Vol. 26, No4 Week of January 24, 2021
Providing coverage of Alaska and northern Canada's oil and gas industry

Oil patch insider: White awaits notice for filing opening brief in well bond suit

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Kay Cashman

Petroleum News

On Oct. 15 Anchorage attorney James Gottstein filed an administrative appeal with the Alaska Superior Court against the Alaska Oil and Gas Conservation Commission on behalf of Alaskan Crude Corp., which is headed by Jim White.

There was some confusion about how to pay the filing fee, which resulted in a dismissal notice from the court that has since been resolved and the new filing date of the appeal was Nov. 9.

“We should receive a 30-day notice for filing the opening brief in the not too distant future,” Gottstein told Petroleum News Jan. 17.

Alaskan Crude’s appeal of AOGCC’s decision and order on reconsideration made two points. First, that imposing the bond retroactively was an “unconstitutional ex post facto law,” violating Article 1, § 15 of the Alaska Constitution. Second, that the regulation went beyond the commission’s statutory authority, which only allowed bonding to secure the obligations to “plug each dry or abandoned well or the repair of wells causing waste” per AS 31.05.030(d)(4), Gottstein noted in an email to PN.

“The commission asked questions at the hearing about Alaskan Crude's plans to plug and abandon three existing wells, which was not relevant to the request for reconsideration, but I addressed them anyway and the commission spent much of its decision on these irrelevant issues,” Gottstein said, “The commission never addressed the ex post facto law defect and essentially admitted Alaskan Crude is right on number 2.”

AOGCC “should not even be allowed to contest that the retroactive bonding requirement is unconstitutional because it didn't include it in its decision,” he told PN.

With respect to exceeding its authority, the commission's decision concluded, “AOGCC is authorized to require a bond for the performance of the duty to plug wells and the duty to repair wells causing waste.”

Gottstein said Alaskan Crude agreed with that, but said the commission’s regulation required, “security to ensure that each well is drilled, operated, maintained, repaired, and abandoned and each location is cleared in accordance with this chapter." This, he said, was “more than the duty to plug wells and repair wells causing waste and therefore exceeded its statutory authority.”

AOGCC decision, order

On July 2, 2019, the commission sent Alaskan Crude a letter about new bonding requirements in 20 AAC 25.025. This letter, Gottstein told the Superior Court in his filing, advised that under AOGCC’s new regulation Alaskan Crude’s three permitted wellheads increased the company’s bonding level to $1.2 million.

Because Alaskan Crude had a $200,000 bond in place, an additional $1 million in bonding was required, payable in two annual installments of $500,000.

On July 25, 2019, the company asked AOGCC to reconsider its decision.

On Jan. 23, 2020, the commission held a hearing on Alaskan Crude’s request for reconsideration. After the hearing, the record was left open until July 31, 2020, to give the company time to provide any additional evidence it wanted considered.

AOGCC findings

Based upon the evidence presented by Alaskan Crude, AOGCC found as follows, Gottstein told the court:

1. Alaskan Crude was the operator of record for the Mike Pelch 1, the Burglin 33-1 and the Katalla KS-01 wells.

2. Alaskan Crude’s July 25, 2019, request for reconsideration claimed AOGCC’s bonding regulation was an illegal ex post facto law and that the bonding regulation was beyond the scope of AOGCC’s authority under its enabling act.

3. At the Jan. 23, 2020, hearing Alaskan Crude added an argument, “that you can’t really tell what it (AOGCC’s bonding regulation) means.” At the conclusion of the hearing, AOGCC left the record open until Feb. 19, 2020, to allow Alaskan Crude time to submit additional information, including its plans for the three wells.

4. In correspondence dated Feb. 19, Alaskan Crude added another claim that AOGCC lacked the authority to require the plugging and abandonment of wells prior to termination of an owner’s rights in the property upon which the well was located. As to its plans for its wells, Alaskan Crude “asserted it lacked the authority to plug and abandon the Katalla well, that it had been absolved of any responsibility for plugging and abandonment of the Burglin well and that it lacked the authority to plug and abandon the Burglin well, and that the Pelch well had a permit to be re-entered and re-worked so plugging and abandoning the Pelch well would be premature.”

Alaskan Crude also said it filed for bankruptcy in 1990 and that the bankruptcy “may have discharged its bonding obligation.” The company requested the record remain open until June 30 to allow it to investigate the bankruptcy issues. Due to the COVID-19 outbreak, the record was ultimately left open until July 31.

5. On July 29 Alaskan Crude again claimed the bonding obligation had been discharged in its 1990 bankruptcy but provided no support for its position. The company also said that it was a completely different entity from the entity that went bankrupt in 1990. The company also demanded that AOGCC provide copies of any bankruptcy documents in AOGCC’s file. Alaskan Crude was told that to the extent any such documents existed, they were available on AOGCC’s website.

6. Alaskan Crude requested a $1 million reduction of its new AOGCC bonding amount, leaving it with the bonding requirement of $200,000.

AOGCC’s conclusions

On Oct. 15, the commission denied Alaskan Crude’s request for reconsideration, listing the following conclusions, per Gottstein’s filing:

1. AOGCC was authorized to require a bond for the performance of the duty to plug wells and the duty to repair wells causing waste. Every operator was required to have a bond in place to ensure compliance those duties. Any bankruptcy that occurred in 1990 could not remove subsequent bonding obligations.

2. Since Alaskan Crude was the operator of record for the Katalla KS-01, Burglin 33-1 and Mike Pelch 1 wells, the company was required to have a bond in place for all three wells.

3. A bond does not confer any rights on an operator.

4. Alaskan Crude provided no written documentation of any change of operator for any of the three wells. Therefore, the company remained the operator of record and was responsible for the plugging and abandonment of the wells. Further, Alaskan Crude had provided no evidence to support its assertion that it was prohibited from plugging and abandoning any of the wells. Absent written proof of either the landowners having prohibited Alaskan Crude from entering the properties to plug and abandon the wells or that the landowners had agreed to assume responsibility to plug and abandon the wells, Alaskan Crude remained responsible to do so.

5. On July 23, 2018, Alaskan Crude applied for sundry approval to abandon Burglin 33-1. AOGCC approved the sundry Aug. 29, 2018. As of, Oct. 15, the Burglin well had not been plugged and abandoned. In addition to the bond required, AOGCC reserved the right to pursue enforcement action in connection with the failure to properly plug and abandon the well.

The commission then ordered that Alaskan Crude’s request for reconsideration denied and the company was ordered to pay $1 million.

The order on reconsideration was the final order of AOGCC, the agency said and as such could be appealed to Alaska’s Superior Court.

Note: Another independent oil and gas company filed an administrative appeal against AOGCC in Superior Court on constitutional issues and that was Amaroq Resources (see Oil Patch Insider in the Jan. 3 edition of Petroleum News).


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