DNR terms acceptedConocoPhillips agrees to state conditions for adding Tofkat leases to CRU Alan Bailey Petroleum News
On Aug. 11 ConocoPhillips accepted stipulations set by the Alaska Department of Natural Resources for the expansion of the Colville River unit to include leases that were in the former Tofkat unit, company spokeswoman Natalie Lowman has informed Petroleum News. Petroleum News understands from DNR that the acceptance of the stipulations will enable the unit expansion to go ahead. Arctic Slope Regional Corp. anticipates concurring with the unit expansion, Ty Hardt, ASRC director of communications, has told Petroleum News. ASRC has ownership interest in the land involved.Denial reconsideration On Aug. 1 DNR issued a decision, saying that it had reconsidered a February ruling denying ConocoPhillips’ application for the unit expansion. In the reconsideration, DNR Commissioner Andrew T. Mack said that DNR would approve the expansion if ConocoPhillips accepts some new stipulations involving drilling commitments and the payment of bonus bid replacement fees. ConocoPhillips has now accepted those stipulations.
The bonus bid replacement payments represent compensation to DNR in lieu of lease sale bonus bids, had the department offered the leases in an oil and gas lease sale rather than giving ConocoPhillips the opportunity to drill in the leases.
In a letter to Mack, ConocoPhillips said that it views the outcome of the DNR reconsideration of its previous denial of unit expansion as representing “the best opportunity for this area to be timely developed in a safe and environmentally responsible manner.” The company said that, while it accepts the stipulations, it does not agree with what is stated in some sections of the decision document. However, it is not necessary to resolve those disagreements at this time, ConocoPhillips said.
Great interest The leases at issue are of great interest, given that the drilling in 2008 of the Tofkat No. 1 well and its sidetracks by Brooks Range Petroleum indicated the presence of oil in several horizons, including rocks of the Nanushuk formation, a formation related to recent major oil discoveries in the same general region of the North Slope.
Complicating the leasing arrangements for the Tofkat acreage is the fact that land within the acreage underlies surface land belonging to the village of Nuiqsut. ASRC, the Native regional corporation for the North Slope, correspondingly owns an undivided interest in the subsurface, along with state subsurface ownership. Under an executive agreement formed a number of years ago between the state and ASRC, the state has the executive right to conduct lease sales for the acreage and to take certain other actions. The state has a statutory obligation to make its land available in lease sales but, under the terms of the executive agreement, the state also must consult with ASRC.
Under terms of a unit expansion decision that Mack issued in November, ConocoPhillips was to have drilled the Putu No. 1 well in the leases by June of this year. However, Mack withdrew the unit expansion approval in February when it became evident that ConocoPhillips was not going to meet that drilling requirement. ConocoPhillips said that the drilling delay related to concerns expressed by Nuiqsut community leaders.
Resolving differences But ASRC has remained keen that ConocoPhillips should continue to be allowed to drill. In June 2016 the Native corporation, independently from DNR, assigned its interests in the acreage to the company. The new DNR decision, which ConocoPhillips has now accepted, represents a resolution of the disagreement between DNR and ASRC.
The new DNR stipulations for the unit expansion require ConocoPhillips to drill a well in the expansion acreage by May 31, 2018. Then, to continue to hold the leases in the unit, the company must make a $3 million bid replacement payment and drill a second well, at least into the Nanushuk. Testing of that well must be completed by May 31, 2020. A continuation of the leases in the unit then requires ConocoPhillips to make a further bid replacement payment of $4 million and to incorporate a development plan for the leases in a Colville River unit plan of development.
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