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AOGCC takes more Kenai Loop testimony Commission says it will issue decision within 30 days on CIRI escrow petition; parties say they are close to allocation agreement Kristen Nelson Petroleum News
Buccaneer Operations Alaska, Cook Inlet Region Inc., the Alaska Mental Health Trust and the Alaska Department of Natural Resources Division of Oil and Gas faced off — again — before the Alaska Oil and Gas Conservation Commission April 21.
The issue centers, as it has starting with an August AOGCC hearing, on Buccaneer’s production of natural gas from a Mental Health Trust lease in the Kenai Loop field, production for which Buccaneer is paying royalties to the Mental Health Trust.
CIRI and the state have acreage within the same section and have told the commission that Buccaneer production is draining natural gas from CIRI and state acreage adjacent to the Mental Health Trust tract.
The issue came before the commission in August after Buccaneer applied for spacing exceptions for Kenai Loop Nos. 1-4 and 1-4ST and CIRI protested. In other actions involving Kenai Loop, Buccaneer is appealing a March 2013 Kenai Loop unit application denial by DNR’s Division of Oil and Gas. Various issues related to the field are also in Alaska Superior Court.
Escrow request Following the August hearing the commission allowed Buccaneer to test the Kenai Loop 1-4 well, but required it to share results with adjacent landowners CIRI and DNR.
The subject of commission hearings Jan. 30 and April 21 was CIRI’s petition to the commission that it require Buccaneer to put money into an escrow account to cover “past, present and future production from CIRI acreage.”
CIRI asked the commission to provide relief based on a claim that Buccaneer is “illegally producing gas from the Kenai Loop 1-1 and 1-3 wells without a pooling agreement.” Buccaneer has been producing from Kenai Loop since January 2012.
Ethan Schutt, vice president of CIRI’s Land and Energy Department, told the commission April 21 that 252 days have passed since CIRI alerted the commission in writing that its acreage was being drained. He said CIRI estimates that some 2.1 billion cubic feet of natural gas has been produced from the field, which he characterized as a diminishing resource.
He said CIRI and other parties are attempting to negotiate, but said that process has failed.
Schutt said in his view there are two parties for whom the status quo is fine and two parties for whom the status quo isn’t fine.
He characterized allocation proposed by the different parties as within range of reason, but said there was no deal on allocation and no active negotiations.
Asked by Commissioner Dan Seamount if CIRI is considering royalty or a working interest, Schutt said CIRI was open to any reasonable resolution but said the current situation was completely unacceptable.
Asked by commission Chair Cathy Foerster if the parties could resolve the issue without commission action, Schutt said he believed action by the commission would be extremely helpful.
Bill Barron, director of DNR’s Division of Oil and gas, told the commission that from August it was clear there was royalty from Kenai Loop due to the state and probably others. He said royalty owners have engaged in intense dialogue over allocation issues and said the royalty owners were reasonably close to a decision two and a half to three weeks ago and that Buccaneer was brought into some discussions in the last week, but said trying to come to closure with the royalty owners was more important.
Mark Landt, Buccaneer Alaska vice president of land and business development, said Buccaneer had been making royalty payments to the Mental Health Trust and said Buccaneer was indifferent as to who they paid the royalty to.
He also said Buccaneer doesn’t see the negotiations as dead
Richard Todd, senior assistant attorney general, said the state did not think the negotiations were dead, and intended to pursue them.
Todd said the state intends to pursue negotiations aggressively and said the only thing on the table at the commission is escrow.
Foerster said the commission would rule on the escrow request within 30 days, which prompted Buccaneer to ask for a day’s notice in advance of a commission decision so the companies wouldn’t be faced with a commission decision an hour before they reached an agreement.
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