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Vol. 27, No. 26 Week of June 26, 2022
Providing coverage of Alaska and northern Canada's oil and gas industry

Nottingham approves OSA rental reduction

Eight leases in application signed by Chmielowski are part of proposed 70-lease Quokka unit; annual rent drops back to $10

Kay Cashman

Petroleum News

On June 15, Derek Nottingham, director of Alaska’s Division of Oil and Gas, approved a rental reduction request from Oil Search (Alaska) that was filed March 25 on behalf of the working interest owners for eight North Slope leases. In addition to OSA the other WIO is Repsol E&P USA.

The eight leases consist of 11,520 contiguous acres approximately 17 miles southeast of Nuiqsut located between the Itkillik and Kachemach Rivers west of the central North Slope. Furthermore, the lease block is southeast of OSA’s giant Horseshoe discovery and directly south of the Pikka unit and its discoveries. (See map in pdf and print versions of this story.)

All the leases have a July 1, 2015, effective date with a 10-year primary term.

In the first seven years of each lease the rental rate was $10 a year.

In the last three years the annual rental was to be $250, but the division’s rental reduction approval kept the rate at $10 per year.

The rental rates were set up with the idea the acreage would be in production by the eighth year.

At its sole discretion, the director of the division can reduce the annual rental rate, upon request from the working interest owners.

In evaluating a request to decrease the rental “based on the exercise of reasonable diligence,” the director must consider the funds spent by the lessee to explore and develop a lease and the types of work completed by or on behalf of the lessee on a lease.

Work completed in first 7 years

In support of OSA’s application, the company submitted work completed and confidential expenditure information associated with exploring and developing the eight leases.

In the division’s approval, the work completed was described as: “the Kuukpik 3D seismic survey was acquired on behalf of the WIOs during the primary term of the leases. Two additional 3D seismic surveys were licensed by the WIOs during the primary term of the leases. Further, two separate merges and reprocessing events on 3D seismic data covering the leases and adjacent acreage was conducted during the primary term. Lidar data and imagery were also collected from the lands encompassing the leases and adjacent acreage during the primary term of the leases.”

The work added to the WIOs understanding of prospective reservoir targets on the leases, the decision said, noting that during the seventh year of the primary term, OSA applied for the formation of the Quokka unit, which encompasses the eight leases.

The proposed 70-lease Quokka unit contains the former Placer unit, which was sold to OSA and its partner Repsol by Arctic Slope Regional Corp. in March 2021. The much larger Quokka unit is anchored in the north by the Placer unit, and then extends south on state land for more than 30 miles.

Review of the Quokka unit application was pending at the time of the June 15 lease rental reduction decision.

The decision said a “sustained effort to explore and develop” the eight leases was exercising reasonable diligence, noting this work “continues to inform new phases of development for the leases.”

Based on the expenditures made and the work completed, the division director decided that the WIOs had exercised reasonable diligence to explore and develop the leases during their primary term.

The eight leases are as follows: ADL 392790; ADL 392791; ADL 392792; ADL 392793; ADL 392794; ADL 392795; ADL 392796; ADL 392797.

The rental reduction application was filed by Josef “Joe” Chmielowski, OSA’s vice president of exploration and new ventures, and former geoscientist with Alaska’s Division of Oil and Gas. Chmielowski is known for his knowledge of the Nanushuk and Torok formations west of the central North Slope.

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