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CIRI sues Buccaneer over Kenai Loop lease Says Buccaneer hasn’t met lease terms; Buccaneer says it has more than met terms of lease, although it hasn’t drilled CIRI lease Kristen Nelson Petroleum News
A dispute which became public in hearings before the Alaska Oil and Gas Conservation Commission this summer has moved into Alaska Superior Court, with Cook Inlet Region Inc. suing Buccaneer over return of a CIRI oil and gas lease Buccaneer acquired in 2011.
CIRI owns subsurface rights near the Kenai acreage where Buccaneer started producing natural gas in early 2012, including acreage in section 33 of township 6 north range 11 west, Seward Meridian.
In 2011 CIRI issued an oil and gas lease in section 33 to Buccaneer. CIRI has now gone to court to get that lease back, telling the Alaska Superior Court that Buccaneer has not fulfilled the terms of the lease.
In its response Buccaneer told the court it had more than met the terms of the lease, and accused CIRI of not fulfilling its part of the lease agreement.
The State of Alaska and the Alaska Mental Health Trust Authority also hold title to subsurface in section 33, where Buccaneer, an independent oil and gas company, is developing the Kenai Loop field, CIRI said in its filing.
CIRI’s complaint, filed Oct. 9 in Alaska Superior Court, says it issued oil and gas lease C-061667 to Buccaneer in March 2011. CIRI said Buccaneer also holds leases in section 33 from the state and the Trust Authority.
Buccaneer has been drilling and producing gas at Kenai Loop — but from adjacent acreage, not from the CIRI lease.
In its complaint CIRI told the court: “Buccaneer had the incentive to drill to bottom-hole locations on tracts owned by the State and AHMTA, as Buccaneer’s leases with the State and AMHTA require Buccaneer to pay a lower percentage in royalties than did Buccaneer’s lease with CIRI.”
Buccaneer said in its response that its “drilling targets have been dictated by geologic and geophysical considerations instead of lease boundaries” and said it “has drilled in areas that had relatively lower risk profiles and higher prospectivity.”
Lease terms at issue CIRI said terms of the five-year lease required that Buccaneer submit a plan of exploration to CIRI for the lease by June 1, 2011. By Jan. 1, 2012, Buccaneer was required to complete reprocessing of “certain existing seismic and other data,” identify the prospect area for resource recovery from a well with a bottomhole either offset or on the CIRI leased property and provide copies to CIRI “of all products resulting from the interpretation of the data, including maps, reports, and displays” showing Buccaneer’s interpretation of the property.
A plan of operations was required by Feb. 1, 2012; an approved AFE, authorization for expenditure, was required by March 1, 2012.
CIRI said it did not grant extensions for any of the work commitments, and said Buccaneer “failed to timely perform Work Commitments required by the Lease, as set forth in Exhibit A to the Lease.”
Buccaneer denied that it failed to meet work commitments in the lease.
Rental payments In a response filed Nov. 4, Buccaneer told the court that CIRI accepted its rental payments through 2012 and said that acceptance “ratified any breach that may have occurred before that time.”
On the issue of required drilling the company told the court: “Buccaneer was specifically obligated to commence the ‘drilling of one well by February 1, 2013, on the Leased Area or off the Lease on adjacent property.’ Buccaneer had complete discretion on where to drill this well,” Buccaneer said — either on the CIRI lease or on adjacent acreage.
Buccaneer told the court that since it acquired the CIRI lease, its work activities “went far beyond” the lease requirements.
Buccaneer said it acquired exclusive rights to a drilling rig, shot 3-D seismic, identified potential prospects on the CIRI lease and within the Kenai Loop area, constructed two drill pads, drilled four wells testing the hydrocarbon potential “of the Lease and the Kenai Loop Area,” installed production infrastructure and pipelines.
CIRI also said: “Buccaneer failed to complete the reprocessing of certain existing seismic and other data on or before January 1, 2012,” and failed to provide CIRI with copies of all results of interpretation of the data.
In its response Buccaneer said: “CIRI’s failure to provide Buccaneer with existing 2D seismic rendered Buccaneer’s ability to satisfy work commitments impracticable — there is no obligation to do the impossible.”
Pooling CIRI said in its complaint that as a subsurface estate owner within section 33, it “owns drilling rights and the right to share in production from Well 1-1,” and said it had not consented to a pooling agreement with the state and AMHTA, the other subsurface owners in section 33.
CIRI cited Alaska Administrative Code to the effect that a well cannot begin gas production from a property smaller than a governmental section unless interests of persons owning the drillings rights and the right to share production have been pooled.
Buccaneer said in its response that its Kenai Loop wells “are authorized by Conservation Order No. 231,” and noted that the Alaska Oil and Gas Conservation Commission recently found that CO No. 231, for Cannery Loop, an adjacent field, remains in effect and that section 33 lies within the area of that order.
CO 231 establishes a quarter-quarter section for purposes of well spacing.
Buccaneer also told the court it intended to develop Kenai Loop as a unit.
“CIRI, however, objected to Buccaneer’s attempt to unitize the Kenai Loop Area leases and this objection served as a material reason for the Department of Natural Resources, Division of Oil and Gas’s decision to reject Buccaneer’s request to form a unit,” Buccaneer said in its response.
CIRI also said in its complaint that “Buccaneer has wrongfully converted gas drained” from CIRI’s property “without payment to CIRI, in violation of CIRI’s ownership rights.”
Buccaneer denied the drainage, noting that CIRI raised the issue of illegal drainage with the commission in October, petitioning for relief.
The commission has a public hearing scheduled on that petition, which claimed that Buccaneer is illegally producing gas from the Kenai Loop 1-1 and 1-3 wells without a pooling agreement, at 1 p.m. Dec. 4 in its Anchorage offices.
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