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February 2011

Vol. 16, No. 9 Week of February 27, 2011

Unocal pursues Forest for $48 million

Federal lawsuit argues Forest obligated to pay operating expenses as ex-owner in Trading Bay properties on Alaska’s Cook Inlet

Wesley Loy

For Petroleum News

Union Oil Company of California is suing Forest Oil Corp. in an Alaska court for $48 million.

The case has to do with who’s responsible for the costs of operating the Trading Bay unit, field and production facility on Alaska’s Cook Inlet.

In its suit pending in U.S. District Court, Unocal contends that Forest owes the $48 million as a former stakeholder in the Trading Bay assets.

Forest, on Feb. 10, filed an answer to the suit saying it “vigorously denies” owing anything. The company asked that the case be dismissed.

Changing hands

Unocal, a subsidiary of Chevron Corp., operates Trading Bay, while Forest was among a succession of companies holding a stake in the properties.

Forest came into Trading Bay as a result of the merger in 2000 with Forcenergy Inc., which was an owner in Trading Bay.

Forest would exit Trading Bay in 2007, conveying its ownership interest to Pacific Energy Resources Ltd.

Pacific Energy filed for bankruptcy in March 2009, and as part of the bankruptcy proceedings the company abandoned its interest in Trading Bay and rejected its obligations under unit and operating agreements, including the commitment to pay its share of Trading Bay operating costs.

The lawsuit contends that Forest, when it transferred its Trading Bay ownership, did not obtain Unocal’s release from these obligations.

Pacific Energy failed to make payments to Unocal for its share of operating costs, and now Forest is on the hook for what’s owed, the lawsuit argues.

Forest, however, says Unocal “did not object” to the Trading Bay transfer to Pacific Energy, and the sale marked the end of any obligation Forest had to pay operating costs.

Oil sales insufficient

As Trading Bay operator, Unocal has a lien on each owner’s share of oil production to secure the payment of operating expenses, the lawsuit says.

“Union has exercised and continues to exercise its lien rights at the wellhead,” the suit says, with proceeds from the sale of oil applied to Pacific Energy’s past due balance.

But these proceeds have been insufficient to cover what’s owed, the difference being $48 million as of Jan. 1, the suit says.

The suit alleges breach of contract, saying Forest “remains obligated” to pay a proportionate share of Trading Bay costs despite having transferred its interest to Pacific Energy.

“And Union’s damages continue to accrue,” the suit adds.

Trading Bay is among the properties Chevron is aiming to sell in a planned exit from the Cook Inlet basin.






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