CIRI protects its land and resource rights at Kenai Loop

CIRI staff have been actively protecting CIRI’s land and resource rights at the Kenai Loop gas field since the summer of 2013 against trespass and uncompensated gas production by Buccaneer Alaska, LLC (Buccaneer), the operator of the field. The Kenai Loop field was discovered after having drilled the Kenai Loop 1-1 discovery well in April 2011. That well is sometimes referred to as the “Walmart Well” because of its proximity to the Kenai Walmart store. The Kenai Loop 1-1 well began first commercial production in January 2012. Two additional wells were drilled in the field, one successful (KL 1-3), one not.

CIRI became aware in June 2013 that Buccaneer was planning to drill a fourth well called the Kenai Loop 1-4 well (KL 1-4) to a bottom hole location within 300 feet of CIRI’s property line even though CIRI’s oil and gas lease for that property had been terminated. Because the KL 1-4 well was drilled close to a property boundary, Buccaneer was required to file for a spacing exception from the Alaska Oil and Gas Conservation Commission (AOGCC). Because it was apparent that the KL 1-4 targeted natural gas resources on CIRI land, CIRI filed an opposition with the AOGCC and requested a hearing on the spacing exception to protect its property rights.

In the course of preparing for the AOGCC spacing exception hearing CIRI hired Petrotechnical Resources of Alaska (PRA) as an expert geological, geotechnical and geophysical consultant. PRA’s analysis revealed that the KL 1-1 and KL 1-3 wells likely have been producing natural gas from CIRI’s subsurface estate. CIRI immediately notified the AOGCC of this development in an August letter to the AOGCC.

The AOGCC conducted a spacing exception hearing in August 2013 and partly granted and partly denied Buccaneer’s spacing exception. CIRI has appealed that order in an administrative appeal that is pending before the Alaska Superior Court, alleging that the AOGCC erred in authorizing Buccaneer to begin and continue drilling the KL 1-4 well. Buccaneer actually commenced drilling the KL 1-4 well before the spacing exception hearing was held and completed its drilling activities before the AOGCC issued its order. Subsequent testing of the KL 1-4 well in October 2013 confirmed CIRI’s suspicions that the Kenai Loop field was draining CIRI’s natural gas without a lease and without any form of compensation.

CIRI filed two additional actions to protect its land rights in October 2013. It filed an administrative action with the AOGCC asking for the establishment of an escrow account funded out of Kenai Loop production to protect all of the landowners until the precise geological allocation of gas attributable to each of the landowners—the Alaska Mental Health Trust Authority, the State of Alaska and CIRI—could be sorted out. That matter is pending. A first hearing on the administrative action was held on Jan. 30, at which Buccaneer admitted that it was draining gas from all three landowners but paying royalties to only the Alaska Mental Health Trust Authority. A second AOGCC hearing is scheduled for April 8.

CIRI also filed a lawsuit in Alaska Superior Court against Buccaneer and its affiliates to protect its land ownership and recover losses from uncompensated gas production from its land.