Justia Energy, Oil & Gas Law Opinion Summaries

Articles Posted in Alaska Supreme Court

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Two federal district courts certified questions of law to the Alaska Supreme Court involving the state’s “mineral dump lien” statute. In 1910, the United States Congress passed Alaska’s first mineral dump lien statute, granting laborers a lien against a “dump or mass” of hard-rock minerals for their work creating the dump. The mineral dump lien statute remained substantively unchanged since, and rarely have issues involving the statute arisen. The Supreme Court accepted certified questions from both the United States District Court and the United States Bankruptcy Court regarding the scope of the mineral dump lien statute as applied to natural gas development. Cook Inlet Energy, LLC operated oil and gas wells in southcentral Alaska. In November 2014, Cook Inlet contracted with All American Oilfield, LLC to “drill, complete, engineer and/or explore three wells” on Cook Inlet’s oil and gas leaseholds. All American began work soon thereafter, including drilling rig operations, digging holes, casing, and completing the gas wells. When All American concluded its work the following summer, Cook Inlet was unable to pay. In June 2015 All American recorded liens against Cook Inlet, including a mine lien under AS 34.35.125 and a mineral dump lien under AS 34.35.140. In October, after its creditors filed an involuntary petition for relief, Cook Inlet consented to Chapter 11 bankruptcy proceedings. In January 2016 All American filed an adversary proceeding in the bankruptcy court “to determine the validity and priority of its secured claims.” The bankruptcy court found that All American has a valid mine lien against the three wells. But the court denied All American’s asserted mineral dump lien against unextracted gas remaining in natural reservoirs. The court also concluded that All American’s mine lien was subordinate to Cook Inlet’s secured creditors’ prior liens, which would have consumed all of Cook Inlet’s assets and leave All American with nothing. All American appealed to the federal district court, which, in turn, certified questions regarding the Alaska mineral dump lien statute. The Alaska Supreme Court concluded the statutory definition of “dump or mass” reflected that a mineral dump lien could extend only to gas extracted from its natural reservoir, that the lien may cover produced gas contained in a pipeline if certain conditions are met, and that to obtain a dump lien laborers must demonstrate that their work aided, broadly, in gas production. View "In re: Cook Inlet Energy, LLC, Gebhardt, v. Inman" on Justia Law

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A public utility filed a condemnation action seeking the land use rights necessary to construct a natural gas storage facility in an underground formation of porous rock. The utility held some rights already by assignment from an oil and gas lessee. The superior court held that because of the oil and gas lease, the utility owned the rights to whatever producible gas remained in the underground formation and did not have to compensate the landowner for its use of the gas to help pressurize the storage facility. The court held a bench trial to determine the value of the storage space. The landowner appealed the resulting compensation award, arguing it retained ownership of the producible gas in place because the oil and gas lease authorized only production, not storage. It also argued it had the right to compensation for gas that was discovered after the date of taking. The landowner also challenged several findings related to the court’s valuation of the storage rights: that the proper basis of valuation was the storage facility’s maximum physical capacity rather than the capacity allowed by its permits; that the valuation should not have included buffer area at the same rate as area used for storage; and that an expert’s valuation methodology, which the superior court accepted, was flawed. The Alaska Supreme Court concluded the superior court did not err in ruling that the landowner’s only rights in the gas were reversionary rights that were unaffected by the utility’s non-consumptive use of the gas during the pendency of the lease. Furthermore, the Court concluded the trial court did not clearly err with regard to findings about valuation. View "Kenai Landing, Inc. v Cook Inlet Natural Gas Storage, et al." on Justia Law

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Electrical utilities entered into agreements for the purchase and transmission of energy from a hydroelectric project to utilities in distant service areas. Legislation exempted the agreements from the review or approval of the Regulatory Commission of Alaska (RCA); any disputes were to be resolved instead by a contractually established committee. A substation leased by Homer Electric Association (HEA) to Chugach Electric Association (Chugach) and used by Chugach for the transmission of the distant utilities’ electricity was along the transmission pathway. When the lease expired, HEA filed tariff applications with the RCA, seeking approval of rates for its own transmission of the other utilities’ energy. The other utilities objected to the RCA’s jurisdiction, citing their agreements and the legislation exempting the agreements from regulatory review. The RCA determined that it had the authority to consider the tariff applications. The affected utilities appealed to the superior court, which held that the RCA did not have that authority. HEA and the RCA petitioned the Alaska Supreme Court for review, challenging both the superior court’s appellate jurisdiction and the merits of its decision regarding the RCA’s authority. The Supreme Court rejected the challenges to the superior court’s jurisdiction, and concluded that the intent of the original agreements and of the governing statute was to exclude disputes like this one from the RCA’s jurisdiction. The Court therefore affirmed the decision of the superior court reversing the RCA’s order. View "Regulatory Commission of Alaska v. Matanuska Electric Association, Inc." on Justia Law

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An oil and gas lessee conducted drilling activity on the last day of the lease term; the lease provided that such activity would extend the term. Two days later, however, the Department of Natural Resources (DNR) sent the lessee a notice that his lease had expired. The lessee suspended drilling activities and asked DNR to reconsider its decision and reinstate the lease. DNR reinstated the lease several weeks later. The lessee contended that the reinstatement letter added new and unacceptable conditions to the lease, and pursued administrative appeals. Six months later DNR terminated the lease on grounds that the lessee had failed to diligently pursue drilling following the lease’s reinstatement. The superior court reversed DNR’s termination decision, finding DNR had materially breached the lease by reinstating it with new conditions. Both DNR and the lessee appealed to the Alaska Supreme Court. The Supreme Court concluded that although DNR breached the lease in its notice of expiration, it cured the breach through reinstatement. And DNR’s subsequent decision to terminate the lease was supported by substantial evidence that the lessee failed to diligently pursue drilling activities following reinstatement. Further, the Court concluded neither DNR nor the superior court erred in failing to address the lessee’s damages claim. The Supreme Court reversed the superior court’s decision reinstating the lease and affirmed DNR’s termination decision. View "Alaska, Dept. of Natural Resources v. Alaskan Crude Corporation" on Justia Law

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Oil producers (the Producers) challenged an administrative decision (the Decision) in which the Alaska Department of Revenue (DOR) decided to treat separate oil and gas fields operated by common working interest owners as a single entity when calculating the Producers’ oil production tax obligations. Relying on a statute that gave DOR the discretion to “aggregate two or more leases or properties (or portions of them), for purposes of determining [their effective tax rate], when economically interdependent oil or gas production operations are not confined to a single lease or property,” DOR concluded that operations on a number of smaller oil fields were economically interdependent with larger operations on the adjacent Prudhoe Bay oil field. The Producers argued that in interpreting the phrase “economically interdependent” in the Decision, DOR effectively promulgated a regulation without following the procedures established in the Alaska Administrative Procedure Act (APA) and, as a result, DOR’s Decision was invalid. After its review, the Supreme Court concluded that DOR’s Decision was not a regulation because it was a commonsense interpretation of the statute and, therefore, DOR was not required to comply with APA rulemaking requirements. The Court therefore affirmed the superior court’s decision upholding DOR’s decision. View "Chevron U.S.A., Inc. v. Dept. of Revenue" on Justia Law

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Williams Alaska Petroleum owned the North Pole refinery until 2004. Williams knew that the then-unregulated chemical sulfolane was present in refinery property groundwater, but it did not know that the sulfolane had migrated off the refinery property via underground water flow. Flint Hills Resources Alaska bought the North Pole refinery from Williams in 2004 pursuant to a contract that contained detailed terms regarding environmental liabilities, indemnification, and damages caps. Almost immediately the Alaska Department of Environmental Conservation informed Flint Hills that sulfolane was to be a regulated chemical and that Flint Hills needed to find the source of the sulfolane in the groundwater. The Department contacted Flint Hills again in 2006. Flint Hills’s environmental contractor repeatedly warned Flint Hills that sulfolane could be leaving the refinery property and that more work was necessary to ascertain the extent of the problem. In 2008, Flint Hills drilled perimeter wells and discovered the sulfolane was migrating beyond its property and had contaminated drinking water in North Pole. A North Pole resident sued Flint Hills and Williams, and Flint Hills cross-claimed against Williams for indemnification. After extensive motion practice the superior court dismissed all of Flint Hills’s claims against Williams as time-barred. Flint Hills appealed. After review, the Supreme Court held that the superior court correctly applied the contract’s damages cap provision, but concluded that the court erred in finding Flint Hills’s contractual indemnification claims and part of its statutory claims were time-barred. The Court also affirmed the court’s dismissal of Flint Hills’s equitable claims. View "Flint Hills Resources Alaska, LLC v. Williams Alaska Petroleum, Inc." on Justia Law

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The issue this case presented for the Alaska Supreme Court's review arose from competing claims of right to the pore space in a large limestone formation about a mile underground. Cook Inlet Natural Gas Storage Alaska, LLC (CINGSA) had leases with the holders of the mineral rights, the State of Alaska and Cook Inlet Region, Inc. (CIRI), that allowed it to use the porous formation as a reservoir for storing injected natural gas. But the City of Kenai, which owned a significant part of the surface estate above the reservoir, claimed an ownership interest in the storage rights and sought compensation from CINGSA. CINGSA filed an interpleader action asking the court to decide who owns the storage rights and which party CINGSA should compensate for its use of the pore space. On summary judgment CINGSA argued that CIRI and the State owned the pore space and attendant storage rights because of the State’s reservation of certain subsurface interests as required by AS 38.05.125(a). The superior court granted CINGSA’s motion. The City appealed both the grant of summary judgment and the superior court’s award of attorney’s fees to CIRI. After review, the Supreme Court affirmed, finding that the State and CIRI indeed owned the pore space and the gas storage rights, and that it was not an abuse of discretion for the superior court to award attorney’s fees to CIRI. View "City of Kenai v. Cook Inlet Natural Gas Storage Alaska, LLC" on Justia Law

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Under an Alaska Department of Revenue regulation, all appeals of oil and gas property tax valuation must be heard by the State Assessment Review Board (SARB), while appeals of oil and gas property taxability must be heard by the Department of Revenue (Revenue). Three municipalities challenged this regulation, arguing that it contradicted a statute that grants SARB exclusive jurisdiction over all appeals from Revenue’s “assessments” of oil and gas property. The superior court upheld the regulation as valid, concluding that it was a reasonable interpretation of the statute. But after its review, the Alaska Supreme Court concluded that the regulation was inconsistent with the plain text, legislative history, and purpose of the statute; therefore, the Supreme Court reversed the superior court’s judgment. View "City of Valdez v. Alaska" on Justia Law

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Federal law required electric utilities to purchase power generated by cogeneration facilities that met certain standards. A facility must be certified that it meets the standards. It may self-certify, by filing a form describing the project and asserting that it believes it meets the standards, or it may request a formal determination that it meets the standards. The Regulatory Commission of Alaska implemented this certification scheme on the state level, but the determination whether a facility qualifies fell within exclusive federal jurisdiction. The main issue this case presented for the Alaska Supreme Court's review was whether a self-certification constituted a federal determination that a facility meets the standards and whether the Commission must defer to this self-certification. The Court concluded that a self-certification did not constitute a federal determination and that the Commission’s broad discretion to implement the federal scheme meant it had the power to require a developer to formally certify its projects. View "Alpine Energy, LLC v. Matanuska Electric Association" on Justia Law

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A quasi-independent governmental agency manages a program designed to improve power generation in small Alaska villages that are located off the electrical grid. One such village believed that the agency did not respect the wishes of village leaders in securing a contract to improve that village's power-generation facility. The village, joined by a company that produces a key component used in improving power generation in village areas, sued the agency. The plaintiffs alleged that the agency erroneously awarded contracts for power generation and that agency employees improperly disclosed the company's trade secrets to its competitor. The superior court dismissed all of the plaintiffs' claims on motions for summary judgment. Because the Supreme Court agreed there were no disputed issues of material fact and the defendants were entitled to judgment as a matter of law, the Court affirmed the decision of the superior court in all respects. View "Powercorp Alaska v. Alaska Energy Authority" on Justia Law