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Commission schedules North Cook Inlet integration hearing Petition filed in 1996 has been rejected, appealed, remanded by Alaska Supreme Court for a hearing on the merits Kristen Nelson PNA Editor-in-Chief
The Alaska Oil and Gas Conservation Commission has set a hearing date of March 13 on the Danco Inc. and Monte Allen petition for compulsory unitization of two tracts into the existing North Cook Inlet gas production unit.
Unit operator Phillips Alaska Inc. is opposing adding the tracts to the unit. In 1996 Phillips Petroleum Co. was the operator of the North Cook Inlet unit and Phillips Petroleum Co. and ARCO Alaska Inc. were the working interest owners in the leases. They denied a request from Danco and Allen to add the tracts — ADL 369100 and ADL 369101 — to the unit.
Danco and Allen, who held overriding royalty interests in the leases, then petitioned the commission for compulsory unitization of the leases into the unit. The leases expired Aug. 31, 1996, the day after the petition to the commission.
The Alaska Supreme Court said in summarizing the petition that a Department of Natural Resources report issued in April 1996 estimated “previously undetected reserves of 1 trillion cubic feet of gas in the North Cook Inlet pool. Because their leases adjoined the North Cook Inlet unit, Allen and Danco believed that they were ‘likely beneficiaries of the same gas formation.’ “
Reserves at the field were shown as 468 billion cubic feet in DNR’s February 1993 report, 410 billion cubic feet in February 1994 and 358 billion cubic feet in March 1995.
Then in April 1996, DNR’s annual report showed 1 trillion cubic feet of gas reserves at North Cook Inlet, an amount which grew to 1.075 trillion cubic feet in the April 1997 report before beginning to drop. In its 2000 annual report, DNR estimates the reserves at 917 billion cubic feet. DNR said the change between 1995 and 1996 was just a reassessment of the reserves at North Cook Inlet. The state said it didn’t know how the DNR estimates compared to those made by the companies. Commission denies petition The commission initially rejected the petition because Danco and Allen were overriding royalty interest owners, not working interest owners.
On appeal, the commission accepted the standing of overriding royalty interest owners to petition for compulsory unitization, but rejected the petition because the leases expired the day after it was filed and the commission said retroactive unitization would not be appropriate.
Monte Allen appealed and the case reached the Alaska Supreme Court, which said that since the commission’s decision to reject the petition “reflected on the merits of Allen’s petition, not on the commission’s power to hear it, the possibility of retroactivity could not properly be eliminated without determining the merits of the petition for unitization.”
The court found that Allen entitled to a hearing on the merits of his unitization petition and remanded the case for a hearing.
DNR then said that, since it administers the existing unit, it should hold the hearing. Danco and Allen objected. The commission told Danco and Allen that it believed their chances of prevailing were better with DNR because of different standards the agencies apply for unitization, but agreed to hold the hearing when Danco and Allen insisted that the commission was the proper agency. Parties, tracts expand A pre-hearing conference was held in October and the parties have been exchanging information and pre-filing written testimony with the commission.
Others with overriding royalty interests have joined the proceeding, and have argued that it is the duty of the commission to investigate on the behalf of petitioners. The commission responded that while it does have mandatory responsibilities including investigating, “it cannot be the law that the commission is required to conduct a plenary investigative proceeding blindly applying all of its investigative powers to their full extent every time someone alleges that there is an occasion calling for commission action.”
The proceeding has also expanded geographically. The commission said Feb. 9 that maps and accompanying documentation recently filed by Danco “appear also to propose inclusion” of a portion of ADL 17599, in which Chevron U.S.A. Inc. and the Municipality of Anchorage, along with Phillips Beluga Inc., have the working interest ownership.
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