On April 17, 2023, the Alaska Department of Natural Resources' commissioner's office received an appeal filed by Perkins Coie LLP on behalf of Daniel Donkel and Samuel Cade. The appellants asked for review of the March 28, 2023, decision issued by DNR's Division of Oil and Gas regarding Donkel and Cade's application to form the Greater Point Thomson unit on and offshore the eastern North Slope.
The commissioner, John C. Boyle, vacated the decision on June 25 of this year, remanding it back to the division for additional review, although he made it clear that he was not taking a position on the underlying merits of the decision by the division.
The Greater Point Thomson unit was proposed by Donkel and Cade to be a new, separate unit adjacent to the Point Thomson unit.
The Point Thomson unit, or PTU, was formed in 1977 and spans approximately 93,000 acres of state-owned land along the Beaufort Sea and is adjacent to the Arctic National Wildlife Refuge on the east.
Initially operated by ExxonMobil Alaska Production, the PTU began sustained production of liquid natural gas condensate in 2016 from an offshore reservoir.
Hilcorp Alaska is the current PTU operator and holds a 37% working interest ownership, ExxonMobil holds a 62% working interest ownership and the remainder is held by various working interest owners.
GPTU application
Adjacent to the north and east of the PTU and offshore of the Arctic National Wildlife Refuge lie several state-owned leases covering approximately 61,350 acres.
On Nov. 12, 2022, Donkel and Cade, each in their individual capacity, applied to the director of the Division of Oil and Gas requesting approval to form the Greater Point Thomson unit, or GPTU,
The application said the men had a three-pronged approach to developing the acreage: either sell 100% of the working interest "to a competent qualified buyer who will in turn take over operations"; or bring in partners and jointly develop the acreage; or develop the leases on their own.
"Time will tell which approach is successful," the application said.
Donkel and Cade owned working interests in 24 separate state oil and gas leases within the proposed GPTU area. Twelve of these 24 leases became effective on Jan. 1, 2013, and the 10-year primary term for each such lease expired on Dec. 31, 2022.
In addition, two leases (ADLs 392121 and 392122) owned by the appellants will expire on Nov. 30, 2024. The remainder of Donkel and Cade's state leases proposed for inclusion in the GPTU will expire in 2026 and 2028.
The proposed unit area also includes one state oil and gas lease (ADL 393574) owned by Andrew Bachner and Keith Forsgren. They are not parties to the appeal, nor have they committed their interests in ADL 393574 to the GPTU. However, they did submit letters to DNR in favor of unit formation during the applicable public comment period; specifically, on Jan. 23, 2023.
Another issue in Donkel and Cade's appeal was that the lease owned by Bachner and Forsgren encompasses the Stinson No. 1 well, a well that penetrated an oil reservoir. The appellants said the division gave no weight to this known reservoir because the lease owners had not committed to the GPTU agreement.
The proposed Greater Point Thomson unit area additionally included several unleased tracts owned by the state, to which Donkel and Cade held no ownership interest nor rights to explore, produce or develop. Rather, the appellants appear to suggest, the commissioner wrote, that "for completeness the state can elect to commit that acreage to the GPTU or not."
According to Donkel and Cade, formation of the GPTU will advance the economic interests of the state and allow them to "secure corporate support for funding for additional exploration, delineation, and development activities."
Once the division deemed the GPTU application complete in December 2022, the agency then solicited comments via public notice of the application for 30 days.
On March 28, 2023, the division issued its findings and decision, denying Donkel and Cade's request to form the GPTU.
The division's basis for its decision was twofold: first, the application did "not propose any activity that would maximize efficient recovery upon unitization any more than when compared to activity conducted on a lease-by-lease basis" and second, permitting the appellants to unitize the leases would not safeguard the interests of the state or the public, and that unitization would run counter to the state's objective of encouraging "diligent exploration by its lessees."
Donkel and Cade appealed the decision to DNR's commissioner. The appeal included a notice of intent to submit additional written materials under 11 AAC 02.030(d) and a request for an oral hearing and a stay of the decision to prevent 12 leases (whose primary term had since expired) from automatically terminating while a decision on the appeal remained pending.
On April 19, 2023, the commissioner's office denied the requests for an oral hearing and stay and established a deadline for appellants' submission of additional materials.
The appellants then submitted additional materials to the commissioner's office on May 8, 2023, and renewed their requests for an oral hearing and for a stay of the decision while their appeal was pending.
Most recently on Feb. 23, 2024, the appellants submitted a second supplement to their appeal of the decision, which included a request to toll the lease terms on affected leases until a final decision on appeal was issued. (Tolling, or freezing, of the terms of oil and gas leases is sometimes employed by courts to preserve the status quo where the validity of those leases is challenged.)
Unitization
Per the commissioner's June 25 decision, unitization has the potential to accelerate exploration and development activities compared to individual lease agreements. By enabling collaboration among multiple leaseholders within one unit area, unitization streamlines the development process as if it were a single lease, which can advance the economic interests of the state and its people.
Conversely, unitization may be determined neither "necessary nor advisable" per 11 AAC 83.303(a) to protect the public interest. Rather, the expiration and re-leasing of oil and gas leases may foster competition to develop oil and gas resources and thus maximize the utilization of the state's natural resources in alignment with its economic objectives.
Commissioner's analyses
Upon review of the factual history of the division-level adjudication and the subsequent appeal history, in conjunction with the administrative record provided by the division and supplemental information provided by Donkel and Cade, the commissioner decided the matter warranted remand for additional review by the division director.
Importantly, the second supplement to the appeal included a variety of well data and information that was not included in the original application to form the GPTU because Donkel and Cade considered it confidential.
Their refusals to release the well data were the subject of litigation that resulted in the confidentiality periods ending and the information being released.
"Naturally," the commissioner wrote, the appellants then sought to have this information considered in their appeal of the denial of the formation of the unit.
The commissioner wrote in his June 25 decision: "It is now appropriate for the division to review this supplemental material in the first instance and within the totality of the application. Without taking any position as to the merits of the underlying decision by the division, or as to the consequence of the newly available information and what may or may not be appropriate modifications to any such decision, it is therefore appropriate to remand the entire matter to the division to undertake a complete review of the application, and make a new decision based on the totality of the information."
Single, continuous review
The remand, Boyle said in his June 25 decision, "shall be treated as a single, continuous review period extending back to the appellants' original Nov. 12, 2022, application date, thus tolling the primary term of state oil and gas leases under consideration for unitization until a final administrative decision is issued."
Appellants Donkel and Cade were asked by Boyle to "supplement and revise their unit formation application with all elements required to satisfy 11 AAC 83.306 within 30 days from issuance of this decision."
The division, he said, may also request additional information from Donkel and Cade.
Appeal rights
"As this matter results in remand, this decision does not serve as the final administrative order and decision of the Department of Natural Resources for purposes of appeal to the Superior Court," the commissioner wrote.
"Eligible parties affected by any subsequent decision of the Division of Oil and Gas may seek appropriate relief in accordance with AS 44.37.11 and 11 AAC 02," Boyle wrote.
