The state will allow ConocoPhillips to acquire a package of leases from the former Tofkat unit and possibly add them to the Colville River unit, reversing an earlier decision.
In a pair of decisions, Department of Natural Resources Commissioner Andrew T. Mack allowed a joint venture operated by Brooks Range Petroleum Corp. to transfer 15 leases to ConocoPhillips Alaska Inc. and asked ConocoPhillips to resubmit its previous application to add those 15 leases and seven related leases to the Colville River unit.
In a Nov. 3 ruling, Mack overturned all four reasons that former Division of Oil and Gas Director Corri Feige originally gave for rejecting the transfer, back in mid-June 2016.
First, Mack decided that ConocoPhillips’ earlier failure to develop the same acreage under different leases could not be the sole factor for preventing the company from leasing the acreage today. “An assignee’s previous lack of diligent exploration and development on lands is an appropriate factor to consider when determining whether an assignment of an interest in those lands would be adverse to the state,” Mack wrote. “However, an assignee’s earlier failure to explore or develop leased lands is not alone determinative of that assignee’s later intent or commitment to develop those lands.”
Formerly Titania prospect
ConocoPhillips leased the same acreage during the 1990s, as the Titania prospect, but failed to explore the area and eventually relinquished the acreage back to the state.
Second, Mack decided that a 20 percent royalty interest on the leases, although burdensome, was also not enough of a reason to prevent ConocoPhillips from acquiring the leases. Feige had worried that a 16.66667 percent state royalty interest and a 3.33333 percent overriding royalty interest as part of transfer would overburden the leases, making it difficult for ConocoPhillips to pursue an economic development.
While acknowledging that a “net revenue interest” of 80 percent could “negatively impact development of the leases,” and had rejected leases with even lower net revenue interests, Mack noted that the state had previously allowed similar transfers to proceed.
Third, Mack found that the transfer would not harm the public interest by the preventing the state from including the leases in a future sale. The original ruling, he decided, incorrectly assumed that ConocoPhillips would be incorporating the acreage into a producing unit, whereas ConocoPhillips said it intended to explore the acreage.
Putu wells being permitted
ConocoPhillips is currently in the process of permitting the Putu No. 1 well and Putu No. 1A sidetrack on the package of leases and said it could launch an environmental review for a potential development in the areas as early as next year, if drilling results warrant.
Finally, Mack decided it was appropriate for a company to transfer leases during their 90-day “secondary term” to another company. Feige had found that using the 90-day grace period to transfer a lease to another operator went against the spirit of the provision. (A unit protects leases from expiration. If the leases in an expired unit have already passed their expiration date, the secondary term provision creates a 90-day grace period.)
In her original ruling, Feige had allowed ConocoPhillips to acquire seven leases still within their primary term. The reversal allows the company to also acquire the remaining 15 leases from the former Tofkat unit, retroactive to the beginning of June 2016.
In a related Nov. 4 decision, Mack overturned a previous decision from the Division of Oil and Gas to reject a request from ConocoPhillips to expand the Colville River unit to include the former Tofkat unit. Given that the ambiguous leases were the main reason the state had rejected the request, Mack asked ConocoPhillips to resubmit its application fee within 10 days in order to re-launch the review process of the original expansion request.
