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Conservation commission concludes hearing on petition to expand North Cook Inlet unit Post-hearing briefs will be complete by mid-September, AOGCC will issue its decision in mid-October Kristen Nelson PNA Editor-in-Chief
The Alaska Oil and Gas Conservation Commission concluded a hearing June 20 on the petition of Danco Inc. and Monte Allen to have two leases added to the North Cook Inlet unit. Post-hearing briefs will be filed later this summer, with the final brief due Sept. 14. The commission then has 30 days to issue a decision.
The petition was remanded to the commission by the Alaska Supreme Court last year. The court disagreed with a commission decision dismissing the petition because it was filed Aug. 30, 1996, the day before the leases expired.
The commission said that any decision it made would be moot because the leases expired before it could hear the matter.
The court said the commission had the authority to make its decision retroactive and remanded the petition for a hearing on the merits. Location of reserves at issue Danco Inc. and Monte Allen had petitioned the commission in 1996 to expand the North Cook Inlet unit after the Alaska Department of Natural Resources Division of Oil and Gas tripled estimates of remaining reserves of natural gas at the field in its 1996 annual report — from an estimated 358 billion cubic feet remaining in the 1995 report to an estimated 1 trillion cubic feet remaining in the 1996 report.
Danco and Allen held overriding royalty interests in the leases to the north of the unit, and argued that the expanded reserves meant the field was larger than the area included in the unit. They asked the working interest owners of the leases, ARCO Alaska Inc. and Phillips Petroleum Co., to integrate the leases into the North Cook Inlet unit, operated by Phillips.
ARCO and Phillips refused, and Danco and Allen then asked the commission to protect their correlative rights by forcibly adding the leases to the unit, arguing that the leases to the north contained gas which was being produced from the Tyonek platform, entitling them to royalty payments. Duels over data Experts at the hearing argued over technical data from the unit. Both sides had available information from the commission’s public files including drilling histories and production data for the field.
The Danco experts, David Lappi and James Givens, signed confidentiality agreements to view Phillips’ three-dimensional seismic data, but Givens declined to sign a confidentiality agreement to view other confidential data from Phillips.
Both Lappi and Givens told the commission that the information they examined indicated the field is larger than the unit, and that gas is being drained from leases to the north.
Lappi’s testimony based on 3-D data from Phillips was heard in camera, but Givens told the commission that based on Lappi’s testimony about anomalies in the 3-D indicating the presence of gas, the field looked even more extensive than he (Givens) had envisioned.
Givens said he was not prepared to define what the unit boundaries should be, but said ideally you drill until you get dry holes on all sides. C.R. Kennelly, one of two attorneys representing Danco-Allen, told the commission that the purpose of the hearing was to establish if the leases to the north were being drained. A second hearing, he said, would be necessary to determine how far to the north the unit should extend. Phillips says increase in net pay Scott Wilson, one of the experts for Phillips, testified that net pay, the productive portions of the reservoir, has increased, not the areal extent of the unit. In the original wells, Wilson said, small sands were apparently not counted, and there is more net pay in the unit than originally estimated.
Wilson said the Beluga River field also had an increase in recoverable gas, although not as great as that at North Cook Inlet, while at the same time the field area at Beluga shrank as wells watered out at the edges. Wilson said that margins of the field would be the least likely locations for additional gas.
Wilson said the field sizes proposed by Danco conflict with each other and with known well data and he said Danco has shown no evidence the leases to the north have been drained — or even contain gas.
Blain Campbell, also testifying as an expert for Phillips, said he reviewed information Phillips has and found the productive limit of the field never extended into any part of the northern leases. Data a sore point The issue of who had how much information prompted some interesting responses.
Danco attorney Brown was cross examining Wilson about the different field sizes Danco witnesses had proposed and asked if the different sizes didn’t relate to different amounts of information the Danco team had at different times.
Wilson responded that if the Danco group kept looking at information they’d eventually come up with the same view as Phillips.
Rozell was cross examining Givens on which sands north of the unit were being drained, and Givens said he hadn’t seen anything that said they aren’t being drained, but, he said, Phillips has a “chokehold on data.” If I had the information I could reach a conclusion, Givens said. Tyonek deep also an issue The Danco group has also said that oil extends under the northern leases. Phillips expert Brian Seitz said Tyonek Deep — the oil accumulation in the area — is not relevant because there is no development. More than $170 million was written off by ARCO, he said, and more than $190 million by Phillips, and conclusions were the same: oil development wasn’t commercial.
Fred Brown, an attorney for Danco, said the problem with Tyonek Deep was the economics of large oil companies.
Phillips’ attorney Rozell said Phillips has no Tyonek Deep operation and no plan of development, but the commission allowed in Lappi’s speculation that there is deep oil under the northern leases. Testimony notes there was serious exploration, he said, but it’s not commercial.
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