In his Aug. 4 decision on appeal of termination of the Point Thomson unit expansion leases, Alaska Commissioner of Natural Resources Tom Irwin addressed a variation on the issue of wells capable of producing. In addition to inclusion in a unit, the existence of a well certified as capable of producing has been a way of holding a lease beyond its initial term.
This issue surfaced in 2006 when then-DNR Commissioner Mike Menge terminated the unit. Menge said that wells certified as capable of producing on Point Thomson unit leases had been plugged and abandoned, were not therefore capable of producing and could not be used to hold leases.
One of the expansion leases, ADL No. 388425, was said by ExxonMobil, BP Exploration (Alaska) and Chevron U.S.A. in their consolidated appeals to be capable of producing in paying quantities.
Irwin said appellants argued that the director had to order the well on ADL No. 388425 into production under state regulations and requirements in the leases prior to terminating the lease.
“Appellants are mistaken,” the commissioner said.
Not capable of producingIrwin said the well on the lease “is a plugged and abandoned exploration well that is not capable of producing in paying quantities. DNR never determined that this well was capable of producing in paying quantities, and Appellants offer no evidence that it is capable of doing so.”
The commissioner said the well was plugged and abandoned under Alaska Oil and Gas Conservation Commission procedures in 1988. “In 2007, after the lease had expired, Appellants asked DNR to certify the well but they offered no evidence that the well is capable of production,” he said.
The shut-in well savings clause exists to allow a lease to be held when it has an actual well capable of production. “Because a plugged and abandoned exploration well is not capable of production,” Irwin said Menge’s November 2006 decision “found that such wells are not capable of production. I agree with this position,” he said.
Only a well capable of production can hold a lease, he said. “Alaska law does not allow a well incapable of production, or a valuable discovery standing alone, to hold a lease past its primary term,” Irwin said.