Daniel K. Donkel v. State of Alaska, Department of Natural Resources Daniel K. Donkel v. State of Alaska, Department of Natural Resources

Opinion

2026 WL 2543409

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Supreme Court of Alaska.

DANIEL K. DONKEL, Appellant,

v.

STATE OF ALASKA, DEPARTMENT OF NATURAL RESOURCES, Appellee.

DANIEL K. DONKEL, Appellant,

v.

STATE OF ALASKA, DEPARTMENT OF NATURAL RESOURCES, Appellee.

Supreme Court Nos. S-18977/19132

August 28, 2026

Superior Court Nos. 3AN-22-09014 CI/3AN-23-06380 CI

Appeal in File No. S-18977 from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Yvonne Lamoureux, Judge. Appeal in File No. S-19132 from the Superior Court of the State of Alaska, Third Judicial District, Anchorage, Dani Crosby, Judge.

Attorneys and Law Firms

Appearances: Colleen J. Moore and Michael Jungreis, Reeves Amodio, LLC, Anchorage, for Appellant. Laura Wolff and Ryan Farnsworth, Assistant Attorneys General, Anchorage, and Treg Taylor, Attorney General, Juneau, for Appellee.

Before: Carney, Chief Justice, and Borghesan, Henderson, Pate, and Oravec, Justices.

OPINION

PATE, Justice.

I. INTRODUCTION

Star page 1*1 Daniel Donkel claims an interest in six oil leases that were proposed to be included within an oil exploration and development unit. The Alaska Division of Oil and Gas (“the Division”) initially approved two of the leases for inclusion in the unit, but the Division later reversed course and denied the request for inclusion of all six leases. During the pendency of an appeal to the Commissioner of Natural Resources (“the Commissioner”), the leases automatically terminated because the lessees failed to make rental payments as required by a regulation adopted by the Department of Natural Resources (“DNR”). After Donkel failed to make the rental payments necessary to reinstate the leases, the Division confirmed the leases had been terminated. On appeal, the Commissioner ultimately denied the request to include the leases within the unit and affirmed that the leases had been terminated.

Donkel separately appealed each of the Commissioner's decisions to superior court. In his appeal pertaining to the termination of the leases, Donkel challenged the validity of the DNR regulation requiring rental payments on expired leases during the pendency of an appeal. The superior court affirmed termination of five of the leases, but remanded the sixth lease to the Commissioner for additional proceedings.

In his appeal of the decision denying the inclusion of the leases in the unit, Donkel argued that the agency exceeded its authority and that the refusal to include the leases was arbitrary and unreasonable. He also alleged that the decision violated his due process rights. The superior court affirmed the Commissioner's decision.

For the reasons explained below, we affirm the superior court's decision terminating five of the six leases. We hold that the agency regulation requiring payment of rent during the pendency of an appeal is a constitutional and reasonable exercise of the authority committed to DNR. The lessees failed to pay the rent required by regulation. Consequently, we hold that the appeal related to the inclusion of these five leases in the unit is moot.

We hold that the dispute over the sixth lease is not moot, given that neither party asserts this lease has been terminated. As to this lease, we conclude that the Commissioner's denial of the request to include it within the unit did not exceed the agency's authority, was not an arbitrary or unreasonable decision, and did not violate Donkel's due process rights. As a result, we affirm the Commissioner's decision to deny the request for inclusion of this lease in the unit.

II. FACTS AND PROCEEDINGS

A. Background

The Alaska Land Act allows state oil and gas lessees to “unite with each other ... under a cooperative or unit plan of development ... when determined and certified by the [C]ommissioner to be necessary or advisable in the public interest.”¹ Lessees and unit operators may seek “unitization” of their leases in an effort to combine their interests and more efficiently explore and develop the oil and gas resources associated with their leases.² The Commissioner has delegated the authority to make unitization determinations to the Division.³

Star page 2*2 When determining whether to approve a unit or expand a unit, the Division assesses the unit according to the criteria established by regulation, including the environmental costs and benefits of unitization; the geological and engineering characteristics of the potential hydrocarbon accumulation proposed for unitization; prior exploration activities; the applicant's plans for exploration or development; the economic costs and benefits to the state; and any other relevant factors.⁴ Approval of a proposed unit or expansion of a unit is also subject to other regulations, including requirements to submit geologic data⁵ and plans for unit exploration,⁶ operation,⁷ and development.⁸

The Division's determinations regarding unitization are subject to approval by the Commissioner, and a lessee disagreeing with the Commissioner's decision may appeal to the superior court.⁹ Pursuant to 11 AAC 83.111, if the term of a lease expires during the pendency of an appeal, a lessee must continue to pay annual rent on the lease¹⁰ to ensure that the lease can be reinstated if the appeal is successful. If the lessee does not timely pay the annual rent, the lease “terminates by operation of law.”¹¹

B. Proceedings

The Badami Unit is an oil field formed in 1995 on the North Slope located east of Prudhoe Bay. In 2012, the Badami Unit was operated by Savant, LLC (“Savant”) pursuant to an agreement with various other lease interest owners.¹² Under the terms of the agreement with the other lessees, Savant was allowed to seek approval from the Commissioner to expand the unit.¹³

Star page 3*3 In November 2012 Savant submitted an application to the Division seeking approval to expand the Badami Unit to include seven additional leases.¹⁴ Savant's application to expand the unit included a proposed work plan with a timeline for completing drilling, construction, and exploration work over the following year and a half, pending approval by the Commissioner.¹⁵ In March 2013 the Division granted the application as to two of the leases — ADL 391001 and ADL 390825 — but denied the unitization of the other five leases. Savant appealed the Division's determination to the Commissioner the following month. Five years later, in 2018, the Commissioner remanded the application to the Division for “reconsideration of Savant's request for expansion of the Badami Unit.”

Given the significant amount of time that had elapsed between Savant's application and the remand, the Division requested in July 2019 that Savant submit an updated work plan. Savant did not submit an updated work plan. The Division contacted Savant again in October 2020, reiterating its request for an updated work plan. Savant responded in December with updated geological information, but still did not provide an updated work plan.

In January 2021 the Division issued a decision denying the unitization application in full — reversing its 2013 approval for unitization of ADL 391001 and ADL 390825. The following month, Donkel appealed the Division's decision to the Commissioner. At the time, Donkel held a royalty interest in ADL 390825 and alleged working interests in ADL 391001 and four other leases proposed for inclusion in the Badami Unit.¹⁶

While Donkel's appeal of the Division's 2021 decision was pending, the primary terms of all six leases expired.¹⁷ Between 2013 and 2021, another lessee had paid the required rental payments on the leases,¹⁸ but ceased paying in 2021. In April 2021 the Division notified Donkel that ADL 390825 had been automatically terminated for failure to pay rent. The notice explained that the lease could be reinstated, pursuant to the Division's regulations, if Donkel submitted a “statement and supporting evidence of the reasons for the failure to pay” within 15 days.¹⁹

Star page 4*4 Donkel responded to the notice and informed the Division of his pending appeal.²⁰ But he refused to pay rent on the expired lease, arguing that “the rental payments should be stayed” pending the outcome of his appeal. He also asserted that because the matter was subject to a valid appeal, “DNR [was] not authorized to list the Lease for sale to a third party.” In response, the Division notified Donkel that he had not met the regulatory requirements for reinstatement,²¹ and as a result, ADL 390825 remained terminated. Donkel appealed the termination to the Commissioner in June 2021.

The same process occurred with respect to the five other leases in which Donkel claimed an interest: The Division sent a notice of termination for failure to pay rent; Donkel informed the Division he would not make rental payments on the expired leases, and the Division denied reinstatement and affirmed the termination of each lease. Donkel appealed each of these terminations to the Commissioner.²²

The Commissioner affirmed the Division's 2021 unitization decision in 2022 and affirmed the decision to terminate the leases in 2023. Donkel appealed both decisions in separate cases in superior court. The two cases, which we refer to as the termination appeal and the unitization appeal, were separate proceedings with different superior court judges presiding.

In the termination appeal, the superior court rejected Donkel's challenges to the validity of 11 AAC 83.111, the regulation that requires rental payments on expired leases during the pendency of an appeal. Accordingly, the superior court affirmed the Commissioner's decision to terminate the leases, with the exception of ADL 390825. With regard to ADL 390825, the court concluded the Commissioner had failed to consider Donkel's argument that the lease should not have been terminated because it contained a well capable of producing oil in paying quantities.²³ Thus, the court remanded consideration of this issue to the Commissioner.

In the unitization appeal, Donkel argued that the Commissioner's decision violated due process, constituted an unlawful taking, and was arbitrary and capricious. DNR argued that the termination of the leases had rendered the appeal moot. The superior court agreed and dismissed the unitization appeal in November 2023. DNR moved for attorney's fees, which the court granted, finding that “Donkel [was] not a constitutional claimant because he had a sufficient economic incentive to bring this appeal.”

Donkel appeals.

III. STANDARD OF REVIEW

“We will independently review the merits of an administrative determination. No deference is given to the superior court's decision when that court acts as an intermediate court of appeal.”²⁴

We have recognized four general standards of review for different components of administrative decisions. We use the “substantial evidence” test when reviewing questions of fact.²⁵ We use the “reasonable basis” test when reviewing questions of law involving agency expertise,²⁶ but we use the “substitution of judgment” test for questions of law not involving agency expertise.²⁷ And we use the “reasonable and not arbitrary” test to review administrative regulations.²⁸

IV. DISCUSSION

Star page 5*5 We consolidated the termination and unitization appeals because resolution of the termination appeal affects our decision as to whether portions of the unitization appeal are moot.²⁹ Donkel challenges the termination of the six leases in which he claimed an interest. Because we conclude that termination of five of the leases was proper, we hold that Donkel's unitization appeal is moot as to these five leases. As to the remaining lease, ADL 390825, we hold that the decision denying unitization was a constitutional and reasonable exercise of DNR's authority.

A. The Termination Appeal: 11 AAC 83.111 Is A Valid Exercise Of DNR's Authority.

The crux of Donkel's termination appeal is a challenge to the validity of 11 AAC 83.111, the regulation that requires rental payments on expired leases during the pendency of an appeal. We reject Donkel's claims that the regulation is unconstitutional or otherwise an unlawful exercise of DNR's authority and conclude that the regulation is valid. Accordingly, we affirm the Commissioner's decision to terminate five of the six leases in which Donkel claims an interest.³⁰

The sixth lease, ADL 390825, was terminated by the Commissioner, then subsequently remanded by the superior court for the Commissioner to consider Donkel's argument that the lease should not have been terminated because it was capable of producing oil in paying quantities.³¹ The court's conclusion that ADL 390825 may have been improperly terminated is unaffected by our conclusion that 11 AAC 83.111 is valid and constitutional.

All six leases in which Donkel claims an interest expired between 2017 and 2019, and the notification lessee stopped making rental payments while Donkel's appeals were pending. As a result, after the leases expired and Donkel refused to make rental payments, the agency terminated the leases under 11 AAC 83.111.

Donkel argues that none of the leases should have been terminated because 11 AAC 83.111 is an invalid regulation. Specifically, he suggests that 11 AAC 83.111 (1) violates substantive and procedural due process, (2) violates the terms of the leases themselves, and (3) is an unreasonable and arbitrary regulation. Below we explain why these arguments are not persuasive, and we uphold the validity of the regulation. We also hold that Donkel waived the remainder of his arguments regarding the validity of 11 AAC 83.111 by failing to raise them before the Commissioner.

1. 11 AAC 83.111 does not violate due process.

In relevant part, 11 AAC 83.111 states:

For a lease that is expired but otherwise remains subject to a pending application or appeal, the lessee must continue to pay annual rental at the previous year's rental rate, on or before the anniversary of the lease, during the application or appeal process. If, upon resolution of an appeal or final decision issued by the department, a lease is not extended, the department may refund the rental for the current lease year ....

Star page 6*6 Donkel asserts that 11 AAC 83.111 violates both the substantive and procedural due process guarantees of the Alaska Constitution. We address Donkel's arguments separately and reject both.

a. 11 AAC 83.111 does not violate substantive due process.

Donkel argues that the regulation violates substantive due process on the grounds that it is “irrational, unfair, and arbitrary” and it “bears no reasonable relation to a legitimate governmental purpose.” He asserts that the regulation is irrational because it requires payment of rent without providing “the right to use property.” DNR argues the regulation is reasonably related to its interest in “quickly and efficiently issuing oil and gas leases” because it compensates the government while disincentivizing lessees from tying up leases in perpetual unitization appeals.

The due process clause of the Alaska Constitution provides: “No person shall be deprived of life, liberty, or property, without due process of law.”³² Substantive due process “is a doctrine that is meant to guard against unfair, irrational, or arbitrary state conduct that ‘shock[s] the universal sense of justice.’ ”³³ We begin with a presumption that the government's action is proper, and the party seeking to invalidate such action bears a “heavy burden.”³⁴ “A person challenging a statute on substantive due process grounds must show that the statute bears ‘no reasonable relationship to a legitimate government purpose.’ ”³⁵

Here, Donkel has failed to meet his burden. He asserts that the statute underpinning 11 AAC 83.111 does not contain a “statutory purpose” that supports adopting a regulation that requires paying rent on expired leases. But contrary to Donkel's argument, substantive due process does not require that a regulation must be supported by an express statutory purpose. Instead, the constitutional guarantee is less demanding than Donkel suggests, because it requires only that a regulation must be reasonably related to a legitimate government purpose.³⁶

Donkel does not actually dispute that the government has a legitimate interest in being compensated for the occupancy of its land or in encouraging efficient resolution of lease disputes for the effective use of the State's natural resources. Instead, Donkel's narrow assertion is that the regulation is not rationally related to these purposes, relying in part on the notion that it is the government that is “tying up” the leased land in the appeals process as opposed to the lessees who have filed appeals. In Donkel's view, “the time it takes for [the Commissioner] to issue a decision on [an] appeal is wholly within [the Commissioner's] control.” But Donkel fails to account for the fact that the number of appeals pending before the Commissioner will necessarily impact the efficiency with which the Commissioner is able to process these appeals. And Donkel's assertion does not demonstrate that the regulation is not reasonably related to a legitimate governmental purpose. The regulation is reasonably related to the purpose of encouraging the resolution of lease disputes to promote the efficient development of the State's oil and gas resources.

Star page 7*7 Donkel also argues that 11 AAC 83.111 lacks a rational basis because the regulation uses the term “rental,” and the plain meaning of “rental” requires that the party paying rent receive a right to “use or possess” the property in return. He further argues that, contrary to this plain meaning, the regulation requires a party to bear the burden of paying rent without receiving the benefit of a property right in return. But as Donkel acknowledges, even if the payment of rent pending appeal does not provide the lessee with a right of immediate occupancy, it does allow the lessee to retain an interest in the land by providing the lessee with a path to reinstate the lease upon a successful appeal. And the regulation does not require continued rental payments for all expired leases. It only requires rental payments for those leases that “remain[ ] subject to a pending ... appeal,”³⁷ indicating that a lessee is paying for the opportunity to reinstate the lease. Thus, Donkel's argument that the rental payment provides no benefit to the lessee is unpersuasive. For these reasons, we conclude that 11 AAC 83.111 survives Donkel's constitutional challenge because the regulation is not so irrational that it shocks the universal sense of justice.³⁸

b. 11 AAC 83.111 does not violate procedural due process.

Donkel also asserts that 11 AAC 83.111 violates procedural due process because it denies him access to the courts. He argues that the regulation is in essence a “pay to play” scheme that “conditions [his] right to continue litigating the appeal” on his payment of a “non-refundable amount of money equal to the previous rental payments on the now-expired leases.”

Procedural due process requires that “adequate and fair procedures be employed when state action threatens protected life, liberty, or property interests.”³⁹ In assessing whether an administrative regulation violates the due process clause of the Alaska Constitution, we have adopted the framework articulated by the United States Supreme Court in Mathews v. Eldridge.⁴⁰ Under this framework, we assess “(1) the private interest at stake; (2) ‘the risk of an erroneous deprivation’ of the private interest and the value of additional safeguards; and (3) the government interest—noting particularly the cost and ‘administrative burdens’ entailed by additional procedural protections.”⁴¹

As to the first Mathews factor, Donkel asserts that access to the courts to litigate a property interest is an important private right, relying on our decision in Varilek v. City of Houston.⁴² While we note that Donkel himself characterizes his own economic interest in the leases as “small” in his challenge to the award of attorney's fees, we ultimately agree that access to the courts to litigate a property right is an important interest.⁴³

However, when considered alongside the other Mathews factors, we are not persuaded that the importance of this interest establishes that 11 AAC 83.111 violates due process. Donkel's argument that the regulation results in a high risk of erroneous deprivation is unpersuasive. We have previously held that the right to access the courts is “ordinarily implicated only when a legislative enactment or governmental action erects a direct and insurmountable barrier in front of the courthouse doors.”⁴⁴ The barrier Donkel asserts is neither direct nor insurmountable. The regulation does not prevent a lessee from filing an appeal; it simply requires payment to retain an interest in an expired lease during an appeal. Further, unlike the appellant in Varilek,⁴⁵ Donkel has not alleged that he cannot afford the rental payment or that it is prohibitively high, such that it precludes him from accessing the courts. Instead, his arguments amount to a bare assertion that the required payments are unfair, which is insufficient to constitute a violation of due process.

Star page 8*8 Finally, as noted above, DNR has articulated a legitimate interest in efficient and economical resource management. Given the legitimacy of the government's interest, and balancing the government's interest with Donkel's private interest and the relatively low risk of erroneous deprivation, we conclude that 11 AAC 83.111 does not violate Donkel's right to procedural due process.

2. 11 AAC 83.111 does not violate the terms of the leases themselves.

Donkel asserts that “rent” cannot lawfully be due on expired leases because DNR regulations provide that rent is “due in accordance with the rental provisions of the lease”⁴⁶ and there is no term in the leases requiring payment of rent after the expiration of a lease. But as DNR asserts, and Donkel appears to acknowledge, the leases are silent on the issue of rental payments on expired leases. Accordingly, we observe no facial conflict between the requirements of 11 AAC 83.111 and the leases themselves.

Donkel's argument appears to rely on a perceived conflict between 11 AAC 83.111 and 11 AAC 83.110(a), which is another regulation that generally pertains to oil and gas leases. Under 11 AAC 83.110(a), rent is due “in accordance with the rental provisions of the lease.” Donkel suggests that because 11 AAC 83.110(a) provides that rent is due in accordance with the leases, the absence of a term in the leases requiring payments on expired leases prohibits DNR from imposing any such rent. He also highlights the fact that the only term in the leases pertaining to payments due for expired leases relates to the costs of equipment removal and necessary reclamation.

But we are unpersuaded that there is any conflict between 11 AAC 83.111 and 11 AAC 83.110(a). First, 11 AAC 83.110(a) does not provide that DNR may collect rent only in accordance with the lease terms; instead, it provides one circumstance under which a lessee is obligated to pay rent. Second, a comparison of the two regulations leads us to the conclusion that 11 AAC 83.111 governs rental payments on expired leases during the pendency of an appeal, while 11 AAC 83.110(a) governs rental payments on active leases. For example, 11 AAC 83.110 contains multiple subsections pertaining to active leases, including a general requirement that rent must be paid in accordance with a lease,⁴⁷ a requirement to advance annual rent on leases before completion of a well,⁴⁸ and effective rental rates for leases after a well has been plugged or abandoned.⁴⁹ In contrast, 11 AAC 83.111 provides specifically for rent payments “[f]or a lease that is expired.” Observing no conflict between 11 AAC 83.111 and the leases themselves or between 11 AAC 83.111 and 11 AAC 83.110(a), we conclude that 11 AAC 83.111 does not violate the terms of the leases.

3. 11 AAC 83.111 is a reasonable and not arbitrary exercise of DNR's authority.

Donkel argues that 11 AAC 83.111 is not valid because it “has no legal basis and is not consistent with or reasonably necessary to carry out any statutory purpose.” He also maintains that “DNR does not have authority to adopt a regulation that creates a new rental obligation.” DNR asserts that the regulation was enacted pursuant to the “legislature's broad delegation of regulatory authority to implement the Land Act” and that the Commissioner's decision to charge rent on leases on appeal is reasonable and not arbitrary.⁵⁰

Star page 9*9 The arguments regarding the scope of DNR's authority and the validity of the regulation are distinct, but closely related. As explained below, we are not persuaded that the regulation exceeded DNR's authority, and we hold that it is reasonable and not arbitrary.

“To determine whether an agency has authority under Alaska's [Administrative Procedure Act] to promulgate a regulation, we apply the test articulated in O'Callaghan v. Rue.”⁵¹ First, we determine “whether the legislature delegated to the administrative agency the authority to promulgate [the] regulations.”⁵² This is a legal question to which we apply our independent judgment.⁵³ Second, we “consider whether ‘the regulation is consistent with and reasonably necessary to implement the statutes authorizing its adoption’ and whether the regulation is ‘reasonable and not arbitrary.’ ”⁵⁴ Where a regulation involves agency expertise, we make this consideration under a rational basis standard.⁵⁵ Finally, we consider whether the regulation conflicts with any other statutes or constitutional provisions.⁵⁶ This is a question we review using our independent judgment.⁵⁷ The party challenging a regulation bears the burden to demonstrate that the regulation is invalid.⁵⁸

As to the first question, we are persuaded that the legislature delegated DNR the statutory authority to adopt 11 AAC 83.111. The regulation cites three statutes as sources of authority: AS 38.05.020, AS 38.05.145, and AS 38.05.180. Alaska Statute 38.05.020 gives the Commissioner broad authority to “adopt reasonable regulations necessary to carry out [the Land Act].”⁵⁹ Alaska Statute 38.05.145 provides that natural resources on state land — including oil and gas — are subject to regulations adopted by the Commissioner.⁶⁰ And AS 38.05.180 is a statute with broad reach and its findings provide: “[T]he people of Alaska have an interest in the development of the state's oil and gas resources to (A) maximize the economic and physical recovery of the resources [and to] (B) maximize competition among parties seeking to explore and develop the resources.”⁶¹

Star page 10*10 Donkel argues that none of these statutes expressly authorize DNR to collect rent on expired leases. He also asserts that 11 AAC 83.111 is inconsistent with the findings of AS 38.05.180 because it does not maximize development of resources and it disallows competition among parties who would otherwise bid for the leases after they have expired.

We disagree with Donkel and, instead, adopt the superior court's conclusion that “there is no requirement that oil and gas leasing statutes speak with narrow specificity to every possible aspect of leasing procedures.”⁶² The Alaska Constitution states that “[t]he legislature shall provide for the utilization, development, and conservation of all natural resources belonging to the State ... for the maximum benefit of its people.”⁶³ And when enacting AS 38.05.180, the legislature found that the people of Alaska have an interest in the recovery of the State's oil and gas resources.⁶⁴ Further, AS 38.05.020 delegates expansive authority to DNR to enact regulations “necessary to carry out” the oil and gas statutes.⁶⁵ The fact that the statutes do not explicitly address the issue of rent on expired leases does not create a conflict or indicate that the legislature did not intend to provide DNR with the authority to collect rent on expired leases during the pendency of an appeal.

As to the second question, in light of the statutes authorizing its promulgation, we conclude that 11 AAC 83.111 is valid because it is a reasonable and not arbitrary exercise of DNR's authority. Legal determinations involving oil and gas leasing often implicate questions of agency expertise or fundamental policy determinations delegated to the agency; in such instances, we apply the deferential reasonable basis standard of review.⁶⁶ We agree with DNR that this is the applicable standard here. Reviewing 11 AAC 83.111 under this deferential standard, we conclude that the regulation is reasonable, not arbitrary, and consistent with the statutes.

In order to be valid, a regulation must be “consistent with the statute and reasonably necessary to carry out the purpose of the statute”⁶⁷ and “reasonable and not arbitrary.”⁶⁸ As discussed above, the legislature delegated broad authority to DNR to regulate oil and gas leasing for resource development. And the legislature's findings in AS 38.05.180(a) reflect a public interest in “maximiz[ing] the economic and physical recovery of the resources” and “maximiz[ing] competition among parties seeking to explore and develop the resources.” 11 AAC 83.111 is reasonably related to these purposes: A requirement for lessees to make rental payments on expired leases during the pendency of an appeal is not arbitrary; it is reasonably related to the state's interest in generating revenue from the state's resources. And it is not unreasonable for DNR to allocate that cost to lessees rather than to the public.

Star page 11*11 Finally, we conclude that 11 AAC 83.111 is not in conflict with any existing laws. Donkel has not pointed to any laws that directly conflict with 11 AAC 83.111; at most, he asserts that 11 AAC 83.111 conflicts with the terms of the leases themselves, an argument we have considered and rejected above. Accordingly, we hold that 11 AAC 83.111 is valid as a reasonable and not arbitrary exercise of DNR's authority.

4. Donkel's other challenges to the constitutionality of 11 AAC 83.111 are waived.

Donkel asserts two additional challenges to the application of 11 AAC 83.111. First, he suggests the regulation is impermissibly retroactive. Second, he suggests that it impermissibly impairs lessees’ rights under the contract clauses of the Alaska and United States Constitutions.⁶⁹ DNR argues that Donkel waived these arguments by failing to address them during administrative proceedings. Donkel suggests that his arguments are not waived because they present “pure questions of law on undisputed facts that are appropriate for judicial review, whether they were presented to the agency or not.”

“It is a well-established rule of appellate review that ‘it is inappropriate for courts reviewing appeals of agency decisions to consider arguments not raised before the administrative agency involved.’ ”⁷⁰ But we may “consider arguments not raised explicitly in [administrative proceedings] if the issue is ‘1) not dependent on any new or controverted facts; 2) closely related to the appellant's trial court arguments; and 3) could have been gleaned from the pleadings.’ ”⁷¹

Donkel's initial assertion that he did not waive these arguments because DNR should have understood that he was challenging the validity of 11 AAC 83.111 “on multiple grounds” is unpersuasive. A general challenge to the validity of a regulation does not allow an appellant to assert new claims on appeal, particularly where these claims could not have been previously gleaned from the pleadings.⁷² Here, we conclude that Donkel's arguments were not sufficient to alert the agency as to the arguments he now raises on appeal.

Moreover, neither of Donkel's arguments can be resolved without first conducting fact-based inquiries. Whether a regulation may be applied retroactively depends on the nature and purpose of the regulation, as well as the policies and conduct of the agency prior to the regulation's enactment.⁷³ As DNR points out, if Donkel's retroactivity argument had been properly raised during administrative proceedings, DNR would have had the opportunity to present evidence to support its assertion that the regulation was consistent with prior policy. Similarly, whether application of the regulation violates the contract clause also involves factual questions, because this analysis depends upon whether the law has operated as a “substantial impairment” to a contractual relationship and whether the regulation is reasonable and necessary to a public purpose.⁷⁴

Star page 12*12 Donkel's failure to alert the agency as to his arguments challenging the validity of 11 AAC 83.111 effectively precluded the fact-based inquiries necessary to resolve the constitutional claims that he identifies for the first time on appeal. Under these circumstances, we conclude that Donkel has waived these arguments.

B. The Unitization Appeal: The Commissioner Did Not Err By Affirming The Division's 2021 Decision Denying Unitization.

In his unitization appeal, Donkel challenges the Commissioner's decision denying unitization. Specifically, he asserts that the Commissioner's decision to deny unitization of ADL 390825 and ADL 391001 had no legal basis, constituted an unconstitutional taking, and violated his due process rights. DNR argues that Donkel's unitization appeal is moot.

We conclude that Donkel's unitization appeal is not moot as to ADL 390825, because the termination of ADL 390825 is on remand to the Commissioner and neither party has asserted that it has been terminated. But we reject Donkel's substantive arguments that the Division's 2021 decision denying unitization was improper. We conclude that the Commissioner's decision to affirm the Division's 2021 decision was a valid and constitutional exercise of authority. Accordingly, we affirm the Commissioner's decision to deny unitization.

1. Donkel's unitization appeal is not moot.

Generally, we will not hear a case when it does not include “a present, live controversy” or if “the party bringing the action would not be entitled to any relief even if it prevails.”⁷⁵ DNR argues Donkel's unitization appeal is not a live controversy, given that five of the leases were properly terminated. As to ADL 390825, DNR asserts that if Donkel fails to demonstrate there is a well capable of producing oil and gas in paying quantities on remand to the Commissioner, the unitization appeal would also be moot as to ADL 390825. Donkel argues that the unitization appeal cannot be moot until there is a final, non-appealable decision that the leases are terminated.⁷⁶

We agree with DNR that Donkel's unitization appeal is moot as to the five terminated leases. Our decision upholding the termination of these leases constitutes a final decision in this regard. We disagree, however, that this case is moot as to ADL 390825. At most DNR asserts that the case will become moot if Donkel's claim fails on remand. But DNR's assertion is speculative; neither party has asserted that ADL 390825 has been terminated on remand.⁷⁷ Thus, there is still a “present, live controversy” as to ADL 390825.

2. The Commissioner's decision to approve the Division's 2021 decision denying unitization was a constitutional and reasonable exercise of authority.

Star page 13*13 Donkel raises several challenges to the agency's decision denying unitization as to all six leases, including that (1) the Division exceeded its scope of authority by reviewing leases it had previously approved, (2) the Division failed to provide notice and opportunity for hearing as to the approved leases, (3) the reversal of the Division's 2013 decision was an unconstitutional taking, (4) the Division's decision was arbitrary and unreasonable, and (5) the agency violated Donkel's due process rights by causing an unreasonable delay.⁷⁸ For the reasons explained below, we reject each of these arguments and affirm the Commissioner's approval of the Division's 2021 decision.

a. Additional facts provide context for our discussion of Donkel's arguments on unitization.

Savant was the operator of the Badami Unit which overlies the Killian reservoir. The Killian reservoir is one of several known oil and gas reservoirs associated with the Badami Unit. Savant submitted an application in November 2012 to expand the unit, which included a work plan for its proposed activities. The work plan contained a list of activities Savant would undertake in the following year and a half, assuming its application for unitization was successful. In March 2013, after considering the geological and engineering characteristics of the area proposed for unitization,⁷⁹ the Division found that Savant “[had] reasonably mapped the Killian accumulation in a portion of the proposed expansion area,” and that the “Killian seismic anomaly map submitted with the Application identifies the potential extent of the hydrocarbon accumulation in the proposed expansion area.” (Emphasis added.) The proposed well was “within the expansion area” and “[could] be reached from existing unit infrastructure.” Accordingly, the Division partially approved the application, granting unitization as to ADL 390825 and ADL 391001⁸⁰ for inclusion in the Badami Unit, but denying unitization as to the other leases. One month later, Savant appealed the Division's decision to the Commissioner.

More than five years later — in July 2018 — the Commissioner remanded the decision back to the Division. On remand, the Division made requests in July 2019 and October 2020 for Savant to provide an updated work plan. The Division informed Savant that if it did not submit an updated work plan, the application would be considered to have been submitted without one. Savant responded in December 2020, but did not include an updated work plan, explaining that it was unable to commit to any specific timeline.

The Division issued a decision on remand in 2021 that denied unitization as to all six leases sought for inclusion and stated that Savant's work plan was “necessarily out of date,” and that “if it were to rely on the 2012 [plan of exploration], the Division would have to make significant assumptions about Savant's current work commitments and timeline.” Further, the Division explained that Savant had not submitted any geologic data “supporting the connection between the ... reservoir existing inside the unit and any ... reservoir or potential hydrocarbon accumulation outside the unit.” The Division concluded that the lack of a work plan and the geologic data that had been submitted did not support expansion of the Badami Unit.

b. The Division did not exceed the scope of its authority on remand.

Star page 14*14 Donkel argues that the Division exceeded the scope of its authority on remand in 2021 by reconsidering its 2013 decision to approve ADL 390825 and ADL 391001 for unitization. He asserts that the portion of the 2013 decision that granted unitization for those two leases was not appealed. And, according to Donkel, Savant could not have appealed the portion of the decision that approved two of the leases for unitization because only a person “aggrieved by a decision” can appeal to the Commissioner.⁸¹ Donkel goes on to suggest that because Savant was not “aggrieved by” the portion of the 2013 decision that approved the leases for inclusion in the unit, Savant could only appeal the decision as to the leases that were denied unitization.

DNR correctly points out that the requirement that a person be aggrieved by a decision under AS 44.37.011(b) is only a limitation on who may appeal; it is not a limitation on what may be appealed. We have previously held that AS 44.37.011(b) is a threshold requirement for standing, not a substantive limitation on review of material on remand.⁸²

Our precedent provides that the scope of an agency's review may be limited on remand where the language in the order for remand directs the agency to review certain issues.⁸³ But the order for remand in this case included no such language: In 2018, when the Commissioner issued instructions for Savant's appeal to be remanded to the Division, he directed only that “this matter is remanded to the Division for reconsideration of Savant's request for expansion of the Badami Unit.” Contrary to Donkel's argument, the Commissioner did not articulate a specific scope of review for the Division on remand.

Donkel also argues that the approved leases were severed, such that the 2013 decision was “final” and the lessees acquired vested rights to have those leases included in the unit. But as we discuss in more detail below with regard to Donkel's takings claim, a decision by the Division to remove a lease from a unit would not deprive the lessee of even a “vested” property right. This is because the removal of a lease from a unit does not deprive a lessee of their interest in the lease itself.⁸⁴ Even if we assumed that Donkel was correct that ADL 390825 was severed and included within the unit in 2013, he does not explain how this would limit the Division's authority to reconsider this lease's inclusion in the unit on remand.

Because the Commissioner did not limit the scope of the Division's review on remand, and because Donkel has not otherwise explained how the Division's authority to reconsider the 2013 decision was limited, we reject Donkel's argument that the Division's 2021 decision exceeded its authority.

c. Donkel was not entitled to further notice and opportunity to be heard before the Division's 2021 decision.

Donkel asserts that the Commissioner also exceeded the scope of his authority when he affirmed the 2021 decision, because the Commissioner “never gave notice that he was going to review the approval” of the Division's decision to include the two leases within the Badami Unit. Donkel argues that if the Commissioner wished to preserve the right to review the entire decision, he would have had to give notice of that review at the time Savant appealed the Division's 2013 decision.

Donkel provides no persuasive authority indicating that the Commissioner or the Division must provide specific notice of its intent to review the entirety of a decision which has clearly been remanded. The only authority Donkel cites is 11 AAC 83.356, which applies when the Commissioner acts to contract (i.e. reduce) the size of a unit.⁸⁵ Donkel argues the Division's 2021 decision was “effectively a contraction of the Badami Unit,” requiring additional notice and an opportunity to be heard. But we are not convinced that the 2021 decision was a contraction of the unit within the meaning of 11 AAC 83.356. As explained in our holding above, there was no language limiting the scope of review on remand: When the Commissioner remanded the Division's 2013 decision, he stated the remand was “for reconsideration of Savant's request for expansion of the Badami Unit.”

Star page 15*15 Further, Donkel received actual notice and an opportunity to be heard throughout the appeal and remand process. Due process requires the “opportunity to be heard and the right to adequately represent one's interests,”⁸⁶ which Donkel was provided with here. Donkel was aware of the Division's decision denying unitization and timely filed his appeal. The Commissioner considered and rejected Donkel's substantive arguments regarding the denial of unitization. Accordingly, we are unpersuaded that the agency violated Donkel's due process rights by depriving him of notice and the opportunity to be heard.

d. The agency decision to deny unitization was not an unconstitutional taking.

Donkel alleges that because he has interests in the lease that was initially approved for inclusion in the Badami Unit, the subsequent denial of the unitization of that lease “without notice or opportunity to be heard unconstitutionally takes his interest in having those leases administered as part of the unit.” He alleges the Division's later reversal constitutes inverse condemnation without a formal condemnation proceeding.

Article I, section 18 of the Alaska Constitution provides: “Private property shall not be taken or damaged for public use without just compensation.” But a “party alleging inverse condemnation must establish the following elements: (1) a taking or damaging of private property (2) proximately caused by a government entity (3) exercising power in the public interest without formal condemnation proceedings.”⁸⁷

As to the first element of inverse condemnation, Donkel asserts that unitization provides benefits to lessees, meaning that removing a lease from a unit will result in a negative economic impact to lessees. He further argues the Division's 2021 decision interfered with his “investment-backed expectation” because while he could not necessarily expect the leases to be included in the Badami Unit forever, “he reasonably expected that before they could be removed from the unit, [the Division] would follow constitutional and statutory due process and provide notice and an opportunity to be heard.”

Donkel describes the Division's actions as “reprehensible” because it “acted to remove the approved leases from or contract the Badami Unit to exclude the approved leases without giving any party notice or an opportunity to be heard.” But acting to deny leases from inclusion in a unit does not deprive the lessee of a property right; even after the leases were excluded from the unit, Donkel retained his interest in them.⁸⁸ Additionally, denial of unitization did not deprive Donkel of a property right because, as DNR explains, the Commissioner retains significant statutory discretion to grant or deny unitization, and the lessee's right to inclusion is expressly conditioned on the Commissioner's approval.⁸⁹ Thus, Donkel has not persuasively explained how the Division's 2021 decision and the Commissioner's approval of the decision constituted a taking of his property rights or investment-backed expectations. Accordingly, we are unpersuaded that the agency's decision denying unitization amounted to an unconstitutional taking.⁹⁰

e. The agency's decision denying unitization was reasonable and not arbitrary.

Star page 16*16 Donkel also argues the Commissioner's decision to deny the inclusion of all six leases was arbitrary and unreasonable, particularly after the Division had previously approved two of the leases for unitization in 2013. In its 2021 decision, the Division stated it was denying unitization based in part on a lack of geological data supporting a “connection” between the reservoir inside the existing Badami Unit and any reservoir underlying the leases proposed for addition to the unit. Donkel asserts that the Division's change in position was unsupported by facts in the record, that DNR did not explain why it came to a different conclusion regarding the leases in 2021, and that there is no “legal or contractual requirement” for an applicant to demonstrate geological connectivity in order for a lease to be included within a unit. We conclude that the Division's consideration of a lack of demonstrated geological connectivity, when coupled with the absence of an updated work plan, provided the Division with sufficient factual and legal support to reverse its 2013 determination. Accordingly, the Commissioner's approval of the Division's 2021 decision was reasonable and not arbitrary.

When considering a unit expansion application, the Commissioner must find that the expansion will (1) promote conservation of all natural resources, including all or part of an oil or gas pool, field, or like area; (2) promote the prevention of economic and physical waste; and (3) provide for the protection of all parties of interest, including the State.⁹¹ To determine whether a unit expansion will serve these interests, the Commissioner must consider the following: (1) the environmental costs and benefits of unitized exploration or development; (2) the geological and engineering characteristics of the potential hydrocarbon accumulation or reservoir proposed for unitization; (3) prior exploration activities in the proposed unit area; (4) the applicant's plans for exploration or development of the unit area; (5) the economic costs and benefits to the state; and (6) any other relevant factors.⁹²

Donkel asks us to hold that the Division's decision, as it pertains to reservoir connectivity, lacked factual and legal support. When the Division weighed the geological and engineering characteristics of the area proposed for unitization in 2013, it found that “Savant [had] reasonably mapped the Killian accumulation in a portion of the proposed expansion area,” and that the “Killian seismic anomaly map submitted with the Application identifies the potential extent of the hydrocarbon accumulation in the proposed expansion area.” (Emphasis added.) But when the Division discussed the geologic data in its decision in 2021, the Division found there was no “data supporting the connection between the ... reservoir existing inside the unit and any ... reservoir or potential hydrocarbon accumulation outside the unit.”

“We review an agency's interpretation and application of its own regulations using the reasonable basis standard of review.”⁹³ Under the reasonable basis standard, “we must confirm that the agency ‘has taken a hard look at the salient problems and has genuinely engaged in a reasoned decision making’ and must verify that the agency has not failed to consider an important factor in making its decision.”⁹⁴

Here, we agree with DNR that the Division took a hard look and engaged in sufficiently reasoned decision-making. We conclude that the lack of an updated work plan and the lack of demonstrated connectivity in 2021 provided a sufficient basis for the Division to reverse its 2013 decision. Further, when the Division issued its original decision in 2013, it appeared to emphasize the fact that Savant had demonstrated potential geological connectivity between the existing Badami Unit and the two leases approved for inclusion, justifying approving the leases for inclusion in the unit. But after eight years and updated geologic data, the Division concluded that Savant had failed to show actual connectivity between the reservoirs existing inside and outside the unit. The Division explained its decision by referencing the Badami Unit operating agreement and Savant's geologic data and stated:

Star page 17*17 [T]he submitted data and exhibits do not support an interpretation that connects the Killian reservoir being produced inside the unit at B1-38 and B1-07 to the Killian reservoir tested ... in the proposed expansion area. The [Badami Unit] Agreement ... states in pertinent part that “the Unit Operator [ ] shall, when warranted, expand the Unit Area to include any additional lands determined to overlie any Reservoir, any part of which is within the Unit Area to include any additional lands determined to overlie any Reservoir, any part of which is within the Unit Area.” Both the Division [and] the unit operator ... are bound by this provision.

... The Division relied upon this previously submitted geologic data in the 2013 Decision to support an expansion of the [unit] with portions of the lands also covered by ADLs 390825 and 391001.... [T]he language of the [unit] Agreement controls, and because no part of ADLs 390825 and 391001 overlie any part of the existing Reservoir within the current [unit] boundaries, an expansion of the [unit] to include the lands covered by those leases is insupportable.

On the basis of this information, we cannot say the agency failed to take a hard look at the leases or that it did not engage in reasoned decision making with regard to the issue of connectivity. It does not appear, as Donkel asserts, that the agency's conclusions were “not supported by facts in the record.” Instead, it appears that the agency placed an emphasis on potential connectivity in 2013, but placed greater value on a demonstration of actual connectivity in its 2021 decision. Given the period of time that elapsed without a demonstration of actual connectivity, our deferential review of the record convinces us that it was reasonable for the agency to place a higher value on a demonstration of actual connectivity in 2021.⁹⁵

Donkel's argument also fails to acknowledge the lack of an updated work plan as a basis for the 2021 decision.⁹⁶ When the Division made its 2021 decision, it stated that Savant's work plan was “necessarily out of date,” and that “if it were to rely on the 2012 [plan of exploration], the Division would have to make significant assumptions about Savant's current work commitments and timeline.” The Division reached out to Savant for an updated work plan twice, and Savant responded in December 2020, but did not include an updated work plan, explaining that it was unable to make a commitment to any specific timeline for work.

Donkel asserts that because the agency delayed its decision on Savant's appeal for several years, the agency should have supplied new dates in Savant's 2013 work plan to bring it current. But Donkel points to no source of law indicating that it is necessary or appropriate for the agency to assume information about an operator's work plan in order to cure deficiencies in a unitization application. Donkel's proposal to require the agency to unilaterally adopt a work plan could have unforeseen adverse effects on the operator and/or lessees by committing them to timelines that were undesirable, impractical, or impossible. And the record indicates it would have been particularly inappropriate for the agency to make such assumptions here: In its December 2020 letter, Savant not only declined to provide an updated work plan, but affirmatively stated that it could not make any firm work commitments. Ultimately, we are unconvinced that the agency had any obligation to update Savant's original work plan.

Star page 18*18 Based on the agency's decision to place a greater value on actual connectivity, as compared to potential connectivity, and the lack of an updated work plan or lessee willing to commit to a timeline for work, we observe that the agency engaged in reasoned decision-making, even as the Division reversed its prior determination pertaining to connectivity on two leases.

f. Although the length of the agency's delay in issuing the 2021 decision was unreasonable, it did not violate Donkel's due process rights.

Finally, Donkel asserts that the Commissioner and the Division violated his due process rights because of the substantial delay in decision making. Donkel points out that the agency delayed issuing a substantive decision on the 2013 appeal for over eight years and then denied the appeal because the work plan was outdated. In Donkel's view, the agency's delay violated basic concepts of justice and fair play particularly in light of the Commissioner's refusal to “make a few assumptions” that would be necessary to update Savant's 2013 work plan.

Donkel's due process arguments are unpersuasive for two reasons. First, even assuming the length of delay in decision making was unreasonable,⁹⁷ we disagree with Donkel that the delay was the cause of the Division's 2021 denial of unitization. Donkel's due process argument assumes that the “delay itself ... was the very basis for [the] denial” in 2021. But as discussed above, this assertion is incorrect: The Division relied both on the out-of-date work plan (of which Savant was notified and had the opportunity to correct) and a lack of demonstrated geological connectivity between the existing unit and the leases sought for inclusion. Further, Donkel fails to acknowledge that the work plan Savant submitted in November 2012, which proposed for drilling activities to begin in September 2013, would have been out of date by September 2013. In other words, it was likely that Savant's appeal from the Division's 2013 decision — even without an unreasonable delay, far before 2018 — would have required an updated work plan because the original work plan would have been out of date by the time the appeal was resolved.

Donkel's due process argument also fails because he has not demonstrated any prejudice. We have recognized that “delay can constitute a violation of due process ... if the delay causes the deprivation of a private interest.”⁹⁸ But we have held that a due process violation does not arise from “delay alone, with no accompanying prejudice.”⁹⁹ For instance, in AVCG, LLC v. State, Department of Natural Resources, we concluded that a five-year delay in decision making did not prejudice the interest holder because the interest holder had “ample notice that a favorable outcome was not a sure bet.”¹⁰⁰ Similarly, in Brandal v. State, we concluded that a 22-year delay in issuing a final decision did not prejudice the applicant because the applicant had notice that his claim was likely to be rejected.¹⁰¹

Star page 19*19 Donkel highlights an unreasonable period of delay in the agency's decision making, but he does not explain how his interests were prejudiced by that delay. Donkel asserts, in part, that his claims were prejudiced because they were denied based on an out-of-date work plan. But as discussed above, the Division asked Savant for an updated work plan twice and Savant ultimately did not provide one. And Donkel points to no source of law to support his assertion that it is necessary or appropriate for the Division or the Commissioner to unilaterally supply information in order to cure deficiencies in a lessee's application for unitization. At most, Donkel asserts that the regulations allow the Commissioner, “in his discretion,” to propose modifications to work plans that would qualify the plans for approval, but this does not establish an obligation for the Commissioner to do so.¹⁰²

Further, like the applicants in AVCG and Brandal, Donkel had notice that there was no certainty that his application would be granted, because five of the six leases had already been rejected and the full application was on appeal.¹⁰³ Accordingly, we hold that the agency did not violate Donkel's due process rights.

C. Donkel Is Not A Constitutional Litigant Qualifying For Relief From Attorney's Fees Under AS 09.60.010.

Donkel argues that he is a “constitutional claimant,” and therefore he is entitled to protection against an award of attorney's fees under AS 09.60.010. He asserts that to the extent he has an economic interest from his royalty interest or working interests, that interest is “small” and any potential economic gain from expanding the Badami Unit to include these leases is “speculative and indirect.” DNR argues that Donkel admits to holding economic interests in the leases sufficient to motivate him to bring the appeals to protect those interests.

Alaska Statute 09.60.010(c)(2) provides that an appellant who raises claims “concerning the establishment, protection, or enforcement” of a constitutional right and does not prevail may not be ordered to pay attorney's fees related to those claims if the appeal was not frivolous and the appellant did not have “sufficient economic incentive” to bring the claims. But a “litigant has sufficient economic incentive to bring a claim when it is brought primarily to advance the litigant's direct economic interest, regardless of the nature of the claim.”¹⁰⁴ In determining the primary purpose of a claim, we consider “the nature of the claim and relief sought and the direct economic interest at stake.”¹⁰⁵

Although Donkel is not seeking money damages and maintains that his goal was always to “ensure that DNR was not violating the constitution in making its decisions,” these circumstances do not demonstrate that Donkel lacked an economic interest in this litigation.¹⁰⁶ It is evident that Donkel has a direct economic interest in the outcome of the litigation given his assertion of interests in six leases and his claim that the agency's actions constituted an unconstitutional taking. As a result, AS 09.60.010 is inapplicable and we affirm the superior court's award of attorney's fees against Donkel.

V. CONCLUSION

Star page 20*20 The decisions of the superior courts are AFFIRMED.

Footnotes

1

AS 38.05.180(p).

2

See id.; 11 Alaska Administrative Code (AAC) 83.356. We use the term “unitization” to refer both to the creation of a new unit and the expansion of an existing unit. See 11 AAC 83.303(c) (unitization regulations applicable to both unit creation and extension or amendment of existing unit).

3

The Division of Oil and Gas is a division of the Department of Natural Resources. See State, Dep't of Nat. Res. v. Arctic Slope Reg'l Corp., 834 P.2d 134, 135 (Alaska 1991) (“DNR has undergone several internal reorganizations since statehood; its oil and gas related functions are currently concentrated in its Division of Oil and Gas.”); see also 11 AAC 83.295(32).

4

11 AAC 83.303(b).

5

11 AAC 83.306(4).

6

11 AAC 83.341.

7

11 AAC 83.346.

8

11 AAC 83.343.

9

11 AAC 83.257; see also 11 AAC 83.303 (Commissioner's approval of proposed unit agreement).

10

11 AAC 83.111 (“For a lease that is expired but otherwise remains subject to a pending application or appeal, the lessee must continue to pay annual rental at the previous year's rental rate ... during the application or appeal process.”).

11

11 AAC 83.170(a) (“Any lease on which there is no well capable of producing oil or gas in paying quantities terminates by operation of law if any rental due is not timely paid on or before each anniversary date of the lease ....”).

12

Lease interest owners include lessees with working interests or royalty interests. See 11 AAC 83.295(26). A working interest is an interest which vests an owner with “the right to explore for, develop and produce minerals.” 11 AAC 83.295(30); 11 AAC 88.185(37). However, exploration and development rights delegated to a unit operator are not working interests. 11 AAC 88.185(37). A royalty interest is an interest that “gives the owner of the interest the right to receive a portion of the proceeds of the sale of the production from the leased acreage, but does not require the owner to pay any portion of the cost of drilling or operating.” Definitions, ALASKA DEP'T OF NAT. RES., DIV. OF OIL & GAS, https://dog.dnr.alaska.gov/About/Definitions#A (last visited Feb. 28, 2026); see also 11 AAC 83.295(27). An overriding royalty interest is “[a] royalty in excess of the royalty provided” for in the lease, usually created as a result of the assignment of an interest. Definitions, ALASKA DEP'T OF NAT. RES., DIV. OF OIL & GAS, https://dog.dnr.alaska.gov/About/Definitions#A (last visited Feb. 28, 2026).

13

AS 38.05.180(p) (“The commissioner may, with the consent of the holders of leases involved, establish, change, or revoke drilling, producing, and royalty requirements of the leases and adopt regulations with reference to the leases, with like consent on the part of the lessees, in connection with the institution and operation of a cooperative or unit plan.”); 11 AAC 83.356.

14

The proposed additional leases were ADL 390825, ADL 391284, ADL 391285, ADL 391001, ADL 391376, ADL 391378, and ADL 391431. Alaska Division of Lands (ADL) numbers are assigned to each lease by the Alaska Division of Lands. 11 AAC 88.185(2).

15

Specifically, Savant proposed a timeline for work to begin in September 2013 and to provide DNR with results from an exploration test well no later than June 2014.

16

When Donkel filed his appeal to the Commissioner in January 2021, he asserted he had “acquired a 6.25% working interest in the Badami Unit in leases ADL 391001, ADL 390825, ADL 391284, ADL 391285, ADL 391376, and ADL 391378.” But the Commissioner stated at the time he ruled on Donkel's appeal that Donkel had a working interest in only ADL 391001, ADL 391284, and ADL 391285, “which all became effective on March 1, 2021, after [he] filed” his appeal. The Commissioner noted Donkel “has a valid [overriding royalty interest] in only ... ADL 390825, and no interest whatsoever in ADLs 391376 and 391378.”

17

The leases expired between 2017 and 2019. The primary term of a lease is “the initial term of an oil and gas lease and any extension of it.” 11 AAC 88.185(29). A lease term may be no more than ten years and may be extended if oil and gas is being produced at paying quantities or the lease is included in a unit. AS 38.05.180(m).

18

The Brooks Range Petroleum Corporation was the notification lessee for ADL 390825, ADL 391376, ADL 391378, ADL 391001, ADL 391284, and ADL 391285. See 11 AAC 88.185(20) (explaining notification lessee is “a lessee or agent authorized by the lessees to receive notices on behalf of all lessees from the state in connection with a lease”).

19

See 11 AAC 83.175(a).

20

Donkel was the only lessee who appealed; neither Savant, Brooks Range Petroleum, nor any other lessee joined Donkel's appeal.

21

11 AAC 83.175(a) (listing requirements for reinstatement).

22

Donkel did not claim an interest in or appeal the termination of ADL 391431.

23

11 AAC 83.170(a); 11 AAC 83.105.

24

Handley v. State, Dep't of Revenue, 838 P.2d 1231, 1233 (Alaska 1992) (citing Tesoro Alaska Petroleum Co. v. Kenai Pipe Line Co., 746 P.2d 896, 903 (Alaska 1987)); PLC, LLC v. State, Dep't of Nat. Res., 484 P.3d 572, 576 (Alaska 2021).

25

Handley, 838 P.2d at 1233.

26

Id.

27

Id

28

Id.

29

If we determined that the leases were improperly terminated, then the unitization appeal would present a live case or controversy as to all six leases because the terminated leases could be reinstated. See Allen v. Alaska Oil & Gas Conservation Comm'n, 1 P.3d 699, 700 (Alaska 2000) (holding that appellant retained standing to appeal expired lease because Commissioner has authority to act retroactively).

30

ADL 391001, ADL 391284, ADL 391285, ADL 391376, and ADL 391378.

31

See 11 AAC 83.170 (“Any lease on which there is no well capable of producing oil and gas in paying quantities terminates by operation of law if any rental due is not timely paid ....” (emphasis added)); see also AS 38.05.180(m) (“An oil ... lease shall be extended beyond its primary term if, at the end of the primary term, oil or gas is produced in paying quantities from the lease ....”).

32

Alaska Const. art. I, § 7.

33

Doe v. State, Dep't of Pub. Safety, 444 P.3d 116, 125 (Alaska 2019) (alteration in original) (quoting Church v. State, Dep't of Revenue, 973 P.2d 1125, 1130 (Alaska 1999)).

34

Burke v. Criterion Gen., Inc., 499 P.3d 319, 327 (Alaska 2021).

35

Id. (quoting Schiel v. Union Oil Co. of Cal., 219 P.3d 1025, 1036 (Alaska 2009)).

36

See id.

37

11 AAC 83.111.

38

See Doe, 444 P.3d at 125.

39

Id. at 124.

40

Sands ex rel. Sands v. Green, 156 P.3d 1130, 1134 (Alaska 2007) (adopting factors from Mathews v. Eldridge, 424 U.S. 319, 334-35 (1976)).

41

Copeland v. Ballard, 210 P.3d 1197, 1204 (Alaska 2009) (citing Mathews, 424 U.S. at 334-35).

42

104 P.3d 849, 853 (Alaska 2004).

43

See id. at 854.

44

Maness v. Gordon, 325 P.3d 522, 528 (Alaska 2014) (quoting Sands, 156 P.3d at 1134).

45

See Varilek, 104 P.3d at 855.

46

11 AAC 83.110(a).

47

11 AAC 83.110(a).

48

11 AAC 83.110(c).

49

11 AAC 83.110(d).

50

DNR also suggests Donkel has waived this argument by failing to raise it before the Division. We conclude that this argument was not waived because it presents pure questions of law. The questions of whether 11 AAC 83.111 has a legal basis, whether it is reasonably necessary to carry out a statutory purpose, and whether it falls within DNR's authority are all questions of law which do not rely on a factual context. Cf. McConnell v. State, Dep't of Health & Soc. Servs., Div. of Med. Assistance, 991 P.2d 178, 183 (Alaska 1999) (quoting State, Dep't of Revenue v. Gazaway, 793 P.2d 1025, 1027 (Alaska 1990)) (review may be proper where, among other requirements, argument raises pure question of law).

51

City of Soldotna v. State, Loc. Boundary Comm'n, 556 P.3d 1158, 1164 (Alaska 2024) (footnote omitted) (first citing AS 44.62.010 et seq.; and then citing O'Callaghan v. Rue, 996 P.2d 88 (Alaska 2000)).

52

O'Callaghan, 996 P.2d at 94.

53

City of Soldotna, 556 P.3d at 1164; see also Kelly v. Zamarello, 486 P.2d 906, 916 (Alaska 1971) (“These cases usually concern statutory interpretation or other analysis of legal relationships about which courts have specialized knowledge and experience. Consequently, courts are at least as capable of deciding this kind of question as an administrative agency.”).

54

City of Soldotna, 556 P.3d at 1164 (quoting O'Callaghan, 996 P.2d at 94); see also Rose v. Com. Fisheries Entry Comm'n, 647 P.2d 154, 161 (Alaska 1982) (“[W]here an agency interprets its own regulation ... a deferential standard of review properly recognizes that the agency is best able to discern its intent in promulgating the regulation at issue.”).

55

City of Soldotna, 556 P.3d at 1164; see also Jager v. State, 537 P.2d 1100, 1107 (Alaska 1975) (“The [rational] basis standard permits the court to consider factors of agency expertise, policy, and efficiency in reviewing discretionary decisions.”).

56

City of Soldotna, 556 P.3d at 1164.

57

Id.

58

Id.

59

AS 38.05.020(b)(1).

60

AS 38.05.145(a).

61

AS 38.05.180(a)(1)(A)-(B).

62

See Usibelli Coal Mine v. State, Dep't of Nat. Res., 921 P.2d 1134, 1143-44 (Alaska 1996) (holding that DNR was impliedly authorized by same statutes at issue here to promulgate regulations regarding coal royalty rates and adjustments).

63

Alaska Const. art. VIII, § 2.

64

AS 38.05.180(a)(1)(A).

65

AS 38.05.020(b)(1).

66

See, e.g., ConocoPhillips Alaska, Inc. v. State, Dep't of Nat. Res., 109 P.3d 914, 920 (Alaska 2005); AVCG, LLC v. State, Dep't of Nat. Res., 527 P.3d 272, 287-88 (Alaska 2023); Kachemak Bay Conservation Soc'y v. State, Dep't of Nat. Res., 6 P.3d 270, 275 (Alaska 2000); Trs. for Alaska v. State, Dep't of Nat. Res., 865 P.2d 745, 747 (Alaska 1993).

67

AS 44.62.030.

68

See City of Soldotna v. State, Loc. Boundary Comm'n, 556 P.3d 1158, 1164 (quoting O'Callaghan v. Rue, 996 P.2d 88, 94 (Alaska 2000)).

69

Alaska Const. art. I, § 15; U.S. Const. art. I, § 10.

70

West v. Alaska Mental Health Tr. Auth., 467 P.3d 1064, 1072 n.36 (Alaska 2020) (quoting Walker v. State, Dep't of Corr., 421 P.3d 74, 78 (Alaska 2018)).

71

McConnell v. State, Dep't of Health & Soc. Servs., Div. of Med. Assistance, 991 P.2d 178, 183 (Alaska 1999) (quoting State, Dep't of Revenue v. Gazaway, 793 P.2d 1025, 1027 (Alaska 1990)).

72

We note that while Donkel raised non-specific claims about retroactivity to the Commissioner, he does not appear to have mentioned his contract clause claims.

73

AS 44.62.240 (“A regulation adopted under this chapter that is primarily an ‘interpretative regulation’ has retroactive effect only if the agency adopting it has adopted no earlier inconsistent regulation and has followed no earlier course of conduct inconsistent with the regulation.”).

74

Hageland Aviation Servs., Inc. v. Harms, 210 P.3d 444, 451 (Alaska 2009) (citing Simpson v. Murkowski, 129 P.3d 435, 444 (Alaska 2006)).

75

Mullins v. Loc. Boundary Comm'n, 226 P.3d 1012, 1017 (Alaska 2010) (quoting Ulmer v. Alaska Rest. & Beverage Ass'n, 33 P.3d 773, 776 (Alaska 2001)).

76

Donkel's ancillary assertion that the terminations are not part of the unitization record on appeal is unpersuasive, given that he concedes the terminations occurred.

77

Further, Donkel may be entitled to the relief of reinstatement if the remanded lease is not terminated. See Allen v. Alaska Oil & Gas Conservation Comm'n, 1 P.3d 699, 702-03 (Alaska 2000) (providing Commissioner has authority to act retroactively to reinstate expired leases upon successful appeal).

78

Unless otherwise indicated, in this section we use “agency” to refer to both the Commissioner and the Division because Donkel's challenges here concern the combined actions of both the Commissioner and the Division.

79

See 11 AAC 83.303(b)(2).

80

As explained above, this appeal is moot as to ADL 391001.

81

AS 44.37.011(b).

82

See PLC, LLC v. State, Dep't of Nat. Res., 484 P.3d 572, 577-78 (Alaska 2021).

83

See Robles v. Providence Hosp., 988 P.2d 592, 597 (Alaska 1999) (holding that specific language by superior court limiting scope of remand prevented agency from reviewing entire action).

84

See 11 AAC 83.336(d) (providing that even after unit is terminated, leases committed to unit may continue in effect).

85

11 AAC 83.356(e) (providing that before contracting size of unit, Commissioner will give operator and lessees excluded “reasonable notice and an opportunity to be heard”).

86

Patrick v. Mun. of Anchorage, Anchorage Transp. Comm'n, 305 P.3d 292, 298 (Alaska 2013) (quoting D.M. v. State, Div. of Fam. & Youth Servs., 995 P.2d 205, 213-14 (Alaska 2000)).

87

Beeson v. City of Palmer, 370 P.3d 1084, 1088 (Alaska 2016).

88

See 11 AAC 83.336(d).

89

See AS 38.05.180(p).

90

Donkel further asserts that while DNR “may have an interest in proper unitization of its oil and gas resources, it has no legitimate interest in making unitization decisions without due process.” We do not reach this argument given our conclusion that the denial did not interfere with Donkel's property right. But as discussed above, we are unpersuaded that DNR acted without proper notice and opportunity for Donkel to be heard.

91

11 AAC 83.303(a).

92

11 AAC 83.303(b).

93

Davis Wright Tremaine LLP v. State, Dep't of Admin., 324 P.3d 293, 299 (Alaska 2014).

94

Alaska Ctr. for the Env't v. State, 80 P.3d 231, 241 (Alaska 2003) (quoting Trs. for Alaska v. State, Dep't of Nat. Res., 795 P.2d 805, 809 (Alaska 1990)).

95

See 11 AAC 83.303(b)(6) (allowing Commissioner to consider “any other relevant factors” he deems “necessary or advisable to protect the public interest”). For the same reason, we reject Donkel's related argument that the Division could not rely on the operating agreement or 11 AAC 83.303 because neither requires evidence of actual connectivity. That a finding of actual connectivity is not required under either the unit's operating agreement or 11 AAC 83.303 does not demonstrate that the Commissioner or the Division does not have the authority to consider or value connectivity. Donkel also asserts that the Commissioner “routinely approves” other units without connecting hydrocarbon reservoirs, but he provides no evidence that those units are sufficiently similar to the circumstances here to warrant reversal of the Commissioner's decision under our deferential standard of review for agency decisions.

96

See 11 AAC 83.303(b)(4).

97

DNR provides no explanation as to why it took more than five years for the Commissioner to remand Savant's 2013 appeal. The agency merely states that the record contains no indication that this delay was problematic for any party. Given the length of the delay and the lack of an explanation from DNR, it is likely that the delay was not reasonable.

98

AVCG, LLC v. State, Dep't of Nat. Res., 527 P.3d 272, 289 (Alaska 2023) (quoting Brandal v. State, Com. Fisheries Entry Comm'n, 128 P.3d 732, 740 (Alaska 2006)).

99

Id. at 289-90 (quoting Brandal, 128 P.3d at 740).

100

Id. at 290.

101

Brandal, 128 P.3d at 738-40.

102

See 11 AAC 83.341(a), (c) (emphasis added). Donkel's argument that “DNR exercised its discretion under this regulation and promised Savant that it would propose modifications if it found Savant's updated work plan unsatisfactory” is unpersuasive. The email Donkel cites for this proposition states that the Division would propose necessary modification if Savant provided “in writing, updated proposed Work Commitments.” But as discussed previously, Savant did not respond to this communication by submitting an updated work plan — instead, it stated that its development could not be “fully confirmed or committed.”

103

We reach this conclusion partially because of our holdings in Section IV.B.2.b and IV.B.2.c supra that the Division did not exceed its authority on remand and that Donkel received sufficient notice and opportunity to be heard.

104

Alaska Conservation Found. v. Pebble Ltd. P'ship, 350 P.3d 273 281-82 (Alaska 2015).

105

Id. at 282.

106

Id. (noting “the type of relief sought is not always conclusive,” and “ ‘[e]conomic interest need not take the form of damages’ ” (quoting Matanuska-Susitna Borough Sch. Dist. v. State, 931 P.2d 391, 403 (Alaska 1997))).

End of Document