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Alaskan Crude Corp. v. State, Alaska Oil and Gas Conservation Com'n

Supreme Court of Alaska

August 30, 2013

ALASKAN CRUDE CORPORATION and James W. White, Appellants,
v.
STATE of Alaska, ALASKA OIL AND GAS CONSERVATION COMMISSION, Appellee.

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[Copyrighted Material Omitted]

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Heather Gardner, Shortell Gardner LLC, Anchorage, for Appellants.

Thomas A. Ballantine, Assistant Attorney General, Anchorage, and Michael C. Geraghty, Attorney General, Juneau, for Appellee.

Before: FABE, Chief Justice, WINFREE, STOWERS, MAASSEN, and BOLGER, Justices.

OPINION

MAASSEN, Justice.

I. INTRODUCTION

Alaskan Crude Corporation submitted an application to the Alaska Oil and Gas Conservation Commission to reopen the Burglin 33-1 well, a suspended well on the North Slope, to explore for oil and gas. Arguing that it was highly unlikely that oil from the well would rise to the surface unassisted, Alaskan Crude made a series of requests to the Commission to be exempted from oil discharge response requirements or, in the alternative, to have the requirements reduced. The Commission made successive reductions to the technical flow-rate assessments and the response planning standards that it recommended to the Alaska Department of Environmental Conservation for use in setting Alaskan Crude's discharge response requirements. The Commission declined, however, to classify the Burglin 33-1 well as a gas facility, which would have exempted Alaskan Crude entirely from such requirements. Alaskan Crude appealed to the superior court, challenging the Commission's recommended response planning standards and its well classification. The superior court affirmed. Alaskan Crude appeals from the superior court's decision, including its award of attorney's fees to the Commission. We affirm.

II. FACTS AND PROCEEDINGS

A. Initial Application And Approval To Reopen The Burglin 33-1 Well

The Burglin 33-1 well, located on the North Slope, was drilled, tested, and then suspended in the 1980s. Alaskan Crude Corporation, a small operator, later initiated plans to reopen the well. In January 2006 Alaskan Crude submitted a sundry approvals application to the Alaska Oil and Gas Conservation Commission (the Commission) to reopen and test the Burglin 33-1 well. In February 2006 Alaskan Crude filed an application with the Department of Natural Resources (DNR) for a unified lease area, called the Arctic Fortitude Unit, that encompassed the Burglin 33-1 well. Alaskan Crude stated its intent to reenter the Burglin 33-1 well to test for " hydrocarbon bearing sandstones." In its applications and other communications with the Commission and DNR, Alaskan Crude indicated an interest in reentering geologic strata known as the Ugnu and West Sak formations. Both the sundry application and the Arctic Fortitude Unit application were approved.

B. Oil Discharge Prevention Requirements

Alaska Statute 46.04.030(b) provides that the operator of an oil exploration facility

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must hold an approved oil discharge prevention and contingency plan. The regulations governing such contingency plans [1] include 18 AAC 75.434, which lays out the oil discharge response requirements for oil exploration and production facilities. The regulation sets a response planning standard (RPS), which is the amount of oil that an operator must be equipped to contain or control and clean up in the event of a discharge.[2] The regulation's stated RPS may be reduced if an operator demonstrates to the Commission and to the Alaska Department of Environmental Conservation (ADEC) that a reduction is appropriate.[3] ADEC is charged by regulation with deciding whether to reduce the RPS, but it may consult with the Commission in reaching its decision.[4]

Alaska Statutes 46.04.050(c) and 31.05.030( l ) exempt certain exploration facilities from these oil discharge prevention requirements. A well is not eligible for exemption, however, unless it is a " natural gas exploration facility," [5] defined as " a platform, facility, or structure that ... is used solely for the exploration for natural gas." [6] Another prerequisite for exemption is a determination by the Commission " that evidence obtained through evaluation demonstrates with reasonable certainty that all of the wells at a natural gas facility will not penetrate a formation capable of flowing oil to the ground surface." [7]

C. Alaskan Crude's Request For An RPS Reduction

In April 2007 Alaskan Crude asked ADEC for an 85% reduction in the default RPS for the Burglin 33-1 well, asserting that the flow of oil from the well was so limited that it could not reach the surface without mechanical assistance. ADEC consulted with the Commission. On June 26, 2007, the Commission determined that the Ugnu and West Sak formations " are highly unlikely to produce liquid hydrocarbons to the surface in amounts greater than 825 barrels of oil per day [bopd]" and noted that this was the maximum reduction to the RPS that could be allowed under ADEC regulations. On July 2, 2007, ADEC adopted this RPS recommendation and reduced the default RPS (16,500 barrels within 72 hours, or 5,500 bopd) by 85% to 825 bopd, as Alaskan Crude had requested.

In its June 26 decision, the Commission also rejected Alaskan Crude's request that the Burglin 33-1 well be classified as a gas facility, " because there are signs of oil in the cores and the Ugnu and West Sak Formations are known to contain movable oil elsewhere on the North Slope." The Commission further determined, however, that " in accordance with AS 31.05.030( l ) ... it has been demonstrated with reasonable certainty that exploratory or development ...


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