Donkel challenging DNR procedures

An independent investor claims his overriding royalty interest in two Cook Inlet leases statutorily entitles him to appeal a recent state decision not to unitize those leases.

Because of the “clear indications that accumulations of hydrocarbons” underlie the leases, Dan Donkel said the decision by the Alaska Department of Natural Resources not to unitize the leases “exposed the royalty interest owners to significant loss of property.”

After picking up the leases in 2003, Donkel and fellow independent investor Kenneth Mehaffey transferred working interest to Aurora Gas LLC, but each retained a 1.5 percent overriding royalty interest. Aurora applied in July 2010 to form the Cohoe unit over the leases, but after a long deliberation the state denied the request this past May.

Donkel appealed the decision to the Alaska Superior Court.

The state asked the court to dismiss the appeal, arguing that holding an overriding royalty interest on the leases did not give Donkel the standing to appeal the decision on the unit.

In addition to making a statutory claim to the contrary, Donkel is using the appeal to challenge the DNR’s process for administering leases. “Alaska is unique in that the same party that owns the property rights available for lease then administers them, writes the regulations that describe and circumscribe the actions of lessees and other parties with interests,” Donkel’s attorneys wrote in filings. “When a dispute arises, that same branch of state government also conducts its own internal process in which it alone develops the record and decides whether its own actions were correct or incorrect. Under such circumstances, close court scrutiny is not only warranted, but absolutely mandatory for the purposes of procedural and substantive due process rights of all interested parties.”

—Eric Lidji