According to company President Scott Pfoff, on Dec. 9 Amaroq Resources filed an appeal of a bonding order by the Alaska Oil and Gas Conservation Commission in the Superior Court of Alaska, contending that the agency’s Nov. 9 decision exceeds AOGCC’s authority by infringing on a constitutionally created department of the State of Alaska.
The small independent oil and gas company says by levying the bond, absent fact finding or the other due process protections that are imposed by the Alaska Administrative Procedure Act, the quasi-judicial agency violated rules governing due process protections and AOGCC’s own internal regulations.
“Constitutionally,” Amaroq says, “Section 8, Article VIII, protects public lands against damage or injury. The AOGCC, both in regulation and application, has violated the Alaska Constitution.”
The state department with jurisdiction over bonding, the company says, is the Department of Natural Resources, which was created and granted its authority by way of Article VIII of the Alaska Constitution. Section 1 of Article VIII says, “It is the policy of the State to encourage the ... development of its resources by making them available for maximum use consistent with the public interest.”
Section 8 of Article VIII pertains to leasing resources through DNR and says the Alaska Legislature “may provide for the leasing of, and the issuance of permits for exploration of, any part of the public domain or interest therein, subject to reasonable concurrent uses. Leases and permits shall provide, among other conditions, for payment by the party at fault for damage or injury arising from noncompliance with terms governing concurrent use, and for forfeiture in the event of breach of conditions.”
Going back to beginning
In 1978, the Legislature created AOGCC by amending AS 31.05 by Chapter 158, SLA. Effective Jan. 1, 1979, AOGCC became an independent agency within the executive branch of the state.
Initially, AOGCC was housed within DNR, Amaroq says. In 1980 it was transferred to the Department of Commerce and Economic Development. On Feb. 17, 1994, Gov. Hickel moved it to the Department of Administration. On Feb. 13, 2019, Gov. Mike Dunleavy transferred AOGCC back to Commerce through Administrative Order No. 307.
The constitutionally defined entity empowered to oversee full compliance of a DNR lessee is DNR, not AOGCC, Amaroq states.
DNR “properly exercised its jurisdictional responsibilities” when Amaroq applied to become the lessee at the Nicolai Creek unit in the Cook Inlet basin by requiring Amaroq to enter into a dismantlement, removal and restoration, or DR&R, agreement and to fund a trust account that is controlled by DNR.
Consistent with its jurisdictional responsibilities, DNR explicitly required Amaroq to meet all of the plugging and abandonment, or P&A, requirements of AOGCC before DNR would release the residual cash held in the DR&R trust account to Amaroq at the end of Nicolai Creek unit’s economic life.
AOGCC’s new per well bonding requirements are “duplicative with the financial responsibility requirements imposed by DNR” - and exceed its authority because it’s requiring financial responsibility for something that is under DNR’s jurisdiction, Amaroq says.
The company also claims AOGCC erred in issuing the order when it imposed a new bonding requirement on Amaroq to post an additional $700,000 “without a rational basis” to support the increase over the company’s already posted bond on the six wells in the Nicolai Creek unit.
No new wells proposed
Amaroq says it has not proposed to drill any wells and that AOGCC’s bonding requirements “by the plain language of the regulation” apply to an operator proposing to drill a well.
Moreover, the May 18, 2019, revisions of 20 AAC 25.025 “sought to impose bond requirements based on the number of wells operated by a small producer, and based on a blanket bond amount, irrespective of the number of wells operated, for a larger producer,” Amaroq says in its appeal.
Amaroq tells the court that AOGCC’s order violates its right to equal protection guaranteed by the Alaska Constitution and the United States Constitution because the bonding requirement treats Amaroq differently from larger operators in Alaska.
Amaroq asks the court
Amaroq asks the court to hold a “trial de novo” to establish the relevant facts and application of the laws and regulations on the basis AOGCC failed to provide due process to Amaroq and has “demonstrated it cannot be fair and impartial” to the company.
Amaroq also asked the court for a stay of enforcement of the May 18, 2019, revisions and of AOGCC’s Amaroq decision and order.
- KAY CASHMAN
Mustang files year-end report
On Dec. 28 Mustang Holding provided a year-end report to the Alaska Department of Natural Resources’ Division of Oil and Gas on its progress toward the continued viability and operations of the North Slope Southern Miluveach unit, which contains the Mustang oil field and infrastructure.
Using experienced oilfield services firms, the company is maintaining Mustang in a cold shutdown mode while lender AIDEA - the Alaska Industrial Development and Export Authority - continues to look for a new operator/owner.
Many 2020 SMU activities are listed in the division’s eighth plan of development decision issued Dec. 4, but Mustang Holding’s year-end report provides an update, saying it has established a data room and “entered into several non-disclosure agreements with qualified parties” capable of operating and/or providing the capital required for the full SMU development drilling program, as well as the following:
• Assumed the storage contracts for equipment and other property that will be used when active operations resume;
• Finalizing the assumption of the ASRC Energy Services Alaska contract for pad, well and pipeline surveillance and monitoring;
• Paid SMU lease rentals;
• Submitted filings to the Alaska Oil and Gas Conservation Commission regarding SMU operatorship and ownership, and is discussing bonding with AOGCC and DNR;
• Updating the SMU C-Plan;
• Established a data room and has entered into several non-disclosure agreements with qualified parties who are capable of operating and/or providing capital for a full SMU development drilling program.
Mustang Holding and major creditors have also recorded liens for prior work in the SMU, working together to finalize plans to advance the resumption of development.
- KAY CASHMAN
