State approves request to expand Colville River unit

Kristen Nelson, PNA editor-in-chief

The Alaska Department of Natural Resources Division of Oil and Gas has approved an application from ConocoPhillips Alaska Inc. to expand the Colville River unit by 40 leases and approximately 59,865 acres, subject to a work program, bid deferment payments, changes in lease agreement terms and automatic contraction provisions.

The bulk of the four expansion areas are south and southwest of the existing unit: Oberon (26,624 acres on the southeast corner), Titania (16,259 acres west of Titania), Nanuq (10,210 acres south of the existing unit) and Fiord (6,722 acres at the northwest corner).

Alfred James, an overriding royalty owner in lease ADL 388527 (in the Fiord area), told the division in the comment period that the lease should be included.

The division said James presented an argument which “is technically sound” but based upon incomplete data because he did not have access to the 3D seismic survey and the Nigliq 1 and 1A wells. The division did have access to this confidential information and concluded the data does not support inclusion.

The state is requiring an Oberon test well by June 1, 2003; a second Oberon well by June 1, 2004; and inclusion of Oberon expansion area lands within an approved participating area within five years.

A written commitment to drill a Titania test well is required by June 1, 2003; the well must be drilled by June 1, 2004, and a second well by June 1, 2005; these lands must be in an approved PA within five years.

At Nanuq the state is requiring inclusion in an approved PA within five years, with bid deferment payments for acreage not in a PA.

The state deleted some acreage from the Fiord expansion area and is requiring some tracts to be in an approved PA within four years and the remainder within five years or bid deferment payments will be due.

Portions of some leases in the Fiord area are being extended for two years subject to ConocoPhillips completing proposed exploration activities.

The division said Colville working interest owners have also agreed to some lease amendments: “Consistent lease provisions allow the WIOs and the state to reduce the administrative burdens of operating and regulating the unit. Conforming the terms of the older leases to the newer form lease and to the unit agreement allows the state to avoid costly and time-consuming re-litigation of the arguably problematic lease provisions in the older forms.”

The state was also concerned about a surface use agreement between ConocoPhillips and the Kuukpik Village Corp. The state is not a party and wanted a copy. ConocoPhillips sent the state a letter stating that the agreement is not a barrier to meeting the work commitments for the expansion. The state said it will require, as a condition of its approval, that the surface use agreement “will never be a barrier to meeting any work commitments imposed by DNR, and that it will never be used to seek relief from any work commitments imposed by the DNR.”