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State says no to Donkel Oil & Gas unit Unit would have extended five leases which expired May 31; state says exploration work proposed can be done on lease by lease basis Kristen Nelson Petroleum News
The Alaska Department of Natural Resources’ Division of Oil and Gas has denied an application from Donkel Oil and Gas LLC to form a unit offshore the Arctic National Wildlife Refuge east of the Point Thomson unit.
The Aug. 31 decision, signed by both division Director Bill Barron and DNR Commissioner Dan Sullivan, said formation of a unit “is not necessary or advisable to protect the public interest.”
The decision said the only benefit of formation of the Donkel unit would be to the leaseholders (Samuel Cade holds a 75 percent working interest in the leases and Donkel Oil and Gas LLC holds the remaining 25 percent), because it would extend the primary lease term of five of the seven leases proposed for the unit. Those leases expired May 31; the other two leases expire Aug. 31, 2016.
In a discussion of decision criteria, the decision said a proposed unit may be approved if it will “(1) promote conservation of all natural resources, including all or part of an oil or gas pool, field, or like area; (2) promote the prevention of economic and physical waste; and (3) provide for the protection of all parties of interest including the state.”
One of the leases is the location of the 1989 ARCO Alaska Inc. Stinson No. 1 well, which did not find oil at its primary or secondary objectives, but did find what the decision describes as “a significant zone of hydrocarbon shows and flow” beginning at 12,500 feet, with an open hole test at 14,863-15,194 feet achieving a flow of 430 barrels per day of crude oil and 7.1 million cubic feet per day of natural gas.
ARCO plugged and abandoned the well in 1990; ConocoPhillips relinquished the lease in 2008.
Can be done on leases The decision said that the activities in the plan of exploration proposed by Donkel Oil and Gas “would not be conducted any differently as a unit than as individual leases.”
The four-year exploration plan proposed by Donkel Oil and Gas included seismic with a well to be drilled by Aug. 31, 2015, the fourth year of the exploration plan, but there was no plan to bring the unit into production.
Donkel Oil and Gas “has not submitted a plan to bring the proposed unit into production during the unit’s five year term,” the decision said.
The decision said the plan of exploration “does not propose activity which would result in greater economic benefit to the state if the leases were unitized than if the activities were conducted on a lease-by-lease basis,” and the proposed activities “do not result in production sooner than if the same activities (seismic and drilling) were conducted on a lease-by-lease basis. Unitization in this case offers no benefit to the state, the decision said.
“Moreover, the POE does not describe any activity that would result in a benefit to the state which would not be conducted on a lease-by-lease basis during the leases’ primary terms.”
No competing interests Because Cade and Donkel Oil and Gas hold all the leases, there are no competing interests between lease owners — ownership is already aligned — so there is no impediment to lease-by-lease exploration.
And with only one well proposed there would not be the possibility of waste of resources through excessive drilling.
The decision said that Donkel Oil and Gas would benefit from unitization of the leases because five of the leases would be extended beyond their initial terms.
“Unitization would not, however, offer equal benefit or protections to the people of Alaska or the state,” the decision said.
Unitization can increase the likelihood that exploration and development will occur earlier because it allows various leaseholders to collaborate on exploration and development of the unit as if it was a single lease, but in this case all the leases are held by the same leaseholders.
The decision said that Donkel Oil and Gas did not demonstrate in its plan of exploration “that unitization will encourage earlier delineation drilling activities upon the subject leases than if these activities were conducted on a lease-by-lease basis, other than to provide Donkel Oil and Gas, LLC an extension to five of the lease’s primary terms without any commitment to production.”
The plan of exploration does not protect the state’s interest in timely and efficient development of its resources, but only proposes exploration activities without offering “a reasonable timetable for achieving development and sustained production in a timely and efficient manner,” the decision said.
Option for reconsideration Reconsideration of the decision may be requested within 20 calendar days of the Aug. 31 issuance of the decision.
The decision takes effect immediately and if reconsideration is not requested by the deadline the decision becomes a final administrative order and decision of DNR on the 31st day after issuance.
The decision may be appealed to Superior Court, but “an eligible person must first request reconsideration” of the decision in accordance with regulations before appealing to Superior Court.
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