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Heavyweight firms battle over Beluga Chevron suit says ConocoPhillips failed to pay full settlement to balance production shares in Alaska gas field; conversion alleged Wesley Loy For Petroleum News
Chevron and ConocoPhillips are tangling in an Alaska court over management of their co-owned Beluga River natural gas field.
The case first began in June 2010 when Chevron U.S.A. Inc. and its affiliate, Union Oil Co. of California, sued ConocoPhillips Alaska Inc. in state Superior Court in Anchorage.
On May 17, Chevron and Union filed an amended complaint that names an additional defendant, Municipal Light & Power, an Anchorage electric utility.
ConocoPhillips, Union and ML&P each hold a one-third working interest in the Beluga River unit, with ConocoPhillips acting as operator. The field is on the west side of Cook Inlet, and long has been an important source of gas for the Anchorage area.
Although Chevron and Union say their dispute is with ConocoPhillips alone, Superior Court Judge Eric Aarseth sided with ConocoPhillips in ruling March 22 that ML&P needed to be a part of the case.
Gas balancing agreement The suit appears to involve a disputed sum of at least $32 million.
It’s a breach of contract case that centers on what’s known as a “gas balancing agreement” between Beluga’s working interest owners.
The agreement establishes the amount of gas each owner may take from the field each year.
An owner that elects to take less than its participating interest in unit production is said to have “underlifted” its share. If another owner having a use or market for the gas takes more than its participating interest, that’s an “overlift.”
Under the gas balancing agreement, an underproducer each year can elect to either receive a cash settlement or take additional production in future years to resolve the gas imbalance.
This is the crux of the lawsuit: Union contends in the lawsuit that it was an underlifted party in 2009 and 2010, but that overlifter ConocoPhillips failed to pay the full settlement Union expected.
For 2009, ConocoPhillips put the volume of gas for which it owed a settlement at just under 399 million cubic feet, the suit says. ConocoPhillips offered to pay almost $3 million based on a price of $7.4765 per thousand cubic feet.
Union responded that ConocoPhillips “had miscalculated the volume of gas for which monetary settlement was due to Union,” the suit says. Union contended the correct volume was nearly 3.3 billion cubic feet, which at the price ConocoPhillips specified would equate to a settlement of nearly $24.5 million.
ConocoPhillips stood by its numbers and on April 21, 2010, wired the nearly $3 million settlement to Union’s account.
“Union immediately returned the same amount by wire transfer, rejecting the partial payment,” the lawsuit says.
For 2010, ConocoPhillips offered to pay Union a settlement of about $859,000 on a volume of just over 141 million cubic feet at a price of $6.0740 per thousand cubic feet. Union told ConocoPhillips it had again miscalculated, saying the correct volume was more than 1.9 billion cubic feet, meaning the settlement offer should have been about $11.8 million.
“On April 29, 2011, CPAI made a wire transfer of $859,209.82 to Union’s account,” the suit says. “Union immediately returned the same amount by wire transfer, rejecting the partial payment.”
Improper gas sales alleged The lawsuit makes a second major claim: That beginning in October 2010, ConocoPhillips, as Beluga operator, “failed to deliver gas for the account of Union at the rates and at the delivery location which Union designated.”
The suit alleges “conversion,” saying ConocoPhillips took more Beluga gas than it was entitled to, while Union received less.
“CPAI took Union’s property with the specific intent to permanently deprive Union of the property and to profit from the sale of Union’s property,” the suit says. “As a direct and proximate result of CPAI’s unauthorized act of converting to itself, and thereafter selling and profiting from the sale of Union’s property, Union has been damaged in an amount to be proven at trial.”
Petroleum News asked both ConocoPhillips and Chevron to comment on the lawsuit.
“ConocoPhillips does not comment on pending litigation,” ConocoPhillips spokeswoman Natalie Lowman said by e-mail.
An e-mail from Roxanne Sinz, spokeswoman for Chevron, said in part: “The companies have a disagreement over the interpretation of a contractual provision in a gas balancing agreement that defines the effects of certain gas allocations among the parties to the agreement. Union Oil has filed a lawsuit against ConocoPhillips to resolve the dispute, and looks forward to a prompt and fair resolution from the Alaska Superior Court.”
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