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Vol. 19, No. 8 Week of February 23, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

Healy exploration okay

Alaska Supreme Court rejects appeal against Usibelli coalbed methane license

Alan Bailey

Petroleum News

The Alaska Supreme Court has rejected an appeal against a decision by the Alaska Department of Natural Resources, or DNR, to issue a license to Usibelli Coal Mine to explore for coalbed methane in the Healy area of the Alaska Interior. In a Feb. 14 decision the court said that DNR acted properly in its environmental assessment of the proposed exploration activities and, hence, that the decision to issue the license was lawful.

The exploration license encompasses about 200,000 acres of state land between Healy and Nenana, immediately east of Denali National Park. A state exploration license gives a company exclusive rights to explore for oil or gas in state lands for a specified number of years, with a commitment to some level of exploration expenditure during that time.

Denali Citizens Council, a public-interest group in the Denali Borough, had raised the appeal against the Healy license. According to the council’s website, the council opposes coalbed methane exploration in settled areas and in areas viewed as important to tourism in the Healy area.

Gas from coal

Coalbed methane production involves drilling wells into coal seams and then pumping water out of the coal, thus reducing the pressure in the coal and releasing natural gas into the well. The Healy area has abundant coal seams, with possible coalbed methane potential. And, hurting from the high cost of fuel oil, people in the Interior are looking for new energy sources that might lower their energy bills.

But coalbed methane exploration in Alaska has proved controversial — in 2005 a coalbed methane exploration project in the Matanuska-Susitna Borough came to naught following vigorous complaints from local residents, who were concerned about surface land access rights and issues such as disturbance from industrial activities.

Applied in 2004

Usibelli originally filed its exploration license application in April 2004. In August 2005 DNR issued a preliminary best interest finding, the document that includes an environmental evaluation of the proposed exploration activities and which is an essential precursor to a license decision. That best interest finding determined that the potential benefits of exploration outweighed the possible adverse impacts.

But in the wake of the debacle over coalbed methane development in the Matanuska Valley, the question of exploration in the Healy area lay dormant for several years. In 2006 the Denali Borough Assembly passed an ordinance banning gas exploration or development in about 40 percent of the exploration license area. The state, however, with subsurface rights in its lands, said that the assembly’s action was illegal.

Final finding

In June 2010 DNR issued a final best interest finding, upholding the issue of the exploration license while also retaining the original boundaries of the license area. The state denied a request by Denali Citizens Council that the area west of the Nenana River should be excluded from the license — DNR said that environmental mitigation measures associated with the license would minimize environmental impacts and that eliminating such a large area from the license would make exploration uneconomic. In its final finding DNR also modified some of the mitigation measures in the preliminary finding, eliminating some general measures relating to noise levels, eliminating a requirement that Usibelli obtain consent from all property owners in a residential subdivision before constructing drilling pads or compressor stations but committing to requiring the mitigation of noise impacts on a site-by-site basis.

Appealed

After failing to persuade DNR to change its final finding, Denali Citizens Council appealed the DNR decision to Alaska Superior Court. And when that court upheld the DNR decision, the appeal was elevated to the Alaska Supreme Court.

In its appeal, the Denali Citizens Council claimed that the state had not presented an adequate argument in support of its statement that reducing the size of the license area would render exploration uneconomic. The council also argued that DNR’s decisions over mitigation measures in the final finding had been “arbitrary and capricious.” And the council said that the best interest finding is inconsistent with the state’s land use plan for the Tanana basin area.

But the Supreme Court judges, in their decision over the appeal, have now said that, since there is no legal requirement for DNR to consider the economics of alternatives to the proposed license, questions over the economic impacts of reducing the license area are irrelevant to the license decision.

Not arbitrary

And DNR’s treatment of mitigation measures was not arbitrary, the judges said. For example, DNR had explained that changes to noise mitigation requirements were intended to ensure flexibility, especially when some land lots in the exploration area remain unoccupied and undeveloped for long periods of time. Moreover, although in its final finding the state had changed its criteria for granting exceptions to mitigation measures, that change had not been substantive, the judges said.

Finally, the judges found that the best interest finding is consistent with the Tanana Basin Area Plan —the plan explicitly accommodates the possibility of oil and gas development, besides which there is no precedent for viewing a plan of this type as legally binding, the judges said.



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