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Vol. 11, No. 52 Week of December 24, 2006
Providing coverage of Alaska and northern Canada's oil and gas industry

Exxon, Conoco appeal

Ask DNR for limited reconsideration of Pt. Thomson; lawsuit to be filed

Kristen Nelson

Petroleum News

When former Commissioner of Natural Resources Mike Menge terminated the Point Thomson unit in a Nov. 27 decision, he ruled there were no wells in the unit certified capable of producing in paying quantities, a certification which is used statewide to hold individual leases beyond their original term.

This was an argument raised by Bill Walker for the Alaska Gasline Port Authority.

Both Exxon Mobil Corp. and ConocoPhillips Alaska have requested limited reconsideration from acting DNR Commissioner Marty Rutherford of the certified well decision portion of the Point Thomson termination.

The companies reserved their rights with regard to all other matters in the decision, which was the final administrative decision of the department. The affected parties had 30 days to appeal to Alaska Superior Court.

ExxonMobil spokesman Bob Davis told Petroleum News that ExxonMobil would be filing an appeal of the decision with Alaska Superior Court.

The certified well decision

In his decision Menge said directors of the Division of Oil and Gas have certified seven exploration wells in the Point Thomson unit as capable of producing in paying quantities. With the exception of the Sourdough No. 2, all of the certifications were issued in the 1970s and 1980s, he said, and all of the certified wells have been plugged and abandoned.

Menge said that because discovery exploration wells have been plugged and abandoned, none of them are capable of producing today. Those were discovery wells; no production wells have ever been drilled at Point Thomson, he said.

“There is no existing certified PTU well capable of producing in paying quantities. A PTU production well has never been drilled. No certified PTU well exists today,” Menge said.

J. Patrick Foley, manager of land and external affairs for Pioneer Natural Resources Alaska Inc., wrote to Menge about this issue prior to the decision after Foley saw Walker’s Nov. 3 letter raising the well certification issue.

Foley told Menge that “exploration wells drilled in remote areas of Alaska are typically plugged and abandoned even if such expendable wells result in the discovery of commercial quantities of producible hydrocarbons.” He said exploration wells are frequently drilled from ice pads or other temporary drilling platforms. While some wells are suspended, “most wells are abandoned for operational reasons because they are sub-optimally located for ultimate development where multiple wells are drilled from central development pads,” or because agencies require the wells to be plugged and abandoned for environmental reasons.

Foley told Menge that since statehood, DNR “has interpreted the leases and governing law to allow successful wells, as measured by the Department’s certification process, to hold leasehold acreage pending development of the discovered resource.”

Conoco: investment based on certified well standard

“ConocoPhillips and others have based their lease acquisitions and exploration investment upon DNR’s long-standing interpretation and application of the certified well standard,” ConocoPhillips said in its limited request for reconsideration of the certified well issues, noting that the state has benefited from those investments.

The company argued that certified well issues were not properly before the commissioner, “and had not been properly noticed and subject to public comment” and said it was in the state’s best interest that DNR “act promptly to remedy the former commissioner’s ill-advised attempt to repudiate the long-standing rules regarding certified wells.”

ConocoPhillips requested an oral hearing with the right to call and cross-examine witnesses on “the interpretation, practice and procedure of the DNR related to the certification of wells.”

Exxon: issues not previously raised

ExxonMobil requested reconsideration of the findings and decision revoking certification of wells and terminating the unit “because those issues were not previously raised by the decision of the director of the Division of Oil and Gas, and thus ExxonMobil and the other Point Thomson working interest owners … were not on notice that they would be raised as issues by the commissioner.”

ExxonMobil said that while the decision was designated as final, it “believes that the decision respecting certified wells and, following that, administrative termination of the PTU, were new decisions at the commissioner level and therefore are appropriate for reconsideration.”

ExxonMobil also requested a stay of the commissioner’s decision pending completion of the request for consideration “and any ensuing judicial proceedings.”

The company said revocation of certification of the wells was in excess of the commission’s authority, since no statute or regulation gives the commissioner that power, “and revocation would violate the longstanding practice of the Department of Natural Resources and its equally longstanding interpretation of the governing legal authorities.”

Records of experience

ConocoPhillips included affidavits by its land manager, Jim Ruud, and by Jim Winegarner, vice president of land and external affairs for Brooks Range Petroleum Corp.

Ruud said that his experience in Alaska, which began in 1988, was that — up to the commissioner’s decision — DNR certified wells as capable of production in paying quantities “based on reservoir characteristics derived from well flow test data and other information, and in no way has been influenced by the physical capability of the wellbore casing at the time of certification or thereafter. Indeed, numerous certifications have been granted after the well in question had already been plugged and abandoned.”

Winegarner said that without the ability “to rely on DNR’s certification of a well as capable of producing in paying quantities, the value of an oil and gas lease in the State of Alaska and the willingness of investors to expend resources to acquire and explore in State of Alaska leases are significantly diminished."



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