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Vol. 12, No. 28 Week of July 15, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Fish or cut bait

Exxon, State of Alaska: AOGCC’s Point Thomson decision shouldn’t be stayed

Kristen Nelson

Petroleum News

ExxonMobil and the Alaska Department of Natural Resources disagree on whether or not the Alaska Oil and Gas Conservation Commission has the authority to order compulsory unitization at Point Thomson — but they agree the commission should quickly make a decision on the issue.

ExxonMobil has petitioned the commission for creation of the Point Thomson sand unit (see “Exxon looks to AOGCC” in June 3, 2007, issue of Petroleum News).

The commission held a hearing July 10 on the issue of whether it should hold off dealing with ExxonMobil’s request until litigation over DNR’s dissolution last year of the Point Thomson unit formed in 1977 is settled.

Attorneys representing ExxonMobil argued that the commission has the authority to create a Point Thomson unit. Alaska Assistant Attorney General Jonathan Katchen, representing the Department of Natural Resources — which originally approved and then last year terminated the Point Thomson unit — spoke to a brief from the state opposing ExxonMobil’s unitization request and denying that the commission has the authority to order compulsory unitization.

Both ExxonMobil and the state, however, agreed on one point: The commission should not stay its hearing on the unitization.

Attorney Bob Duplantis, representing ExxonMobil, told the commission it should not stay consideration of the unitization petition because without a unit the Point Thomson lessees could be prevented from working with the commission on reservoir studies. Duplantis also said that postponement of an effective unitization date could put Point Thomson participation in a gas pipeline open season at risk. ExxonMobil believes that DNR’s termination of the unit was wrong and eventually will be reversed, he said. While reinstatement of the unit could render AOGCC action unnecessary, ExxonMobil believes the commission should proceed because deferring consideration of the petition would adversely affect the interests of the petitioners.

DNR: AOGCC lacks jurisdiction

In a brief to the commission Katchen said the application for compulsory unitization “is an improper attempt to recreate a unit, formerly known as the Point Thomson Unit, which was terminated by the Department of Natural Resources … due to ExxonMobil’s refusal to develop the unit,” in violation of the unit agreement, Alaska statutes and DNR regulations.

“ExxonMobil’s application should be dismissed because the AOGCC lacks jurisdiction” because the lessees have already agreed to integrate their interests.

ExxonMobil argued in its application that the commission has authority to order compulsory unitization because “ExxonMobil has not been able to obtain the voluntary agreement of all persons owning interests in the” Point Thomson tracts to integrate their interests.

Commission Chairman John Norman asked what parties at Point Thomson had not agreed to an integration of interests. Leon “Bart” Roselle, one of the attorneys representing ExxonMobil, said the State of Alaska — as the landowner at Point Thomson — had not agreed to voluntary unitization. Roselle said unitization statutes refer to interested parties, not just lessees. (Lessees have a working interest; the state retains a royalty interest, but is not a working interest owner.)

DNR: Decision should not be stayed

Katchen cited a 1996 opinion by the Attorney General which said the Alaska Legislature “intended to limit the AOGCC’s compulsory unitization powers to circumstances where the leaseholders had not already agreed to unitize their interests under a plan approved by DNR.” The lessees previously unitized, so the commission “does not have the statutory authority to review this petition.”

ExxonMobil, ConocoPhillips Alaska, Chevron and BP Exploration (Alaska) appealed the DNR commissioner’s decision primarily to reinstate the Point Thomson unit, Katchen said. The commission has no basis for compulsory unitization because lessees have already integrated their interests.

The commission’s “primary mission is to prevent waste, maximize recovery and protect correlative rights” and the lessees “will not produce, will not submit a plan of development that leads to timely production, and will not commit to production.” Failure to bring the unit into production was the principle basis for DNR’s termination decision, Katchen said, and the commission “does not have jurisdiction to adjudicate a dispute because it does not have statutory authorization to grant relief in these circumstances.”

He also said the commission doesn’t have the authority to overrule DNR’s determination that allowing the lessees to retain the Point Thomson leases “is not in the public interest.”

Katchen said if the commission “disregards Alaska case law and considers ExxonMobil’s application,” it should review that application now because a stay is not in the public interest. DNR found continuation of the Point Thomson leases was not in the public interest because the lessees “refused to commit to production. A stay will delay the AOGCC from coming to the same conclusion.”

He also said a stay would be inappropriate “because it will delay the ultimate resolution of whether ExxonMobil is entitled to continue to hold its leases.”

“The issue should be addressed now. DNR should be allowed to fulfill its constitutional duty to develop the state’s resources by leasing the Point Thomson acreage to companies that will produce the underlying oil and gas resources,” Katchen said in the state’s brief.

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