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Buccaneer, CIRI, Mental Health Trust at odds over Kenai Loop
The Alaska Oil and Gas Conservation Commission is wrestling with issues related to gas ownership in the Kenai Loop area on the Kenai Peninsula and has recently denied two requests from Buccaneer Alaska Operations LLC for spacing exceptions for Kenai Loop wells because of objections from adjacent owners that their property would be drained by production from the Buccaneer wells.
The issue came to light when Buccaneer applied for spacing exceptions for Kenai Loop wells nos. 1-4 and 1-4ST. The company has other producing gas wells at Kenai Loop, north of the Cannery Loop unit, and has had production there since January 2012.
Buccaneer was required to apply for the exceptions because the proposed gas wells were within 1,500 feet of a property line where the owner and landowner are not the same on both sides of the line and within 3,000 feet of a well producing, or that may be capable of producing, from the same pool.
When the commission published a notice providing for a public hearing if there were protests, it received protests from Cook Inlet Region Inc. Others with interests within 3,000 feet include the Mental Health Trust — from whose acreage Buccaneer is producing under lease — and the Alaska Department of Natural Resources. State lease ADL 391094 is the proposed site of the 1-4ST well, although state records show a termination date of Sept. 30, 2012, for that lease, held by Buccaneer Alaska.
Buccaneer is appealing a March decision by DNR’s Division of Oil and Gas denying an application for a unit at Kenai Loop. Buccaneer told the commission it has appealed the denial, which DNR said was on the basis that it appeared to be for “lease extension and not the efficient development of the unit area.”
Protection of correlative rights In a Sept. 3 order on the Kenai Loop 1-4 wells, the commission noted its statutory obligation to protect correlative rights, i.e. production rights of adjacent owners, and said Buccaneer was authorized to continue drilling the Kenai Loop 1-4 well, but was not allowed to test the well without the commission’s prior written approval after the company provides notice to CIRI, DNR and MHT. “Any approval shall be contingent upon Buccaneer’s agreement to provide all data obtained as a result of the test to both CIRI and DNR,” the commission said, adding that production cannot begin from the Kenai Loop 1-4 well without prior written agreement by AOGCC and the filing of a pooling agreement.
Following the Aug. 13 hearing, DNR on Aug. 26 submitted an objection, telling the commission the spacing exception for the Kenai Loop 1-4 well should not be granted because Buccaneer is in violation of DNR regulations for failure to submit a plan of operations “and because the absence of pool rules jeopardizes DNR’s correlative rights.”
In an Aug. 27 response to DNR’s protest, the commission said Buccaneer set forth “its disagreement with DNR’s interpretation of DNR’s regulations, its disagreement with DNR’s unwillingness to unitize leases, and its claim that ‘concerns related to pooling and correlative rights are ... being addressed by Buccaneer, the Division and the Mental Health Trust.’”
The Kenai Loop 1-4 well is on a Mental Health Trust lease held by Buccaneer. In denying the spacing exception the commission said “Buccaneer did not present convincing evidence that potentially gas-bearing reservoirs targeted by Kenai Loop 1-4 will not drain adjacent leases ADL-391094 and C-061167,” respectively the adjacent state and CIRI leases.
Second denial similar In a Sept. 20 denial of Buccaneer’s spacing exception application for the Kenai Loop No. 1-4ST, the commission reviewed similar facts, although the 1-4ST has a surface location on ADL 391094, the state lease, and a proposed bottomhole location on Mental Health Trust land lease MHT 9300082.
As with the 1-4 well, CIRI objected based on violation of its correlative rights and DNR objected based on Buccaneer’s failure to submit a plan of operations and “because the absence of pool rules jeopardizes DNR’s correlative rights.”
In denying the application “without prejudice” the commission said Buccaneer cannot drill without an AOGCC drilling permit and cannot test without AOGCC’s prior written agreement “after Buccaneer has provided notice to CIRI, DNR and the MHT.” As with the first denial, the commission said approval would be contingent on Buccaneer’s agreement to provide all data from a test to CIRI and DNR.
“No production may begin from the Kenai Loop 1-4ST well absent prior written approval of the AOGCC and the filing of a pooling agreement that is properly executed by Buccaneer, CIRI, DNR and the MHT,” the commission said.
Other issues also surfaced. According to the transcript of the Aug. 13 hearing, Buccaneer and CIRI are in dispute over CIRI lease C-061167, which CIRI told the commission had been terminated and Buccaneer maintained was still in effect.
CIRI also questioned whether Conservation Order No. 231, for the Cannery Loop unit, is still in effect for sections 33 and 34, north of Cannery Loop, where Buccaneer is now developing Kenai Loop.
The commission said Sept. 20 that CO 231 “remains in effect” but also said “Buccaneer bears the burden of proof that this well will not impact the correlative rights of adjacent owners and landowners.”
—Kristen Nelson
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