State accepts, denies, rental reductions based on work done
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Kristen Nelson Petroleum News
The Alaska Department of Natural Resources' Division of Oil and Gas has approved one request for lease rental reduction and denied another.
Both decisions were signed by Derek Nottingham, division director; both are dated April 11.
A request from Oil Search (Alaska) for rental reduction on two leases northeast of Nuiqsut was approved.
The issue in both cases is the rental terms under which the leases were issued, with a rate of $10 per acre or portion thereof for years one through seven of the 10-year term of the leases, and $250 per acre or portion thereof for years eight through 10, unless there is sustained production from the lease or "the state otherwise determines in its sole discretion, upon request, that the lessee has exercised reasonable diligence in exploring and developing" the lease, in which case the rental rate will return to $10 per acre. Decisions are to be based on funds expended and the type of work completed.
Nottingham said in the Oil Search decision that sustained production has not begun but said "Oil Search obtained licenses" to multi-client 3D seismic and imaging surveys which cover the leases and completed multi-stage reprocessing to combine the data into one contiguous data set.
The leases were also included in an application for the second expansion of the Pikka unit submitted March 29, 2024, and approved Sept. 10, with the leases committed to the Pikka unit in their entirety effective Sept. 10, extending the expiration of the leases indefinitely.
The division said an interpretation of the 3D seismic data and well data submitted to the division "supported interpretation of potential hydrocarbon accumulations across the proposed expansion."
Second application denied A Jan. 15 application from J. Andrew Bachner for rental reduction on two leases at the mouth of the Nechelik Channel of the Colville River Delta was submitted by Bachner on behalf of himself and Keith Forsgren.
Bachner said drilling activity is required to be 1 mile off the Colville River. He said the leases were not included in DNR's approval of ConocoPhillips' formation and expansions of the Colville River unit, but "drilling activities from CD2 and CD3 have extended the Alpine reservoir north toward the North Nechelik leases" at issue here, ADL 393587 and ADL 383588.
Bachner said the leases "are located in an area with challenging regulatory and operational constraints which have delayed exploration and development."
He said representatives for the men "have conducted numerous in person meetings with representatives from ConocoPhillips, and other operators in the area, in an effort to market the North Nechelik Leases for exploration and development."
In denying the application, Nottingham said no expenditure on the leases was claimed in the application. "No data were purchased, collected, or submitted as a result of claimed work."
In listing the division's findings on the application, he said the working interest owners "did not conduct sufficient exploration or development activities on the Lease to inform new phases of exploration and development."
"The Division relies on significant lessee investment and action to characterize potential reservoirs and design drilling programs to development them," he said, and concluded the working interest owners "have not exercised reasonable diligence" in exploring and developing the leases to warrant rental reduction.
--KRISTEN NELSON
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