Great Bear appeals lease extension bonding

Alan Bailey

Petroleum News

Great Bear Petroleum has appealed the state’s bonding requirements for extending the terms of some of the company’s North Slope leases. As previously reported in Petroleum News, Alaska’s Division of Oil and Gas has agreed to extend by three years the terms of four blocks of Great Bear leases that had been due to expire on April 30. Subsequent to that decision, Great Bear decided to only continue its exploration program in two of the leases blocks, allowing the leases in the other two blocks to expire.

All of the lease extensions were predicated on exploration drilling commitments by Great Bear. However, lease extension in three of the blocks, including one block in which Great Bear plans to continue its exploration efforts, came with substantial bonding requirements. The lease extensions required Great Bear to post the bonds by April 30. And the bonds would be forfeited if the exploration commitments are not met.

The bonding requirement for the block of leases that Great Bear wants to continue to hold is $6 million. The bonding for the two blocks that the company is dropping is $3.5 million and $2.6 million.

In April 10 letters to Alaska Department of Natural Resources Commissioner Andy Mack, Patrick Galvin, Great Bear chief commercial officer and general counsel, said that his company views the bonding requirements as arbitrary and as excessively high in relation to the associated exploration drilling commitments. Galvin also questioned the required timing of the bonding, saying that posting of bonds by April 30 is not necessary to protect the state’s interests. Moreover, the imposition of a performance bond unnecessarily puts planned exploration drilling at risk by diverting funds from the drilling program, Galvin wrote.

Galvin asked that the amount of the bonding be reduced and that the required date of the bonding be delayed.

- ALAN BAILEY