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Narwhal appeals denial
Argues rejection of West Harrison Bay unit expansion contravenes state law, more
Alan Bailey for Petroleum News
On June 12 Narwhal LLC filed an appeal against a May 23 decision by the Alaska Department of Natural Resources' Division of Oil and Gas, denying Narwhal's application to expand the Shell Offshore Inc. operated West Harrison Bay unit, or WHBU, to include 10 leases operated by Narwhal and that surround the seaward side of the unit. Narwhal claims that the division's decision contravenes state statutes and regulations relating to oil and gas leasing and lease unitization.
(See map in the online issue PDF)
The 81,131-acre WHBU lies in nearshore waters of the Beaufort Sea, approximately 7 miles north of the Willow oil field that ConocoPhillips Alaska is developing in the National Petroleum Reserve-Alaska.
Narwhal's leases encompass about 50,180 acres and, if added to the unit, would increase the unit area to about 131,311 acres, the division's unit expansion denial document says. Shell does not want to operate in Alaska and has been seeking a buyer or partner to operate its unit.
The nearby existence of onshore major oil finds in the Nanushuk and Torok formations of the relatively shallow Brookian rock sequence give rise to oil potential in the nearshore waters of Harrison Bay. Both Shell and Narwhal have said that they see Brookian potential in their leases.
No direct interest in WHBU In his May decision, denying the Narwhal's application, division Director Derek Nottingham wrote that Narwhal has no direct interest in the WHBU. The activities that the company plans in its leases can be conducted on a lease-by-lease basis. Alternatively, Narwhal could apply to form a new unit from its own leases, Nottingham wrote.
Shell supported the division's position, commenting that, rather than conducting its own seismic surveying, Narwhal appeared to be relying on seismic survey datasets that Shell had used in its application to form the WHBU. Moreover, Shell had declined various commercial proposals from Narwhal, including offers for the purchase of Shell's leases, the company said.
Nottingham wrote that the wording of state statutes and regulations relating to oil and gas lease unitization indicates that some level of cooperative relationship between the parties must exist for a unit expansion to be approved. Narwhal is neither a party to the WHBU agreement nor does it possess any working interest ownership in WHBU leases, he wrote.
Essentially, Narwhal has yet to demonstrate that there are oil and gas reservoirs in the WHBU area and across the boundary between the WHBU and Narwhal's leases, Nottingham wrote. None of the activities proposed by Narwhal require unit expansion. Nor would unit expansion promote the conservation of resources required for exploration activities, he wrote.
Narwhal claims three fundamental errors In its appeal against the division's decision, Narwhal cited what it says are three fundamental errors in the division's decision justification.
Firstly, state law authorizes the division to compel the expansion of WHBU to include the Narwhal leases, regardless of whether or not there is a cooperative relationship between the parties involved, Narwhal argued.
Essentially, the statutory language states that the commissioner of the Department of Natural Resources may require a lease to contain a provision for operation "under a reasonable cooperative or unit plan and may prescribe a plan under which the lessee must operate," Narwhal wrote. This does not presume any pre-existing contractual relationship between the parties involved, the company wrote. Moreover, the agreement for the WHBU actually states that the division director has the authority to direct Shell to apply to expand the unit area, Narwhal contends.
Improved efficiencies Secondly, the division in its decision erroneously claimed that, in an expanded unit, neither Narwhal nor Shell would have the right to drill in each other's leases, Narwhal wrote.
To the contrary, expanded unitization would improve efficiencies by consolidating operations under a single operator, especially because geologic hydrocarbon traps in the Shell leases extend into the Narwhal leases, the company wrote.
Thirdly, the division's decision erroneously stated that Narwhal has not actually demonstrated that one or more oil and gas reservoirs in the WHBU extend into Narwhal leases. In fact, the seismic data that Shell used to justify the formation of the WHBU show potential hydrocarbon accumulations that extend into the Narwhal leases, Narwhal said.
And unit expansion does not require the demonstration of the presence of a proven accumulation, Narwhal wrote.
In arguing for the WHBU expansion, Narwhal wrote that the expansion would result in the "prompt and efficient exploration of potential hydrocarbon accumulations that cross the boundaries of the WHBU and extend into the area proposed by Narwhal for expansion." The company also commented that Shell has no plans to explore or develop the unit and has rejected Narwhal's proposals for joint operations in the area.
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