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AOGCC negotiating with parties for hearing on remanded case Department of Natural Resources wants first shot at North Cook Inlet unitization issue Kristen Nelson PNA News Editor
The Alaska Oil and Gas Conservation Commission is wrestling with a remand for hearing from the Alaska Supreme Court in the case of the application by Monte Allen and Danco Inc. for expansion of the North Cook Inlet unit to include adjoining leases.
The commission rejected an application for forced unitization of two leases into the unit brought by royalty owners Dan Donkel and Monte Allen in August 1996, just before the leases were due to expire, saying that because there was no possibility of a commission decision before lease expiration (the request was filed the day prior to lease expiration), it would be a waste of time to hold a hearing. The court said the commission “has discretion to order unitization effective upon the date of filing of a proper petition” and remanded the case for “a hearing on the merits” of the unitization petition.
The Department of Natural Resources Division of Oil and Gas, which administers the North Cook Inlet unit, has told the commission that it believes “the matter should first be considered under the contractually negotiated procedures.”
“Had Mr. Donkel approached the DNR about expanding the unit, the DNR may have considered his request. But, he did not,” the division said in a July 25 letter to the commission. The division also said some issues involve interpretation of the DNR lease form, and “given that there is already a DNR approved plan of development for this unit, a different plan approved by the AOGCC could create considerable confusion.”
The Division of Oil and Gas gave Danco and Allen 60 days to file with the division, and said later it would consider an application timely filed either within 60 days of the division’s letter to Danco and Allen or within 15 days of a decision by the commission to defer to the division on the matter. Views requested on hearing date The Supreme Court ruled in May. In July the commission solicited views on a hearing date and asking if there were any requests for a pre-hearing conference.
Paul Kelly, attorney for Monte Allen, Danco Inc. and Daniel Donkel, requested a pre-hearing conference to identify issue for resolution at the hearing and procedures to identify and make available “documents required by our consultant/expert” in preparing a report. He noted the “potential need for confidentiality agreements and establishment of procedures to compel production of, or access to, needed documents and/or records.”
Phillips Alaska Inc., operator of the North Cook Inlet unit, told the commission that it intended to participate in the hearing.
It was at this point that the Division of Oil and Gas asked the commission to “defer, at least initially, to the DNR’s jurisdiction…” and wrote to Danco Inc. and Monte Allen that under terms of the existing North Cook Inlet unit agreement “and applicable statutes and regulations, the DNR commissioner has the authority to conduct a hearing on whether the unit should be expanded.”
Commission asks views on deferring to DNR The commission wrote to all parties in early August, asking for views on deferring the commission’s action to DNR. “It may be helpful to all the parties in preparing this submission,” said Commissioner Dan Seamount in this letter, “for the commission to share our preliminary reaction to DNR’s request: namely, that it would appear sensible as a general rule for the commission to defer to DNR on unitization matters that exclusively involve oil and gas leases…”
The commission had, Seamount wrote, two concerns: It wanted to know if DNR would have the discretion to make a unit expansion retroactive, and also was concerned “whether a decision by this commission to defer to DNR at this stage of the case (absent the consent of the petitioners) would be consistent with the Supreme Court’s judgment that ‘Allen is entitled to a hearing on the merits of the unitization petition’ and the court’s remand of the case for a hearing. Commission standards more stringent Seamount also noted that the commission’s statutory requirements for a finding of compulsory unitization have proven difficult to meet in the past, and said DNR’s requirements appear less stringent.
The commission must find unitization is necessary for production; that it prevents waste and increases production; and that the estimated additional cost will not exceed the value of additional oil and gas recovered.
DNR regulations, Seamount said, require no equivalent finding: “it appears it may be sufficient to demonstrate that the leases in question are reasonably known to be underlain by hydrocarbons and capable of contributing to production of hydrocarbons in paying quantities.”
He also noted that past decisions by the commission in compulsory unitization hearings “suggest that it may be quite difficult to meet these statutory requirements in the case of a dry gas reservoir, such as that of the North Cook Inlet unit.”
DNR responded that it has discretion to make unit expansion orders retroactive to the date of the application. As to whether a DNR hearing would satisfy the Supreme Court’s order of remand for a hearing, DNR said there was “no legal reason why the AOGCC’s deferral of this matter for a hearing by the appropriate agency would not satisfy the Alaska Supreme Court’s order of remand for a hearing on the merits of the unit expansion petition.” Applicants opposed to DNR Attorney Paul Kelly disagreed. His clients, he told the commission, “strongly believe that the Supreme Court’s decision is clear and simple” and that the remand is for a hearing before the commission. He said the applicants do not consent to “and, in fact, strenuously object to, any attempt to defer and further delay AOGCC’s compliance with the Supreme Court’s mandate.”
If DNR believes it can “on its own petition, conduct a lawful hearing on the expansion” of the unit, “the applicants will evaluate that action when, and if, it occurs.
“However,” Kelly told the commission, “if DNR seeks to conduct its own proceedings as a replacement or substitute for the mandated AOGCC hearing on the pending application, it is believed that such action is a usurpation of the AOGCC’s authority and jurisdiction in this matter…” Phillips wants just one hearing Stephen Ellis, representing Phillips Alaska, told the commission that Phillips has no objection to a decision by the commission to defer action until DNR has considered unit expansion. He noted, however, that the Supreme Court “directed the commission to conduct a hearing” and noted that the applicants, through their attorney, “are now insisting that the hearing be conducted before the commission and not before the DNR.
“Phillips,” Ellis said, “prefers that there be only one hearing, either before the commission or before DNR.”
A hearing date had not been set when PNA went to press.
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