ALASKAN CRUDE CORP. v. State

261 P.3d 412
CourtAlaska Supreme Court
DecidedOctober 7, 2011
DocketS-13708
StatusPublished
Cited by1 cases

This text of 261 P.3d 412 (ALASKAN CRUDE CORP. v. State) is published on Counsel Stack Legal Research, covering Alaska Supreme Court primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
ALASKAN CRUDE CORP. v. State, 261 P.3d 412 (Ala. 2011).

Opinion

261 P.3d 412 (2011)

ALASKAN CRUDE CORPORATION and James W. White, Appellants,
v.
STATE of Alaska, DEPARTMENT OF NATURAL RESOURCES, DIVISION OF OIL AND GAS, Appellee.

No. S-13708.

Supreme Court of Alaska.

October 7, 2011.

*413 Brian J. Stibitz, Reeves Amodio LLC, Anchorage, and Heather L. Gardner, Shortell Gardner LLC, Anchorage, for Appellants.

Jeffrey D. Landry, Senior Assistant Attorney General, Anchorage, and Daniel S. Sullivan, Attorney General, Juneau, for Appellee.

Before: CARPENETI, Chief Justice, FABE, WINFREE, CHRISTEN, and STOWERS, Justices.

OPINION

FABE, Justice.

I. INTRODUCTION

Appellant Alaskan Crude Corporation operates an oil and gas unit near Deadhorse known as the Arctic Fortitude Unit. Appellant James W. White is the president of Alaskan Crude and a leaseholder of an oil *414 and gas lease that is part of the Arctic Fortitude Unit. Alaskan Crude's unit agreement with the Department of Natural Resources set work obligation deadlines that Alaskan Crude was required to meet to continue operating the Arctic Fortitude Unit. In July 2008 the Department of Natural Resources Commissioner found that Alaskan Crude had failed to meet its work obligations, gave notice that Alaskan Crude was in default under its unit agreement, and specified that the Arctic Fortitude Unit would be terminated if Alaskan Crude did not cure the default by a new set of deadlines.

Alaskan Crude appealed the Commissioner's decision to the superior court, arguing that a pending judicial decision in a separate appeal qualified as a force majeure under the unit agreement, preventing Alaskan Crude from meeting its work obligations. It also argued that the Commissioner's proposed default cure was an improper unilateral amendment of Alaskan Crude's unit agreement. The superior court affirmed the Commissioner's findings and decision and Alaskan Crude appealed. We conclude that (1) the pending judicial decision in Alaskan Crude's separate appeal did not trigger the force majeure clause of the unit agreement; and (2) the Commissioner's proposed default cure was not a unilateral amendment of Alaskan Crude's unit agreement. We thus affirm the decision of the superior court upholding the decision of the Commissioner.

II. FACTS AND PROCEEDINGS

In June 2006 the Department of Natural Resources (DNR), Oil and Gas Division approved the formation of the Arctic Fortitude Unit (the Unit), an oil and gas unit made up of three individual leases located near Deadhorse.[1] Alaskan Crude Corporation is the operator of the Unit, and James W. White is one of the leaseholders as well as the president of Alaskan Crude.[2] One of the leases included in the Unit contains a pre-existing well known as Burglin 33-1.

Since the formation of the Unit, Alaskan Crude has been involved in two separate but closely related disputes with several state agencies. The first dispute, with the Department of Environmental Conservation (DEC) and the Alaska Oil and Gas Conservation Commission (AOGCC), concerns whether an oil spill contingency plan is required for the Burglin 33-1 well. That dispute is the subject of a separate appeal before this court. The second dispute, which involves the DNR Oil and Gas Division (the Division) and is the subject of this appeal, concerns Alaskan Crude's work obligations under its unit agreement and whether the pending appeal in the first dispute created a force majeure preventing Alaskan Crude from meeting those obligations. A discussion of both disputes is necessary to understand the issues underlying this appeal.

A. The Dispute Concerning Alaskan Crude's Oil Spill Contingency Plan.

The operator of an oil exploration facility must develop a contingency plan in case of an oil spill and obtain approval of that plan from DEC in consultation with AOGCC.[3] The contingency plan requirements are based primarily on the number of barrels of oil per day that the exploration facility should be prepared to contain in the event of a spill; that number is known as the response planning standard.[4] Gas-only wells, however, are exempt from these requirements.[5]

When the Unit was formed, Alaskan Crude seemed to suggest that it intended to use the *415 Burglin 33-1 well to explore for both oil and gas. Almost one year after the Unit's formation, Alaskan Crude requested an 85% reduction in the response planning standard for the Burglin 33-1 well, neither requesting a declaration that the well was a "natural gas exploration facility" nor mentioning the rules exempting gas-only wells. DEC approved the reduction on AOGCC's recommendation but also noted AOGCC's determination that it would be inappropriate to classify the well as a gas-only well. Alaskan Crude requested reconsideration, citing the statutory exemptions for gas-only wells and arguing that the 85% reduction was insufficient.

After a hearing (which the parties did not attend), AOGCC reaffirmed its earlier determination that Burglin 33-1 was not a gas-only well and further reduced the response planning standard based upon new computer modeling of the well's potential flow rate. Alaskan Crude then indicated that it was now planning to test the well at a shallower depth than it had previously intended—a depth which would not be "capable of unassisted flow to the surface"—and requested that AOGCC reconsider its decision on this basis.

AOGCC treated Alaskan Crude's request as a new application for a recommended response planning standard based upon the shallower depth and further reduced the response planning standard to 115 barrels of oil per day. Alaskan Crude did not seek agency rehearing of this determination; instead, it appealed to the superior court pursuant to AS 22.10.020(d), arguing that the well is gas-only and is exempt from oil spill contingency planning.[6] The superior court upheld AOGCC's determination on December 8, 2010.[7] That decision is the subject of a separate appeal to this court.

B. The Dispute Concerning Alaskan Crude's Work Obligation Deadlines And The Force Majeure Clause.

While Alaskan Crude was disputing whether it was exempt from an oil spill contingency plan, it was also having difficulty meeting the work obligations outlined in its plan of exploration. DNR regulations provide that to form an oil and gas unit, lessees must propose a unit agreement and a plan of exploration.[8] Failure to comply with the terms of the approved unit agreement or the plan of exploration is a default under the unit agreement.[9] When a default occurs the DNR Commissioner must provide notice to the unit operator and a demand to cure the default by a specific date.[10] If the default is not cured by the specified date the Commissioner has discretion to terminate the unit agreement.[11]

Under Article 20 of Alaskan Crude's unit agreement, failure to comply with the terms of the unit agreement or the plan of exploration because of "force majeure" is not a default. Force majeure is defined by DNR regulations as "war, riots, acts of God, unusually severe weather, or any other cause beyond the unit operator's reasonable ability to foresee or control and includes operational failure to existing transportation facilities and delays caused by judicial decisions or lack of them."[12]

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261 P.3d 412, Counsel Stack Legal Research, https://law.counselstack.com/opinion/alaskan-crude-corp-v-state-alaska-2011.