Union looks to avoid Spurr liability

Company seeks court declaration that it isn’t responsible for costly decommissioning of played-out platform in Alaska’s Cook Inlet

Wesley Loy

For Petroleum News

Union Oil Co. of California is asking a court to rule the company isn’t liable for the cost to abandon and decommission the Spurr platform and related facilities in Alaska’s Cook Inlet.

In a motion for summary judgment filed May 23 in state Superior Court in Anchorage, lawyers for Union, a subsidiary of Chevron, argue primary liability rests with another company, Forest Oil Corp.

The case grew out of the bankruptcy of a third company, Pacific Energy Resources Ltd., that formerly held a half share in the Spurr property. As part of bankruptcy proceedings, Pacific won court approval to walk away from the property, along with its obligation to pay for decommissioning.

The question before the court is which of the preceding owners of Pacific Energy’s share — including Union and Forest — might be liable for part of the decommissioning cost.

It’s a question of considerable importance not only to Union and Forest, but also to the state and Marathon Oil, which is Spurr’s operator and owner of the remaining 50 percent stake.

In the Superior Court case, Union is the plaintiff with Marathon and the state, which issued the lease on which the Spurr platform was built, named as defendants. Marathon has filed a counterclaim.

Platform is done

The platform produced from the North Trading Bay unit and nearby acreage, sending oil and gas ashore at Granite Point.

As its wells tapped out, production from Spurr ceased in 1992, and now it’s among a handful of elderly Cook Inlet platforms facing removal someday.

Marathon has submitted abandonment plans to the state Department of Natural Resources.

Decommissioning the platform and its wells is bound to be expensive. In court papers filed in 2009, Pacific Energy said total decommissioning costs are projected to run between $21 million and $35 million.

Decommissioning is required under the state lease.

Ownership in the Spurr property changed hands a number of times, and this is key to the dispute over who ultimately is liable for the decommissioning costs.

Texaco and Superior were the original partners.

Mobil took Superior’s 50 percent interest in 1984, says a memorandum Union filed in support of its May 23 motion for summary judgment.

In 1988, Union and Marathon acquired the Spurr facilities as 50-50 stakeholders. A “letter agreement” between the two specified: “The cost to abandon the Texaco ‘A’ Platform and any related facilities, pipelines and onshore production facilities shall be pro-rated between Union and Marathon on the basis of their respective ownership of cumulative equivalent hydrocarbon production from the Texaco ‘A’ Platform.”

In 1998, Forcenergy acquired Union’s interest in Spurr, and “assumed Union’s related obligations,” the Union memo says. “In this transaction, Union conveyed its entire interest in the Spurr Facilities to Forcenergy. In addition, Union paid Forcenergy $1 million.”

In 2000, Forcenergy merged into Forest and a few years later, in 2007, Forest transferred its interests in Spurr and the state lease to Pacific Energy.

Union’s argument

Union lays out a legal argument that liability for Pacific Energy’s share of Spurr’s decommissioning costs now falls to the most recent previous owner, Forest.

“With the default by Pacific Energy on its obligations to Marathon, Forest — not Union — is primarily liable for payment to Marathon of Union’s share of decommissioning and abandonment costs for the Spurr Facilities,” the Union memo says. “Union’s liability to Marathon for these costs is secondary, and arises only if Forest defaults on its primary obligation to pay these costs.”

Union is seeking a declaratory judgment to confirm its position.

But Forest has contended it is not responsible for Spurr’s decommissioning.