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Resolution pending for CIRI, Buccaneer gas dispute

Posted: April 21, 2014 - 9:45pm  |  Updated: April 21, 2014 - 10:02pm

A dispute between Buccaneer Energy, Cook Inlet Region Inc. and the State of Alaska over natural gas royalties from Kenai Peninsula wells could be resolved within a month, according to the Alaska Oil and Gas Conservation Commission.

At a Monday hearing, commission chair Cathy Foerster said if the groups could not reach a settlement within 30 days the commission would act as an arbitrator and make a ruling.

Cook Inlet Region Inc., or CIRI, claims that two Buccaneer wells — the KL 1-1 and KL 1-3 wells — on the company’s Kenai Loop pad have been draining gas from beneath a nearby CIRI-owned parcel and that it is entitled to 30 percent of the gas from the wells.

Buccaneer does not dispute that the draining is occurring.

None of the four Kenai Loop wells are on CIRI property, however, and while Buccaneer has lease agreements with the state and the Alaska Mental Health Trust Authority, the groups do not have a pooling agreement for the gas or subsequent royalties in question.

The Kenai Loop pad is on Land Trust property.

The state groups want royalties and CIRI says it is owed a share of the production.

Ethan Schutt, CIRI’s senior vice president of land and energy development said the wells are producing more than 8 million cubic feet of gas per day and the money from those wells is “disappearing.”

A since-voided lease between CIRI and Buccaneer put compensation for gas at 20 percent, according to Schutt.

“The status quo is unacceptable,” he said to the two-person commission.

The issue has gone unresolved since last June it was first learned there could be a problem with the KL 1-4 well, the closest well to CIRI land, the Southcentral Alaska Native corporation says.

CIRI commissioned a study of the wells while prepping for a hearing about a possible space exception for KL 1-4 last summer. That study revealed that gas being produced from KL 1-1 and 1-3 could be draining CIRI’s underground assets. Production from KL 1-4 has been on hold since the gas ownership dispute arose.

Monday’s hearing was the third and final hearing on the issue. The first was held Jan. 30.

In its brief filed for the January hearing, Buccaneer claimed that according to Alaska law pooling agreements are required only when at least two parties can claim ownership of the property with the producing wells; and the Land Trust Authority concurred in its brief.

Department of Natural Resources Division of Oil and Gas Director Bill Barron said the allocation factors in the dispute are “interpretive.”

Barron said the royalty stakeholders had been engaged in negotiations in recent months and were near an agreement until Buccaneer was made a party to the talks late in the week of April 18.

There is a “high probability” the three groups interested in a royalty or production stake could reach an agreement, he said.

Commissioner Foerster asked if Buccaneer was obligated to inform CIRI of the possible drainage.

Barron responded: “What precludes them” from notifying a possible affected party?

Buccaneer’s Alaska vice president Mark Landt testified that the company is paying royalties to the Land Trust and that it is “indifferent” as to who gets royalty payments. He added that negotiations with Buccaneer as a participant were not dead in his view.

State Assistant Attorney General Richard Todd testified that negotiations were indeed alive from the state’s view as well.

Much of the testimony from DNR and all from Land Trust officials was closed to the public, as the business interests discussed were deemed confidential.

 

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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