Vol. 26, No.37 Week of September 12, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

French wins in court

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Supreme Court reverses lower court, finds AOGCC has broad waste authority

Kristen Nelson

Petroleum News

In a Sept. 3 decision the Alaska Supreme Court reversed a decision by the Alaska Superior Court in a case brought by Hollis French against the Alaska Oil and Gas Conservation Commission and remanded the matter to AOGCC “for further proceedings consistent with this opinion.”

French, a commissioner from 2016 to early 2019, had petitioned AOGCC for a hearing on a complaint of waste, arguing that the commission was taking too narrow a view of its statutory authority.

In an April 2019 letter to the commission protesting its order denying his request for a hearing on his complaint of waste, French said: “It is a little frustrating dealing with a so-called conservation commission that refuses to see what is directly in front of it,” referring to the 2017 gas leak in Cook Inlet.

He said in that letter that the commission’s position “is not supported by Alaska law; indeed, the agency’s position is contrary to the law.”

The Supreme Court appeared to agree with French’s view of the extent of AOGCC authority.

2017 fuel gas leak

The issue arose from a 2017 fuel gas leak from an 8-inch line carrying fuel gas to Hilcorp Alaska’s Platform A in Cook Inlet.

In a March 2019 order the commission said it investigated the leak when it occurred and found the gas was purchased by Hilcorp from a third party.

Had the source of the gas been upstream gas, “gas which remained an AOGCC-regulated resource and had not been metered and severed from the property … the gas leak would have constituted waste and AOGCC would have instituted an enforcement action against Hilcorp,” the commission said in its 2019 order.

But, the commission said, the leaking gas had been purchased by Hilcorp and was being shipped back to Platform A.

“The primary purpose behind the prohibition against waste is to maximize resource recovery,” the commission said, and “like every other state’s oil and gas conservation regulatory authority, AOGCC regulates waste occurring upstream,” that is, the commission said, before the oil or gas is “metered and severed from the property.”

“Neither AOGCC nor any of its counterparts in other states has ever attempted to extend its jurisdiction over waste to gas which has been sold by a vendor,” the commission said.

Appeal to Superior Court

In appealing the commission’s order to the Alaska Superior Court in April 2019, French listed three points on appeal. He said AOGCC erred by ruling it “had no jurisdiction over gas sold by a vendor,” in ruling it “had no jurisdiction over gas metered and severed from a property” and in ruling that it “had no jurisdiction over gas Hilcorp purchased from Harvest Pipeline.”

In an April 2019 letter to the commission asking for reconsideration of the agency’s March 2019 ruling, French reviewed the 2017 events, which resulted in gas being released for several months.

“That is waste,” French said. “The lack of gas led to the platform shutting down, which resulted in a loss of oil production. That is bad. The waste led to a loss of production.”

French said AOGCC’s ruling that it did not have jurisdiction over the leak is based on the commission’s authority ending after “oil or gas is metered and severed from the property.”

He said the commission’s position “is not supported by Alaska law; indeed, the agency’s position is contrary to the law. The law says that the agency’s authority extends statewide” and cited the commission’s statutory authority over “all land in the state lawfully subject to its police powers” and its “jurisdiction and authority over all persons and property, public and private, necessary to carry out the purposes and intent of this chapter.”

“If the Legislature had wanted the agency’s jurisdiction to end at the meter, it would have said so in a statute,” French said.

And on the issue of preventing waste, French said, if maximizing resource recovery is the primary reason for prohibiting waste, then “the commission should be exerting jurisdiction over this fuel gas leak, as it without question led to lesser recovery of the resource.”

French referred to letter from the Department of Natural Resources which cited the 2017 production platform shutdown caused by the fuel leak as impacting the flow capacity of existing wells, causing production to return at a lower rate than that the reservoir was capable of once the leak was repaired and production resumed.

Superior Court decision

In its June 2020 ruling in favor of the commission, the Alaska Superior Court said French asked the court to rule that AOGCC had jurisdiction over the gas leak and asked the court to “independently review the merits of the AOGCC’s decision and rule that the Cook Inlet gas leak constituted ‘waste’” under state statute and was under the commission’s jurisdiction.

AOGCC requested the court to apply the rational basis standard, find the gas leak did not constitute waste and affirm the commission’s order.

The court said the Alaska Supreme Court reviews agency interpretations of statute based on one of two standards - reasonable basis review or independent judgment review.

The parties, the Superior Court said, disagree on which standard applies.

“When the interpretation at issue implicates agency expertise or the determination of fundamental policies within the scope of the agency’s statutory functions, Alaska courts apply the rational basis standard, where the Court gives deference to the agency’s interpretation so long as it is reasonable,” the Superior Court said.

“A reviewing court applies the independent judgment standard ‘where the agency’s specialized knowledge and expertise would not be particularly probative on the meaning of the statue,’” the Superior Court said.

“This Court agrees with AOGCC that a waste determination is within its expertise,” the Superior Court said. “AOGCC complied with the statute by investigating the gas leak and determining the leak did not constitute ‘waste’ under the statute. Therefore, this Court will defer to AOGCC’s waste determination if it is reasonable pursuant to the rational basis standard.”

The Superior Court said the statutory reference to waste includes the words “unless the context otherwise requires,” thus, the court said, the statute “presupposes situations where ‘waste’ may have different meanings in different contexts.”

“Further, this language provides a reasonable construction that the legislature intended to give AOGCC broad authority to employ its expertise and determine what constitutes waste,” the Superior Court said, and concluded that the commission’s “determination that the Cook Inlet gas leak did not constitute ‘waste’ is reasonable under” the statute.

The Superior Court also said this finding was consistent with AOGCC’s previous regulations of waste upstream, prior to metering and severing from the property.

On the issue of “whether proper procedures were observed,” the Superior Court said the commission’s decision in Other Order 150 (denying French’s petition for a hearing on waste) “complies with AOGCC’s waste determination duty.”

The Superior Court disagreed with French’s argument that “the definition of ‘waste’ is a question of statutory construction, and therefore the Court should analyze the statute independent of the agency’s interpretation,” finding, instead that: “A waste determination requires specialized agency judgment, and thus the independent judgment standard is inapplicable.”

Supreme Court ruling

The Alaska Supreme Court reversed the Superior Court’s decision.

In discussion of its decision the Supreme Court said the parties appeared to agree that French is an interested party. “The only issue thus is whether French’s petition contained a matter within the Commission’s broad jurisdiction.”

The Supreme Court said French argues the requirement that the commission “investigate whether waste exists” gives it “jurisdiction over waste determination.”

While AOGCC concedes its statewide jurisdiction includes waste, the Supreme Court said the commission argues it was first required to determine whether waste exists before exercising jurisdiction, because without waste it has no jurisdiction.

“The Commission’s jurisdiction argument puts the cart before the horse,” the Supreme Court said.

AOGCC’s mission is investigating and identifying oil and gas waste, and it “had jurisdiction over the leak at issue. If we accepted the Commission’s understanding of jurisdiction, the Commission could always undermine AS 31.05.060(a)’s hearing requirement by deciding the substantive issue behind closed doors and then disclaiming jurisdiction.”

AOGCC said it had investigated the leak and made a waste determination, the Supreme Court said, but even if it could deny a hearing because it had investigated waste, “the factual assertion that it has done so must be supported by substantial evidence. The Commission’s statements about having investigated whether the leak was waste are wholly unsupported. The Commission’s dismissal order contains several factual statements about the alleged investigation and waste determination, but there is no supporting evidence in the administrative record.”

The Supreme Court said AOGCC improperly denied French’s request for a hearing.

“The Commission has jurisdiction over waste determination, and substantial evidence does not support its assertion that it investigated and concluded this leak was not waste,” the Supreme Court said, reversing the Superior Court decision and remanding the matter to the commission “for further proceedings consistent with this opinion.”

Grace Salazar, AOGCC special assistant, told Petroleum News in a Sept. 9 email that the commission “is still reviewing the decision and has no comment at this time.”

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