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Danco, Allen, Kasper ask AOGCC for rehearing Commission asked to reconsider decision denying North Cook Inlet expansion to include leases in which petitioners held overriding royalty interests Kristen Nelson PNA Editor-in-Chief
Danco Inc. and Monte Allen, petitioners to expand the North Cook Inlet unit, have applied to the Alaska Oil and Gas Conservation Commission for rehearing of the petition which the commission denied last year.
Danco, Allen and George Kasper applied Dec. 24 for rehearing of matters addressed in the commission’s Oct. 31 order denying a petition by Danco and Allen to expand the North Cook Inlet unit to include leases in which they held overriding royalty interests.
A Jan. 3 order by the commission granted rehearing for further consideration “for the limited purpose of allowing adequate time for further consideration…” because of “the large number of points raised by the applications and the coincidence of the holidays.” The commission said it expects to issue a further decision on the applications for rehearing no later than Jan. 23.
Issues raised The petitioners address a number of issues in their 12-page application for rehearing. They begin by saying the commission applied the wrong statutory basis for their decision, erroneously applying standards for the creation of a new unit to a petition for integration into an existing unit. Because no new unit was requested, petitioners said “they need only allege that integration of the Danco Leases into the NCIU is necessary to protect Petitioners’ rights.”
The leases at issue are to the north of the North Cook Inlet unit. Danco acquired the leases in an oil and gas lease sale, but by the time the leases expired in 1996 just after the original application, Danco held only an overriding royalty interest.
Duty to protect The petitioners argue that it is the commission’s duty to protect their rights: “The costly burden that the Commission has applied to the Petitioners is contrary to its duty to protect the rights of interest holders in lands affected by the NCIU.”
The Legislature established the commission, the petitioners said, “to force working and royalty interests to cooperatively unitize their interests” to protect the rights of interest holders in adjacent lands.
“If every overriding royalty interest owner or others seeking expansion of, and integration into, a unit voluntarily created by the big oil companies was required to satisfy the burden of establishing the Unit Creation Factors and many other burdens imposed by the Commission, then unit operators would be free to simply exclude those persons owning interests in the tracts of land affected by such voluntary unit, who were without the extensive resources required to overcome such a burden. Clearly, this could not have been the Alaska Legislature’s intent when it created the Commission, charged it with a duty to protect such interest holders’ rights, and granted it police powers to prevent just such an injustice from occurring,” petitioners told the commission.
Duty to investigate Petitioners cite Alaska statutes in arguing the commission has a duty “investigate to determine whether or not waste exists … or whether or not any other facts exist which justify or require action by it.”
The commission “has undertaken no independent investigation of the matters,” the petitioners said, but has instead used “the skewed and very limited data” presented by Phillips Petroleum Co. and Phillips Alaska Inc.
Petitioners said the commission failed to resolve the issue of increased reserves in the North Cook Inlet field, and “because such questions remain unresolved, and because the Commission has failed to conduct an investigation into these matters, Petitioners have not had a full and fair hearing on the merits of their petition.”
Commission conflicts Petitioners said the commission has acted with “blatant disregard of its statutory duties and member’s oaths of office” and accused it of open and outward bias against petitioners and their claims.
Petitioners said they “repeatedly objected throughout the course of proceedings” to commission members’ conflicts of interest: Commissioner Julie Heusser was employed by ARCO, since acquired by Phillips, and a former 40 percent working interest owner in the leases at issue, petitioners said, and Cammy Taylor, the commission chair, “is apparently conflicted” because she represented the commission and or the Department of Natural Resources as an attorney with the Department of Law, Division of Oil and Gas.
“The Department of Law, Division of Oil and Gas vigorously advocated against the Petitioners whose rights Commissioner Taylor is now statutorily charged with protecting in the proceedings before the Commission. With potentially biased members,” petitioners said, “the Commission arguably lacked the required two members to constitute a quorum to make the appropriate findings… Due to this apparent bias the Petitioners reasonably believe that they cannot get a fair and full hearing with this Commission.”
Petitioners also said the commission and DNR, which “have adverse interests in this matter,” are both being represented by the Department of Law and the commission failed to seek an independent counsel, although it has authority under statute to do so.
State also wronged Petitioners said the state of Alaska is also wronged because, like petitioners, it has not received its share of hydrocarbons. And the state is also not getting a fair price:
“Furthermore, the Petitioners believe the State of Alaska is not getting its fair share of the price paid at the market for the gas produced when Phillips sells it at the Nikiski LNG (liquid natural gas), and then it appears Phillips pays the State its royalty share based on that low price and not on the high price that Phillips receives when they truly market the gas in Japan, in our belief.”
The commission should be investigating these matters, the petitioners said, “thereby protecting the State’s royalty interests…”
The commission has, petitioners said, “an affirmative duty to protect the Petitioners as well as the State whether petitioned or non-petitioned.”
Data not disclosed Petitioners also said “findings and conclusions in the Order are based upon seismic data to which the Commission denied Petitioners access.” Petitioners said they noted in their post-hearing memorandum that Phillips was able “to selectively disclose seismic data relevant to Petitioners’ claims.” Petitioners said the commission “failed to provide Petitioners’ expert witnesses the opportunity to evaluate and respond to Phillips testimony upon which the Commission based the majority of its findings in the Order.”
New commis New commission regulations came into effect after the petition was filed in 1996, and petitioners said the commission used provisions in the new regulations “to implement procedures which have consistently denied Petitioners due process. … These ‘procedures’ placed onerous and unwarranted burdens on Petitioners, caused numerous delays, and cost Petitioners substantial sums of money.”
Petitioners also said Phillips did not file an objection to the petition within 15 days of the original filing, as provided by statute in effect at the time, yet “the Commission erroneously permitted Phillips to appear, after the fact, to oppose Petitioners’ claims.”
The combination of all of the factors cited, petitioners said, have denied them “an impartial tribunal and due process of law.”
The petitioners said they “require that the Commission fulfill its duty and make a finding and issue its order for Phillips to pay for the fair market value of the production that is due to the Petitioners, including ‘back’ pay and interest since 1986.”
Petitioners said the only thing they were required to do under law is “file a Petition which invokes the Commission’s affirmative statutory duty to do all things necessary to protect said Petitioners. Nothing further was required under law for Petitioners to do. The Commission should perform its duty and protect, safeguard and adjust the State of Alaska’s lost royalty revenue as well as that of the Petitioners. The Commission’s failures to investigate all these matters and to protect Petitioners’ rights are violations of Alaska Statutes and Administrative Code” and, petitioners said, render the commission’s order “totally erroneous.”
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