Alaska reverses course, opening door for ConocoPhillips exploration on North Slope

By Alex DeMarban, Alaska Dispatch News - November 7, 2016

The administration of Alaska Gov. Bill Walker this week reversed its earlier rejection of a lease transfer between two oil companies, opening the door for ConocoPhillips to expand a North Slope unit and drill an exploratory well in the area of a major discovery of crude.

Multiple companies had protested the June decision by Corri Feige that blocked the lease transfer. Feige stepped down in September as director of the Alaska Division of Oil and Gas.

Feige refused to allow small independent Brooks Range Petroleum Corp. to transfer 15 leases in the former Tofkat Unit near the village of Nuiqsut to Houston-based oil major ConocoPhillips.

Feige’s June 15 decision noted that Brooks Range had owned the leases since 2011 but had not drilled two exploratory wells it had committed to drilling. She also said ConocoPhillips previously held the leases, but since the mid-1990s had also not met its exploration obligations under the terms of its leases.

Feige said the state was interested in committing the leases to a future lease sale to foster competition and find companies that would develop the land.

The renewed interest in the site comes following an announcement of a major discovery in the area last year. Denver-based Armstrong Oil and Gas said the field could produce at least 120,000 barrels of oil daily. It has said the discovery may extend across a much broader area. Armstrong plans to drill an exploration well 12 miles south of Nuiqsut this winter to help confirm that hunch.

The reversal of Feige’s decision came Thursday, when Natural Resources Commissioner Andy Mack approved the assignment of the leases to ConocoPhillips.

Mack said prior lack of “good faith development” by ConocoPhillips is not an indication of current intent.

Mack determined the lease transfer “would not adversely affect the interests of the state,” and complies with state regulations.

On Friday, Mack took the next step, agreeing to accept ConocoPhillips’ application to expand the Colville River Unit to encompass the transferred leases on the unit’s southeastern edge, also reversing an earlier decision by Feige. The company must resubmit a fee associated with the application, a procedural step, before state officials can consider the application.

Elizabeth Bluemink, Natural Resources spokeswoman, said Mack could not comment on the decisions while they are subject to appeal over a period lasting 30 days.

The oil companies said the decision clears the path for development to proceed quickly. ConocoPhillips has pioneered new development in the area near the Colville River. Those include bringing a new field into production last year in an environmentally sensitive area with multiple landowners.

ConocoPhillips on Friday resubmitted an application to drill an exploratory well this winter 2.5 miles northeast of Nuiqsut. The drilling would start in mid-January, accessing land owned jointly by the state and Arctic Slope Regional Corp., the Native corporation for the North Slope.

With the lease transfer in limbo earlier this month, the state had previously returned the Oct. 3 operation plan to ConocoPhillips.

The company is pleased with Mack’s decision, said Natalie Lowman, communications director for ConocoPhillips Alaska.

“We believe this is the fastest route to developing the acreage,” she said.

Brooks Range Petroleum, eligible for a small slice of revenue if the field goes into production, was also happy.

“We’re very pleased with the decision by the commissioner and hope to see activities on the position in the near future,” said Bart Armfield, chief operating officer at Brooks Range Petroleum.

ConocoPhillips is calling the planned exploratory well Putu 1 for the word meaning “hole” in Inupiaq, the Native language spoken in the region’s villages.

The shared ownership in the land between the state and ASRC created a problem for the state following Feige’s decision.

ASRC supported assigning the leases to ConocoPhillips and did not want a new lease sale to a different company that would “have to start from scratch.” That could “set back development by months or years or prevent it altogether,” wrote Teresa Imm, senior vice president of resource development at ASRC, in a June 28 letter protesting Feige’s decision.

Imm said state officials had not consulted with ASRC or provided notice before refusing to allow the transfer. Such consultation is required under a 1991 settlement ratified by the Alaska Legislature governing jointly owned lands around Nuisqut, she said.

ASRC had spent two years working with affected companies and local groups on a plan to bring the leases into development, she said.

“When the parties tried to set up meetings to present the proposed plan, DNR repeatedly canceled the meetings and it seems, purposely ‘timed-out’ the Tofkat Unit,” Imm wrote.

On June 29, ASRC sent another letter to the state saying it approved the transfer of its interest in the 15 leases.

Mack said in his letter Friday that ASRC’s decision did not give ConocoPhillips an interest in the 15 leases, but that his decision on Thursday did.