20 days to file for reconsideration; the commission has 10 days to grant or refuse an application for reconsideration in whole or in part.

Exxon remains committed

ExxonMobil did not have a direct comment on the commission’s decision, but spokeswoman Margaret Ross told Petroleum News in an April 8 e-mail that “ExxonMobil is committed to develop Point Thomson and we are proceeding with initial project work.”

She said the company has spent months preparing the site, has invested $25 million in preparing the drilling rig and committed more than $125 million to begin drilling.

Ross also said that ExxonMobil “has complied with the Unit and Lease Agreements and all Alaska statutes and regulations,” and would prefer to settle the issue “outside of the courts through implementation of the Plan of Development submitted to the DNR on February 19, 2008.”

“Timely settlement of Point Thomson is the right answer for stakeholders,” Ross said.

John Daum, an attorney with O’Melveny & Myers representing ExxonMobil at the February hearing, argued that the commission has the right to form a unit where the owners, or in this case DNR as the landowner, cannot reach agreement.

And he told the commission that dismissal of the petition would lead to a court appeal. Should that happen, Daum said, the commission becomes one more case in Superior Court — where Point Thomson issues are already under appeal in two cases. l






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