A road to Alaska’s next big oil development is now the subject of a lawsuit in state court.
ConocoPhillips is, of course, well-established on the North Slope and maintains roads and other infrastructure it uses to produce oil. But for a competing, less-established company, Santos, to reach its Pikka Project, it needs to truck equipment down a road Conoco built and maintains.
The two companies had been embroiled in a dispute over that access for more than a year. Then, Santos applied for — and received — a permit from the state to use the road for free. So now Conoco is suing the state over its decision.
All of that is according to reporting by Nat Herz, who writes at Northernjournal.substack.com.
Herz says it is yet to be seen if Conoco’s legal action will slow down the Pikka Project, which promises to add a considerable amount of oil to Alaska’s overall production.
Nat Herz: It could produce 120,000 barrels of oil per day, which is about a fourth of everything that goes down the trans-Alaska pipeline right now. So when you think about this in terms of tax revenue to the state, in terms of money that’s going into the Permanent Fund that pays your Permanent Fund dividend, in terms of jobs for Alaskans, in terms of economic activity — it’s a $2.6 billion project, at least for the first phase — so this is really significant. However, this Conoco field that you have to drive across, these roads, these are not your regular asphalt roads built by the Department of Transportation. These are very expensive gravel roads built on the tundra and maintained by ConocoPhillips at a cost of $10 to $15 million per year.
So as far as we understand it, sort of where negotiations broke down, Santos had been willing to pay about $60 million in exchange for being able to move all of its infrastructure and equipment over Conoco’s roads. Conoco had asked for $95 million. They couldn’t come to an agreement. So Santos, the Australian company, decides to make this kind of end run around this annoying, difficult, costly negotiation. They just applied to the (Gov. Mike) Dunleavy administration, the Department of Natural Resources, for a permit that would allow them to cross these ConocoPhillips roads for free. There’s a series of appeals and back and forth, and last week ConocoPhillips sued the Dunleavy administration to have this permit invalidated, because basically they say that this is an unfair taking away of their rights to operate and police who goes on the roads that it builds.
Casey Grove: And like you’re describing it, I mean, that seems like pretty high-level stuff, whether it’s $95 million, or $60 million, or nothing if that state permit holds. But if you’re just the average pro-oil Alaskan — and I think it’s fair to, you know, assume that that person exists — what are you supposed to think about this? I mean, it seems like the things that you mentioned, like the Permanent Fund, so much of the state revenue coming from from oil royalties, what are you supposed to think about this, as an Alaskan just hoping that more oil ends up going down the pipeline?
NH: Yeah, I mean, I think the ultimate issue here is a bigger one that has been talked about, and I think litigated and discussed at a policy level. And it’s an underlying policy question, which is what kind of guarantees can and should the state of Alaska have for new players and independent players who want to come up to the North Slope and develop a new project like this one? In this case, it’s an Australian company, Santos. They don’t operate or own any other infrastructure, existing infrastructure, on the North Slope. ConocoPhillips, who’s on the other side of this dispute, they own and operate an enormous amount of stuff on the North Slope. They, you know, they have like camps and pipelines and new projects they’re developing themselves. They own a big stake in Prudhoe Bay. And, you know, it’s really easy, and it’s quite typical for the incumbent companies, the big companies that already have a stake on the North Slope, to kind of use all of that existing assets and infrastructure to make it a lot harder and or more expensive for new players, new companies, to come up and start new projects on the North Slope.
And this has been a long standing issue where, you know, Alaska has always said, “We want to have new players, diverse players and companies on the North Slope.” But it actually turns out that Alaska doesn’t necessarily have a lot of safeguards to block the incumbent producers on the North Slope from making life more difficult and more expensive. And if you’re an investor looking at developing a new project on the North Slope, and you’re not ConocoPhillips, you’re gonna look at a situation that like this and say, “Wow, you know, I’m worried that if I buy this project and try to develop it, I’m gonna have to fight these incumbent producers tooth and nail, and there are no protections in Alaska law or regulation or policy to keep this from happening to me. Why would I invest my money there, instead of, you know, say, down in the Lower 48 shale fields or something like that?” So a lot of the folks that I have heard from, in the wake of publishing this story, argue that this is an area where the Legislature and the Dunleavy administration should be stepping in to set these kinds of protections into law or into regulation so that future Santoses and future Pikkas don’t end up running into the same problem.
CG: Gotcha, yeah. I guess, for the average pro-lawyer Alaskan, if that even exists, I’m just talking about lawyering. I mean, do we have any sense of how this is going to play out in court and how long it might take?
NH: I don’t think it’s gonna happen quickly. I mean, I would expect that win, lose or draw — this case is currently in Anchorage Superior Court — and I would fully expect it to be appealed to the Alaska Supreme Court. I mean, you think about the expense and time of litigating this issue, you’re not going to be paying your lawyers, even if they’re very expensive lawyers, the $30 million that’s the difference between what Santos is willing to pay and what Conoco wants to be paid. I do think that you are likely to see Santos’ project moving forward in the interim, because right now, Santos has this permit that allows it to cross Conoco’s lands. So I expect that they’re going to go forward and do what they’re planning to do this winter. However, if at any point a judge invalidates the permit, enjoins or stops or issues a restraining order blocking Santos from continuing to access ConocoPhillips roads, I think then you’re gonna see a whole flurry of activity, probably with some urgent appeals to the Alaska Supreme Court, for them to step in. So, you know, I think it sort of depends on the outcome and how this all plays out exactly, the timing, but I think it would be surprising to me if this was resolved, even at the lower court level, in less than a year and probably will play out for longer than that.