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Hearing continued for CIRI, Buccaneer

Posted: February 6, 2014 - 1:14pm

The Alaska Oil and Gas Conservation Commission determined additional information is needed before making any rulings in a dispute between Cook Inlet Regional Inc. and Buccaneer Alaska LLC.

The commission held a hearing Jan. 30 in Anchorage with the two agencies as well as the Alaska Department of Natural Resources and the Alaska Mental Health Trust Authority, who also have stakes in the issue.

CIRI has accused Buccaneer of illegally producing gas from its Kenai Loop No. 1-1 and No. 1-3 wells, which are constructed on Alaska Mental Trust Authority-owned land off of Marathon Road in Kenai. According to CIRI, while none of Buccaneer’s four wells are on its property, drainage from its property has been occurring.

Along with CIRI, Buccaneer has lease agreements with the state and the Trust at its Kenai Loop Project. None of the landowners nor Buccaneer dispute that drainage is occurring.

However, there is no pooling agreement, an agreement to combine oil or gas rights, in place and royalty payments are only being made to the Trust. CIRI is claiming a share of production in the dispute and DNR is claiming royalty from Buccaneer.

According to CIRI’s prehearing brief filed with the commission, Buccaneer disregarded the pooling requirement and is therefore illegally draining from both CIRI and state land.

Buccaneer claims in its brief that according to Alaska statue, pooling agreements are “required only when two or more parties own an interest in the property within the drilling unit,” and that CIRI does not own an interest where Buccaneer’s wells are producing so Buccaneer did not need to enter a pooling agreement. The Trust agrees with this claim in its brief.

According to its brief, Buccaneer disputes that it is violating CIRI’s correlative rights based on the rule of capture. 

Buccaneer claims CIRI is assuming it owns all gas molecules under its property. Citing a 2008 Texas case, Coastal Oil & Gas Corp. v. Garza Energy Trust, Buccaneer states “while a mineral interest owner, like CIRI, has an interest in oil and gas in place under its property, this interest does not extend to specific gas molecules beneath its property.”

CIRI claims the rule of capture only applies under compliance with commission rules and states Buccaneer is not following commission rules because, according to CIRI there is a pooling requirement.

According to DNR’s brief, a lessee cannot drain its lessor’s land from adjacent property owned by a different lessor. “If it does so, the lessee must pay damages to the lessor suffering drainage.”

CIRI claims it is entitled to more than 30 percent of Buccaneer’s Kenai Loop production, it has yet to prove that 30 percent of its gas is being drained.

According to CIRI, it terminated its lease with Buccaneer in January 2013, after becoming aware of the drainage. In its brief, Buccaneer disputes this claim stating the parties are still litigating the lease termination.

The resolution CIRI proposed is that the commission to establish and escrow fund to cover past, present and future production. While CIRI has enough data to prove their land is being drained, it does not have enough data to determine an accurate allocation, according to its brief.

If CIRI proves its case, Buccaneer claims it would not be entitled to retroactive relief because the commission approved Buccaneer’s Kenai Loop production practices.

Buccaneer has drilled four wells in the Kenai Loop Area and is producing commercially from two of them. The company claims all of its wells have been properly permitted required by the commission.

The commission also approved spacing exceptions for the two producing wells, No. 1-1 and No. 1-3 as well as its No. 1-4 well.

Cathy Foerster, commission chair, said the next hearing will likely be in March.

Kaylee Osowski can be reached at kaylee.osowski@peninsulaclarion.com.

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