ConocoPhillips can again grow its Colville River oil field

New DNR commissioner reverses ruling on Tofkat

ConocoPhillips can again grow its Colville River North Slope oil field after a Nov. 4 decision by Natural Resources Commissioner Andy Mack that reversed an earlier disputed agency ruling.

Mack approved the major producer’s request to absorb 22 oil and gas leases totaling 9,146 acres into the Colville River Unit, which the company operates. Anadarko Petroleum Corp. holds a 22 percent working interest in the unit.

A day prior, Mack authorized the retroactive transfer of 15 of those leases to ConocoPhillips, setting the stage for the unit expansion.

The anecdotally high-value leases were previously held by Anchorage-based independent Brooks Range Petroleum Corp. and made up the now-defunct Tofkat Unit.

The acreage is on the southern edge of the Colville River Unit and also near Armstrong Energy’s Pikka Unit, which Armstrong believes has the potential to produce upwards of 120,000 barrels per day once it is fully developed.

ConocoPhillips’ said it would plan to drill at least one exploration well in the area by June 2017 if the company’s request for expansion, first submitted to the Division of Oil and Gas March 31, were approved.

Further, it expects development will trigger the National Environmental Policy Act and environmental impact statement procedure, putting first production from the expansion area in late 2024, according to ConocoPhillips’ expansion application.

ConocoPhillips Alaska spokeswoman Natalie Lowman said via email that the company still plans to drill an exploration well on the acreage this winter if the permitting can be done in time.

“We are pleased that the state approved the lease assignments and the expansion of the Colville River Unit to include the leases, and believe this is the fastest route to developing the acreage,” Lowman said.

The unit, commonly referred to as Alpine, currently produces about 60,000 barrels of oil per day.

Former Oil and Gas Director Corri Feige, who resigned her post in September, denied the March 31 application because ConocoPhillips did not hold leases in the expansion area at the time.

The leases near the Native village of Nuiqsut are jointly held by the state and Arctic Slope Regional Corp., the result of a prior settlement.

Feige approved the transfer of seven of the 22 Brooks Range leases to ConocoPhillips on June 15.

Transfer of the remaining 15 was denied because Brooks Range held those leases at the time only because of a 90-day lease extension that kicks in after the unit holding the leases is terminated.

DNR terminated the Tofkat Unit Jan. 27 after Brooks Range failed to meet drilling obligations described in the unit plan of exploration.

The termination process started way back in 2013 under Gov. Sean Parnell’s administration and then-DNR Commissioner Joe Balash.

Brooks Range was afforded multiple extensions to make good on its plan, but never ended up drilling in Tofkat. The company did not appeal the Jan. 27 decision.

According to Feige, allowing Brooks Range to benefit by transferring the leases during the 90-day period meant to give the operator one last chance to make good on its plan would “circumvent the intent of the extension provision.”

She also noted that ConocoPhillips previously held the leases in the mid-1990s and relinquished them back to the state after doing little with the property.

Feige ultimately concluded that putting the potentially high-value leases back up for competitive bid in a lease sale would be the best way for the state to realize the maximum benefit from the parcels.

ConocoPhillips appealed the lease decision June 28, the same day it resubmitted its unit expansion application.

Brooks Range also appealed the decision July 1, Mack’s first day as DNR commissioner after taking over for retired agency head Marty Rutherford.

Feige then denied the second unit expansion application July 21 because ConocoPhillips still did not hold an interest in any leases in the requested area. The major appealed that decision to Mack July 27.

Mack wrote in his Nov. 3 lease decision that “the plain language” of the state regulation establishing the 90-day extension does address which company must conduct operations on the leases, making ConocoPhillips eligible to be that company.

He also found that “prior lack of good faith development by assignors and assignee is not determinative of an assignee’s current intent or commitment to develop the leases,” the Nov. 3 document states.

By retroactively approving the lease transfer to June 1, Mack also set the stage for the unit expansion approval to be little more than a formality.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Updated: 
02/24/2017 - 11:46am

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