Justia Energy, Oil & Gas Law Opinion Summaries

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

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

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

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

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

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

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

This case arose from an award by Golden Valley Electric Association (GVEA) of two competitively bid construction contracts on its Northern Intertie Project. In November 2001 GVEA awarded Global Power & Communications, LLC (Global) a $39.4 million contract (Contract NI-8) for construction of the Northern Intertie’s Tanana River flats section. Later GVEA awarded Global an approximately $5.3 million contract (Contract NI-9) for construction of the Northern Intertie’s Tanana River crossing and Fairbanks sections. Subsequently, after Global had been awarded NI-9 and before it had completed work on NI-8, Global presented GVEA with requests for additional compensation (RFIs) totaling approximately $2.4 million in connection with NI-8. GVEA responded that it found "no legitimate basis" to justify Global’s RFIs and rejected Global’s request for additional payment. Global also notified GVEA that Global would submit more RFIs, arising out of both NI-8 and NI-9. In all, Global sought additional compensation totaling $5.7 million under the two contracts. GVEA responded to Global denying most of the RFIs but indicated that it would approve a few and consider partial payment for a few others. Global sued, and a trial court ultimately held in GVEA's favor, awarding it costs under both the contract and the applicable state law. Global appealed, arguing among other things, the trial court abused its discretion in ruling in favor of GVEA. Upon review of the lengthy record from the trial court, the applicable legal authority and legislative history, and the two contracts in question, the Supreme Court partly affirmed and partly vacated the trial court's decision. The case was remanded for: (1) a fee determination regarding GVEA’s "UTPA" claim against Global and (2) a new trial on causation and damages relating to GVEA’s breach of NI-9. View "ASRC Energy Services Power v. Golden Valley Electric" on Justia Law

Renaissance Resources Alaska, LLC (Renaissance) partnered with Rutter & Wilbanks Corporation (Rutter) to develop an oil field. Renaissance and Rutter acquired a lease to the entire working interest and the majority of the net revenue interest of the field. They then formed a limited liability company, Renaissance Umiat, LLC (Umiat), to which they contributed most of the lease rights. But when they formed Umiat, Renaissance and Rutter did not contribute all of their acquired lease rights to the new company: they retained a 3.75% overriding royalty interest (ORRI). Rutter was eventually unable to meet the capital contributions required by Umiat's operating agreement and forfeited its interest under the terms of the agreement. Rutter filed suit against Renaissance seeking a declaratory judgment that it was entitled to half of the retained 3.75% ORRI. Renaissance argued why it deserved the entire 3.75%: (1) Renaissance held legal title to the 3.75% ORRI; and (2) Rutter could only obtain title through an equitable remedy to which Rutter is not entitled. Upon review, the Supreme Court affirmed the superior court’s conclusion that Renaissance's characterization was inaccurate and that Rutter was entitled to title to half of the 3.75% ORRI. Furthermore, Renaissance argued that the superior court should have found an implied term that Rutter would forfeit its share of the 3.75% ORRI if Rutter failed to contribute its share of expenses. The Supreme Court affirmed the superior court’s determination that there was not such an implied term in the agreement. View "Renaissance Alaska, LLC, v. Rutter & Wilbanks Corporation" on Justia Law

Appellant Alaskan Crude Corporation operates an oil and gas unit known as the "Arctic Fortitude Unit." Alaskan Crude’s unit agreement with the Department of Natural Resources set work obligation deadlines that Alaskan Crude was required to meet to continue operating the Unit. In July 2008 the Commissioner found that Alaskan Crude had failed to meet its work obligations, gave notice that Alaskan Crude was in default under its unit agreement, and specified that the Unit would be terminated if Alaskan Crude did not cure the default by a new set of deadlines. Alaskan Crude appealed the Commissioner’s decision to the superior court, arguing that a pending judicial decision in a separate appeal qualified as a force majeure under the unit agreement, preventing Alaskan Crude from meeting its work obligations. It also argued that the Commissioner’s proposed default cure was an improper unilateral amendment of Alaskan Crude’s unit agreement. The superior court affirmed the Commissioner’s findings and decision and Alaskan Crude appealed. Upon review, the Supreme Court concluded that: (1) the pending judicial decision in Alaskan Crude’s separate appeal did not trigger the force majeure clause of the unit agreement; and (2) the Commissioner’s proposed default cure was not a unilateral amendment of Alaskan Crude’s unit agreement. Thus the Court affirmed the decision of the superior court upholding the decision of the Commissioner. View "Alaska Crude Corp. v. Alaska Dept. of Natural Resources" on Justia Law