Court orders hearing on lease extension

Kristen Nelson

The Alaska Supreme Court has held that James W. White is entitled to a hearing concerning whether he met the conditions of one of the automatic extension provisions for a lease, ADL 359242, on a tract offshore the Kenai Peninsula.

The lease expired at midnight, Nov. 30, 1990. In 1985 White’s company, Far North Oil and Gas, received the rights to develop the previously abandoned onshore well located on the McCoy property adjacent to lease ADL 359242.

A drilling permit was issued allowing White’s company to reenter the McCoy well to a depth of 3,850 feet.

The court rejected White’s argument that the lease was extended by the existence of a unit, since no such agreement was approved by the state. “Contrary to White’s assertions,” the court said, “unit agreements do not arise ‘automatically’ without the State’s involvement.”

The court also rejected White’s related claim that since there was a unit, there was a well on the leased area. “This argument,” the court said, “is premised on the assumption, rejected above, that there was a unit agreement existing between the leased property and the McCoy well property, creating ‘a single unit’ property.”

The court agreed with White that he was entitled to a hearing on the issue of whether the McCoy well’s bottom hole was in the leased area and that the Department of Natural Resources’ failure to grant him a hearing violated his right to due process.

The court found that “there was an important factual dispute — the depth to which White had reentered the McCoy well and whether this was deep enough to put the bottom hole of the well under the leased property.”

The court concluded that White is entitled to a hearing and remanded to the commissioner on that issue only, affirming all other decisions of the commissioner and the superior court.