DNR Terminates North Slope Lease

The Department of Natural Resources has notified Alaskan Crude Corporation — a Texas-based oil company — that it will end the unit agreement and the state lease on more than six thousand acres near Deadhorse.  However, the company took the decision to court, arguing that it still has issues under appeal from the Alaska Oil and Gas Commission … and that the Department has made unilateral changes to its unit agreement.  The Supreme Court has ruled against those complaints.

Deputy Natural Resources Commissioner Joe Balash says it is not unusual for leases to terminate,  however, they don’t usually end up in court.  It’s more common for a company to voluntarily relinquish a lease if exploration proves unsuccessful.   State leases – and any subsequent unit agreements – have time constraints for land to become productive.  He says Alaskan Crude’s time has run out.

We’ve had enough of a track record here to show that the activities that are even being proposed are ones that aren’t necessarily going to move this lease into production.  And so we’ve taken the action we did.  The lease will go back into the pool, and the owners at Alaskan Crude Corp. are free to bid at the next lease sale and get those leases right back if they’re the high bidder.

Alaskan Crude claims the state has put obstacles in the way of its development – particularly with the Oil and Gas Conservation Commission’s refusal to consider its request to be considered a “gas-only development.”  That would have lowered the standards the company would have to meet for spill response requirements. Balash says the AOGCC decision is part of the process.

Everybody who takes out a lease with the state of Alaska when they do so is required to follow the rules and regulations of state, federal and local agencies.  The AOGCC is a state agency, they made a decision according to their rules.  We expect operators here to follow the law.

Balash says there are limits to what will be included in unit agreements the Department approves – some having been based on lessons from the state’s acceptance of the unit agreement that Exxon negotiated over Point Thomson.

The specific terms of their unit agreement that was formed back in the early eighties had some features in it that we probably will never repeat. And it was in part those specific terms that Judge Gleason used in her finding against the state when we terminated the Point Thomson unit.

Litigation is still pending with the AOGCC,  and  the Alaskan Crude Corporation has a route back into court against the Department of Natural Resources.  That is through the reconsideration and appeals process from the Commissioner’s May 14^th letter terminating its unit agreement.