Professional Documents
Culture Documents
Debtors. )
the Local
District of
Delaware (as amended, the "Local Rules") authorizing the Debtors to exceed the
Local Rule 7007-2 for replies with respect to the Debtors' Hearing
For An Order Authorizing Abandonment of Interests In Oil And Gas Properties At Trading Bay,
Alaska And Rejection Of Executory Contracts Relating Thereto (the "Supplemental Objection"). A hearing on the Supplemental Objection, any responses and the Reply is scheduled to be heard
before this Court (the "Hearing") on September 1,2009 at 10:00 a.m. in Wilmington, Delaware.
In support of the relief
i The Debtors in these cases, along with the last four digits of each of the Debtors' federal tax identification
number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska
Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The
mailng address for all of
the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.
OOOOI-OOI\DOCS_DE: 152458. I
1. Paragraph 2(1)(vi) of
that "(a)ll briefs and memoranda (in main banptcy cases and in adversary proceedings) must
comply with DeL. Banr. LR 7007-2.
2. Local Rule 7007-2(a)(iv) provides that "(w)ithout leave of
Cour, no
opening or answering brief shall exceed forty (40) pages and no reply shall exceed twenty (20)
pages, in each instance, exclusive of any tables of contents and citations." DeL. Bankr. LR 7007-
2(a)(iv).
3. The Debtors respectfully requests that the Cour grant it leave to exceed
the 20-page limit in the Reply. Union has raised several issues which merit response and the
Debtors understand that the Court expects a thorough reply brief in this matter thereby
necessitating a responsive pleading that exceeds the 20-page limit. For this reason, the Debtors
request that they be authorized to fie a reply that does not exceed 30 pages in length.
2
OOOOI-OOIIDOCS-E: I 52458. i
WHEREFORE, the Debtors respectfully request that the Court enter an order
authorizing the Debtors to exceed the twenty (20) page limit under Local Rule 7007-2 the Reply
and granting such other and further relief as the Court may deem just and proper.
No. 2436)
. 109084)
Facsimile: 310/652-4400
Email: ljones~pszjlaw.com
3
OOOOI-OOIIDOCS_DE: I 52458. I
In re: )
Upon the motion (the "Motion")2 of
Debtors. )
(Jointly Administered)
Hearing date/time: 9/1/09 at 10:00 a.m.
Related Docket Nos. 455 and 781
ORDER GRANTING DEBTORS' MOTION FOR LEAVE TO EXCEED REPLY BRIEF PAGE LIMITATION
the above-captioned debtors and debtors in
possession (the "Debtors"), for entry of an order pursuant to rule 7007-2 of the Local Rules of
Banptcy Practice and Procedure of
Delaware (as amended, the "Local Rules") authorizing the Debtors to exceed the twenty (20)page limit under Local Rule 7007-2 with respect to the Debtors' Hearing Memorandum And
Reply (the "Reply") To Supplemental Objection Of Union Oil Company Of
California To
Authorizing Abandonment of Interests In Oil And Gas Properties At Trading Bay, Alaska And
it appearing that no other or further notice need be provided; and the Court having determined
i The Debtors in these cases, along with the last four digits of each of
number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy AYska Operating LLC
(7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The
mailing address for all of
the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.
2 Capitalized terms not otherwise defined herein shall have the meanings ascribed to them in the Motion.
that there is just cause for the relief granted herein; and upon all of
the Court and after due deliberation and sufficient cause appearing therefore, it is hereby
Local Rule 7007-2 but only to a maximize page length of30 pages.
Dated: August _, 2009
2
OOOOI-OOIIDOCS_DE: I 52458 1
HEARING MEMORANDUM AND REPLY TO SUPPLEMENTAL OBJECTION OF UNION OIL COMPANY OF CALIFORNIA MOTION OF PACIFIC ENERGY ALASKA OPERATING LLC FOR AN ORDER AUTHORIZING ABANDONMENT OF INTERESTS IN OIL AND GAS PROPERTIES AT TRADING BAY, ALASKA AND REJECTION OF EXECUTORY CONTRACTS RELATING THERETO
TO DEBTORS' ALTERNATIVE
Pacific Energy Alaska Operating LLC ("PEAO"), one of the above-captioned debtors and debtors in possession (together with PEAO, the "Debtors"), hereby replies (the
"Reply") to the Hearing Memorandum and Supplemental Objection of Union Oil Company of
California in Opposition to the Scope o/the Alternative Motion of Pacifc Energy Alaska
Operating LLC for an Order Authorizing Abandonment of Interests in Oil And Gas Properties at
Trading Bay, Alaska and Rejection of Executory Contracts Relating Thereto (the" Objection").
No other objections have been fied to the Debtors' Alternative Motion of Pacifc Energy Alaska
Operating LLC for an Order Authorizing Abandonment of Interests in Oil And Gas Properties at
Trading Bay, Alaska and Rejection of Executory Contracts Relating Thereto fied June 16, 2009
1 The Debtors in these cases, along with the last four digits of each of the Debtors' federal tax identification number,
are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings,
LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The mailng
address for all of
the Debtors is 111 W. Ocean Boulevard, Suite 1240, Long Beach, CA 90802.
68773-002\DOCS _ SF:67039.5
(Docket No. 455) (the "Motion"). PEAO respectfully replies to the Objection fied by Union Oil Company of California ("Union") as follows?
Introduction
1. By the Motion and assuming that the Debtors are unable to consummate a
sale of
their oil and gas interests in an area commonly referred to as "Trading Bay," PEAO
"Rejected Contracts") relating to the Trading Bay Unit and the Trading Bay Field and, pursuant
to section 554 of
Motion and herein (the "Abandoned Assets"). The Rejected Contracts and Abandoned Assets
are burdensome and have no value to the estate. The Objection concerns PEAO's Motion as it
relates to the Trading Bay Unit only.
2. There is no dispute that PEAO has properly exercised its sound business
judgment in deciding to reject the Rejected Contracts and to abandon the Abandoned Assets.
The issue raised by Union is whether PEAO is proposing to abandon enough property with
respect to the Trading Bay Unit. Specifically, Union asserts that in addition to the Abandoned
Assets, PEAO must also abandon (a) certain fee interests and easements that according to Union
are tied into the Trading Bay Unit; and (b) certain "non-unitized" lease acreage outside of
the
California to Debtors' Alternative Motion of Pacifc Energy Alaska Operating LLC for an Order Authorizing Abandonment of Interests in Oil And Gas
Properties at Trading Bay, Alaska and Rejection of Executory Contracts Relating Thereto on July 10, 2009 (Docket
No. 572) (the "Limited Objection"), in which Union objected to the Debtors' proposed abandonment of
the assets to Union. The Debtors are no longer seeking a finding by this Court at this time that the assets at issue wil be abandoned to Union. Therefore, the Limited Objection is moot.
2
68773-002\DOCS _ SF:67039.5
Trading Bay Unit that originally arose under the same oil and gas leases that are integrated into
Trading Bay Unit.
3. On both counts, Union is wrong. Union incorrectly contends that PEAO
cannot keep its fee interest and easement outside of the Trading Bay Unit if it relinquishes its
interests in TBU, because all of
the contracts that govern the TBU are integrated. The fatal flaw
in Union's position is that PEAO's rights in its fee interests and easements are not derived from
any of the Rejected Contracts or interests it seeks to abandon, but rather are based on its real
property rights in the fee interests and easements, which are completely independent from the
Rejected Contracts and abandoned interests.
4. Union correctly states that section 365 of
authorize a debtor to reject part of a lease and keep part. However, Union incorrectly contends
that therefore PEAO cannot retain the Non-Unitized Portions ofleases and abandon or reject the Unitized Portions. Union's argument fails because PEAO is not relying on section 365 to reject
just a portion of
the leases. First, under Alaska law, oil and gas leases like the ones at issue
create interest in land than are not subject to assumption or rejection under section 365, but are subject to sale under section 363 or abandonment under section 554. Moreover, these leases have
already been subdivided with the approval of
separate and distinct geographically divided interests segments (only the Unitized Portions relate
to Trading Bay Unit, as outlined fuher below). In fact, the State has expressed no objection to
PEAO's proposed abandonment of solely the Unitized Portions of
Trading Bay Unit. Alaska law allows Unitized Portions of leases to be separate property
3
68773-002\DOCS _ SF:67039.5
interests from Non-Unitized Portions and PEAO is only seeking to abandon property interests
that have already been described as separate segmented propert interests under State law, and
under section 18(f) of
the
estate to abandon, not Union. Here, PEAO has determined in the exercise of its sound business
judgment to retain certain completely severable fee or real property interests because those
properties may be needed in connection with PEAO's oil and gas activities outside the Trading
Bay Unit.
Relevant Facts
the
following agreements to the extent that they can be construed as executory contracts: (i) Trading
Bay Unit Agreement ("Unit Agreement"); (ii) Unit Operating Agreement-Trading Bay Unit
("TBUOA"); and (iii) the Alignment Agreement.3
("TBU") and the Trading Bay Field ("TBF"); and (b) PEAO's interest in the buildings and
related infrastructue which are par of
is an oil and gas producing unit located offshore in Cook Inlet, Alaska near Anchorage. The TBF
is a single oil and gas lease located adjacent to TBU, but not within the unit. TBPF is a
3 The Unit Agreement and Alignment Agreement were inadvertently omitted from Exhibit A to the Motion as
agreements that PEAO intends to reject. The exhibit to the proposed form of order wil be amended to correct this omission.
4
68773 -002\DOCS _ SF:67039.5
consortium of onshore buildings, tanks, pipelines, processing facilities and other related
personal property located on the West Foreland peninsula near Cook Inlet, on real property
owned jointly by Union and PEAO. The TBPF is utilized for support of
the TBU and TBF, and for access to other projects. The interests in the TBPF that PEAO seeks
to abandon are referred to as the "TBPF Building and Infrastructure Interests." In addition, the
Abandoned Assets include P AEO's interest in the Unitized Portions of certain leases identified
interest in two parcels ofland (the "Fee Parcels") and related easements and rights of
"Easements") located on the West Foreland peninsula that include, or provide access to, an
airstrip, barge landing and road system that, in addition to supporting the TBU, are necessary for
PEAO's wholly-owned oil and gas operations outside of
exploitable leased acreage not within the TBU (the "Non-Unitized Portions"), which are
recognized by the State as distinct and segmented property interests from the Unitized Portions
within the TBD. PEAO shares a tenant in common interest in the Fee Parcels and is a co-lessee
in one Easement (for the barge landing) with Union. Collectively, PEAO's interests in the Fee
Parcels, Easements and Non-Unitized Portions are referred to herein as the "Retained Property."
PEAO does not seek to reject as part of
4 The TBPF is located on the Fee Parcels but the Fee Parcels themselves, which are fee interests in the surface of
the land, are different propert from the TBPF, which consists ofa building and related infrastrcture.
5
68773-002\DOCS _ SF:67039.5
which delineates operational parameters for use of the airstrip, barge landing and road system for
PEAO's operations unrelated to TBU operations.
B. The Fee Parcels and Easements.
9. The Fee Parcels were originally purchased in 1967-1968 by Union and
production activities completely unelated to the TBU. Indeed, the Fee Parcels are located on the
west side of Cook Inlet on the West Foreland peninsula, well outside the boundaries of
the TBU.
The Fee Parcels consist of a surface estate only with no mineral rights. The Fee Parcels are held
as a tenancy in common, with Union and PEAO sharing an equal 50% interest each (PEAO
succeeded to Marathon's 50% interest). The application to acquire the barge landing, which
consists of a lease of Alaska Tide and Submerged Lands, was submitted on April 1, 1966. The
application indicated that the land was to be used for industrial puroses "for barging and access
purposes in connection with a contiguous production facility onshore." No contemporaneous
mention was made that would suggest any limitation or exclusive use of such access for TBD.
The right-of-way permit for the northern portion of
entered into with the State on January 1, 1994. A true copy of the right of way permit is attached
hereto as Exhibit A. By its own terms, the permit is styled RIGHT OF WAY PERMITPRIVATE NON-EXCLUSIVE and was issued solely to PEAO's predecessor-in-interest,
Marathon Oil Company, with no limitation of
operation and maintenance of said right-of-way over and across the state lands."
6
68773-002\DOCS _ SF:67039.5
the facility to process non TBU production, the TBPF curently processes oil
from both TBU and the Non-Unitized TBF lease and this has always been the case.. Union's
assertion that the TBPF has somehow always been exclusively dedicated to processing the
production of
the TBU is erroneous and appears to be contrived solely to impair PEAO's rights.
11. Union has admitted in prior correspondence that the Fee Parcels were
purchased independent of
approval of
the of
the TBU or its other members, and that the Fee Parcels have been used for other than TBU
purposes since their acquisition. In a letter agreement (the "1973 Union Letter") on Union
letterhead and signed by Union, dated August 14, 1973, from Union and Marathon to the
1973 Union Letter, at 1 (emphasis added). In the 1973 Union Letter, Union and Marathon
describe their acquisition as "the Trading Bay onshore production facility site located in West
Foreland," however, they distinguish the site from the facility itself: "Notwithstanding any
provisions to the contrary contained herein, it is understood that the production facilities located
on the surface of the subject property are not subject to this agreement." Id. A true copy of
the
1973 Union Letter and Marathon's response is attached hereto collectively as Exhibit B.
7
68773-002\DOCS _ SF:67039. 5
12. The Fee Parcels and Easements that PEAO seeks to retain have supported
a variety of purposes in addition to the activities conducted at Trading Bay production facilty including access to and use of a barge landing, a right of way for Cook Inlet Pipeline Company
pipelines and buildings, a right of
pipeline(s), PEAO (and its predecessors-in-interest) oil and gas gathering pipelines, an airstrip to
provide personnel, fuel, and equipment for PEAO and its predecessors-in-interests nonTBU
properties, and access to other production facilties located nearby. PEAO must retain access to
and use of
the subject air strip, barge landing and road system to support PEAO's wholly-owned
oil and gas producing assets that are operated by Pacific Energy Resources, Ltd. ("PERL"),
which is one of the Debtors. Without access to and use of
and Easements, PERL, as operator, would be unable to "lift" or ship oil to the local refinery or
provide fuel, equipment, supplies and personnel through the barge landing and airstrip to
PEAO's wholly-owned producing properties not related to the TBU or TBPF which it and its
predecessors-in-interest have been allowed to do for more than a decade.
C. The Rejected Contracts.
13. The Unit Agreement was entered into in February, 1967 and approved by
the State. The Unit Agreement is the basic charer describing relations with the State, who
conducts operations, and allocation of revenues and expenses. The Unit Agreement provides
that the TBU is divided into separate Participating Areas, each representing a common field or
pool of petroleum resources. Revenues and expenses are calculated separately for each
Paricipating Area. Union was and has remained the operator of the Unit.
8
68773-002\DOCS _ SF:67039.5
of
the interest in the TBU, entered into an Alignment Agreement. This Agreement eliminated
almost all of the separate WIP As and simplified the allocation of costs and revenues by
providing that it would be made in accordance with each owner's total ownership percentage of
the TBU, rather than separately with respect to each WIP A.
16. In 2005, Forest Oil Corporation ("Forest"), a member of
mismanagement of
expenses, in the United States District Court in Alaska. Union moved to dismiss the claims on
the basis that that claims had been waived in the Alignment Agreement. In rejecting Union's
motion, the Cour analyzed the Alignment Agreement and concluded that it addresses only the
allocation of costs and expenses between the parties, and "nothing more." July 7, 2006 Order of
the United States District Cour for the District of Alaska Denying Defendant's Motion for
Parial Summar Judgment at Docket No. 23 and Granting Plaintiffs Motion for Partial
Summar Judgment at Docket No. 39 at p.12; July 28, 2006 Order of the United States District
Cour for the District of Alaska Denying Defendant's Motion for Reconsideration at Docket No.
91. True copies of the orders are attached hereto as Exhibits C and D.
9
68773-002\DOCS _ SF:67039.5
D. Unitized Acrea2e.
17. Oil and gas units under Alaska law are designed to integrate separate oil
and gas interests into a single "unit" to maximize efficient recovery of oil and gas resources
where individual pools or fields are overlain by separate owners of oil and gas rights. The unit
prevents the owner whose lease overlays only a part of the pool from draining the entire pool to
the detriment of the mineral rights owners in other parts of the pooL.
18. In Alaska, oil and/or gas units are established through orders of
the Oil
and Gas Conservation Commission. AS 31.05.100, 31.05.110.5 These units may be established
either with the agreement of
unit is established, the unit operator or someone acting under the operator's authority is the sole
19. A unit does not itself hold title to any of the tracts or leases contained
within its borders - all such properties remain in the title of the owners, who are unit members.
AS 31.05.11 O(j). The same is true of the expenses of production, and of
within the unit - all the revenues and expenses are allocated among and attributed to the owners.
Id. The unit itself is thus not so much an entity as it is a consolidation of mineral interests
covering all or pary of a common source of supply. 1 Bruce M. Kramer & Patrick H. Marin,
Pooling and Unitization 6.02 (3d Ed. 1989). Another way of looking at it is as the joint
operation of all or some par of a producing reservoir. Willams & Meyers, Oil and Gas Law
901 at 1-2; Kramer & Marin, The Law of
south central Alaska near Anchorage. The submerged lands of Cook Inlet are owned by the
State, and the oil and gas properties contained with the TBU are offshore leaseholds. The TBU
. was established by order of
the borders of
the unit and approving the Unit Agreement. Numerous State leases, held by a
variety of separate owners, were within the boundaries of the TBD. Production facilities within
the TBU now include wells with their accompanying platforms and pipelines bringing the
Portions are divisions created by and approved by the State and are expressly permitted by
section 18(f) of the Unit Agreement as more fully discussed below.
An~ument
A. Union has the Burden of Proof on all Issues it has Raised in the Objection.
22. PEAO, in the exercise of its business judgment as a debtor in possession,
has determined that rejection of
National Fuel Gas Dist. Corp. (In re Sharon Steel), 872 F.2d 36, 39-40 (3d Cir.1989) (business
judgment test for rejection). "The trustee's power to abandon property is discretionar." In re
Slack, 290 B.R. 282, 284 (Bankr. D.N.J. 2003) (citations omitted). "Courts defer to the trustee's
judgment and place the burden on the party opposing the abandonment to prove a benefit to the
estate and an abuse of
the trustee's discretion." Id. "The part opposing the abandonment must
show some likely benefit to the estate, not mere speculation about possible scenarios in which
11
68773-002\DOCS _ SF:6 7039.5
there might be a benefit to the estate." Id. The court only needs to find the trustee made: 1) a
business judgment; 2) in good faith; 3) upon some reasonable basis; and 4) within the trustee's
scope of authority." Id.
23. PEAO has made its primafacie case for abandonment because, as
discussed in the Motion and herein, the property sought to be abandoned is of inconsequential
value and benefit to PEAO's estate. 11 U.S.C. 544(a). Union must now rebut that case with
evidence, but has not and canot do so. In re Paolella, 79 B.R. 607, 610 (Bank. E.D.Pa. 1987)
("it is the movant who must make out a prima facie case.
B. PEAO's Interests in the Fees Parcels and Easements Do Not Emanate from the Rejected Contracts. But Rather are Based on PEAO's Real Property Rie:hts as a
Tenant in Common Under Alaska Law.
24. Union and PEAO own the Fee Parcels as tenants in common and PEAO
has either sole or joint property rights in the Easements and rights of way. Under Alaska law, PEAO is free to use and convey its property interests as it sees fit. Indeed, the Alaska Supreme
Cour has recognized the "general rule" that "a tenant in common has the right to voluntarily
convey" its interest in property without the consent of co-tenants. Gabaig v. Gabaig, 717 P.2d
835,840 (Alaska 1986) (citations omitted).
25. The Alaska Supreme Cour has also noted that with respect to co-owners
of a mining claim, the co-owners "stand in a relation of mutual trust and confidence to each
other. No co-owner wil be permitted to act hostilely toward another in regard to their common
property, and any distinct title acquired by one wil inure to the benefit of alL." Miscovich v.
12
68773-002\DOCS _ SF:67039.5
Tryck, 875 P.2d 1293, 1303 (Alaska 1994). Tenants in common in Alaska have a fiduciary duty
with respect to one another in their use of
26. Alaska follows the general rule that each tenant in a tenancy in common
has the right to use and enjoy the property, or else be compensated. See Wood v. Collns,
812
retained by a non-working interest holder" under section 10.2(c) ofthe TBUOA, is based on a
fatally flawed assumption, namely that the interests that PEAO seeks to retain are derived from
the TBUOA. PEAO's rejection of the TBUOA, and resulting relinquishment of
TBUOA, including its BPI and WIP A, has no impact on its rights in the Fee Parcels, Easements
or Non-Unitized Portions of
the leases. First, the TBPF Building and Infrastructure Interests are
being abandoned along with the TBU Working Interests. PEAO is only retaining the Fee Parcels
and Easements, which are not par of
Article 10.2(c) of
the TBUOA, relied upon by Union only apples to property, "the cost of
is chargeable as Costs and which are acquired in connection with the development and operation
of
that WIPA." As Union has acknowledged in the 1973 Union Letter, the Fee Parcels PEAO
seeks to retain were not acquired in connection with the TBU or any WIP A within the TBU and
therefore Aricle 10.2 (c) is inapposite to the Fee Parcels. Likewise the Easements were not
13
68773-002\DOCS _ SF:67039. 5
acquired for TBU purposes. At the risk of stating the obvious, the Non-Unitized Portions were
never part of
the TBU and were not acquired in connection with the TBU or any WIPA. See
the TBU is undercut by the fact that the Trading Bay Field Joint Operating Agreement also includes the same kind of language regarding its facilities and reciting that it is a covenant
,
running with the "covered" interests. Union signed that agreement as well. Thus Union's
argument leads to the conclusion that the TBPF was intended to be property under the TBU, but
yet also property under the Trading Bay Field, at the same time. Union cannot have it both
ways.
30. Union's contention that the Alignment Agreement treats the TBPF as a
aligns the parties working interests relative to production and costs relating to the TBU, TBF and
TBPF. Alignment Agreement, recital 3. According to the U.S. District Court's analysis of
this
Agreement, the paries wanted to eliminate the accounting confusion that arose in the prior
arrangement where costs would have to be allocated separately to each WIP A. The Alignment
Agreement's sole purpose, the court found, is allcation of costs and production and nothing
more - it has, therefore, no impact on ownership ofreal property interests in the West Foreland
peninsula that PEAO seeks to retain.
31. Therefore, PEAO may retain and use the Fee Parcels and Easements
without having to forfeit them to Union in conjunction with rejecting the Rejected Contracts.
14
68773-002\DOCS _ SF:67039.5
Union's arguments in this regard fail because PEAO's ownership and use rights emanate from
i. PEAO May Abandon the Unitized Portions While Retaining its Separate and
Severable Interests in the Non-Unitized Portions.
32. In the Motion, PEAO seeks to abandon portions of certain oil and gas
leases with the State that lie within the borders ofthe TBU (Unitized Portions), while retaining
those portions that lie outside the unit (Non-Unitized Portions). A trustee or debtor in possession
may abandon property that is severable under state law. See Van Curren v. Great Am. Ins. Co.
(In re Hat), 363 B.R. 123, 140-41 (Ban. E.D. CaL. 2007).
33. Union argues (in Section B of its Objection) that under section 365 of
the
assume each entire lease. However, PEAO is not relying on section 365 to reject the leases or
portions thereof. The Unitized and Non-Unitized Portions of
already segregated interests in real property by contract and pursuant to Alaska law which allows
ownership of divided interests in oil and gas leases. Union ignores the fact that these leases
already have divided ownership, and that the State, as lessor, has already approved the
geographic division of the leases with separate ownership of
the portions inside the unit from the the Unit Agreement that expressly
the leases.
15
68773-002\DOCS _ SF:67039.5
34. State regulations specifically provide for divided interests in oil and gas
leases, and for separate assignment of such divided interest in a geographical portion of a lease,
if approved by the Commissioner of
Therefore, PEAO is entitled to assign its interest in the Non-Unitized Portions (without assigning
the Unitized Portions) outside of this bankptcy, without relying on sections 365 or 554 of
the
Banptcy Code.
35. In fact, the separate assignment of
PEAO seeks to retain, has already occurred. For example, Lease ADL 17602 is a lease issued by
the State in 1962, originally to Pan American Petroleum Corporation as lessee. Paragraph 31 of
the lease provides that either undivided interests, or geographically divided interests, in the lease
may be assigned with the approval of the lessor. All of
forms and contain this provision. In 1998, the state approved the assignment by successor lessee
Union Oil of 70% of that portion of
Forcenergy, Inc. It is that separate 70% which PEAO now seeks to retain (PEAO owns a
different percentage, 46.8%, of
the
leases in question has already been accomplished and approved by the State. PEOA wil
introduce evidence of the other assignments of the Non-Unitized Portions of
State's approval thereof at the hearing on the Motion. It is these separate and distinct divided
interests, arising through separate instruments of assignment, and approved separately by the
State, that PEAO seeks to retain.
16
68773-002\DOCS _ SF:67039.5
by the State (AS 31.05.110(b)), provides that" any lease embracing land of
a portion of its lands committed hereto, shall be segregated as to the portion committed and the
portion not committed. "Section 18(f) goes on to say "any State lease having production in
paying quantities, as defined in this agreement, on said lease prior to commitment to this
agreement shall not be segregated. The Non-Unitized Portions shall not participate in the unit
area but shall be extended by virtue of the production on the Unitized Portions as so long as it
produces in paying quantities." Thus, the Unit Agreement itself effects a separation of
the
the
property interests from the Unitized Portions, and can be separately held, assigned, or retained.
II. Section 365 does not apply the Non-Unitized Portions of the Leases.
39. Whether an oil and gas lease is an unexpired lease for purposes of section
365 of
the Banptcy Code depends on whether state law characterizes the underlying interest
subject to the lease as an interest in land. Where, as is the case in Alaska, an oil and gas lease
transfers an interest in land, Section 365 does not apply. As one commentator has sumarized:
To decide whether an oil and gas lease is an executory contract or an unexpired lease that is subject to assumption or rejection under section 365, one must examine applicable state law and determine what interest the lease creates thereunder. In states where an oil and gas lease transfers a legally cognizable interest in land, section
17
68773-002\DOCS _ SF:67039.5
On the other hand, in states where an oil and gas lease merely transfers the exclusive right to search for and produce oil and gas from the property, but conveys no fee interest, the lease might be subject to rejection under section 365.
T. Davis and M. Gregory, How to Prepare for and Surive a Producer's Bankptcy Filng: What
You Don't Know Can Hurt You, Rocky Mountain Mineral Law Institute, 16.06(4)(a) (1998)
(emphasis added) (available on Westlaw at 44 RMMLF-INST 16).
40. Union acknowledges that oil and gas leases are not considered "a lease or
other form of executory contract," citing Terry Oilfeld Supply Co. v. American Security Bank,
NA., 195 B.R., 66, 70 (S.D. Tex. 1996) ("A mineral
form of executory contract that a debtor may accept or reject."). Objection, at ii 21 n.8.
41. The United States Bankuptcy Court for the District of Alaska has
determined that the lessee's interest under an Alaska oil and gas lease is an "interest in land"
under Alaska law:
Although there are no reported cases indicating how a lessee's interests in a state oil and gas lease would be classified in Alaska, the Alaska Statutes reflect that the two WMRU leases which (the debtor) SPC acquired in 1989 are interests in land. See, e.g., AS 38.05.035(10)(e) (director ofDNR may approve contracts for the sale, lease or other disposal of available state public lands) AS 38.05.135 (state land containing valuable mineral deposits may be made available via permit or lease for the purose of exploration, minerals) AS 38.05.180 (regarding development and extraction of the WMRU oil and gas leases of state land). Furher, the terms of leases, which were given by the state, specify that "the rights granted to the lessee by this lease constitute an interest in real
property in the leased area." SPC's interest in the WMR U leases constitutes an interest in land.
6 Citing to River Prod Co. v. Webb (In re Topco, Inc.), 894 F.2d 727, 739 n. 1 7 (5th Cir. 1990) (applying Texas
law); In re Heston Oil Co., 69 B.R. 34 (N.D. Okla. 1986) (applying Oklahoma law); In re Hanson Oil Co., 97 B.R. 468 (Bank. S.D. II 1989) (applying Ilinois law).
18
68773-002\DOCS _ SF:67039.5
Aleut Corp. v. Stewart Petroleum Co. (In re Stewart Petroleum Co.), 5 ABR 376, 389 (Ban. D.
Alaska Apr. 20, 1998) (brackets in original; emphasis added; citation omitted) (available at the
lease, are rights in land. See, Northern Alaska Environmental Center v. State, 2
Topco, Inc.), 894 F.2d 727, 740 (5th Cir. 1990) ("These leases do not grant title to the oil and gas itself, but grant the right to enter the land and reduce the oil and gas to the lessee's possession.
This grant in effect constitutes a sale of part of
by the "lessee shall constitute and interest in real property in said land". See, e.g., section 37 of
the State of Alaska Department of Natural Resources Division of
Lease, Lease No. ADL 18730, dated Oct. 1, 1962, between the State and Union and The Ohio
Oil Company for Tract S-13-5-58." A true copy of
Exhibit E.
44. Here, Alaska transferred a real property interest to the lessees, and divided
the relevant acreage for each relevant lease into a Non-Unitized Portions and Unitized Portions.
The leases transferred an interest in land to the lessees. PEAO, as one of
19
68773-002\DOCS _ SF:6 7039.5
dispose of
of the Bankptcy Code does not govern the disposition requested by the Motion.
iii. Abandonment of the Unitized Portions Would Not Cause the Non-Unitized
Portions to Terminate.
45. Union argues that ifthe Unitized Portions are abandoned, the NonUnitized Portions would terminate for lack of production. This argument fails for at least three
separate reasons.
46. First, Union itself as well as PEAO are currently making "delay rental"
payments to the state regarding both the Unitized and Non-Unitized Portions of
the leases.
These delay rental payments maintain the Unitized and Non-Unitized Portions of
suffice to keep the leases in effect - thus there wil be no termination of the Unitized Portions of
the leases that are abandoned by PEAO.
47. Second, the relief that PEAO is seeking is not to split the leases into two
different leases - it is merely to abandon its interest in one currently segmented Unitized Portion
of
the leases, and retain its separate interest in the other Non-Unitized Portions. This
segmentation of the leases has already occurred. The State of Alaska approved the segmentation
of the leases in 1967 when the Unit Agreement callng for segregation of the lease portions was approved. The division certainly had occurred by 1998, when the State approved a separate
assignment of what is now PEAO's separate interest in the Non-Unitized portions of
the leases
20
68773-002\DOCS _ SF:67039. 5
the
leases should, by its own logic, suffice to prevent any termination even if its arguments had any
merit, which they do not.
D. The Motion Does Not Violate Covenants Runnin2 With the Land.
49. Union contends that by keeping the Retained Property, PEAO wil violate
Article 16.3 of
the TBUOA which Union contends is a covenant running with the Fee Parcels
proving that each covenant runs with the land.7 Union has not and cannot meet its burden.
i. The Covenants at Issue Do Not Run With the Land.
50. In its Objection, Union tries to tack the TBUOA onto PEAO's real
property interests in the West Foreland property underlying the onshore production facilities.
Union's argument goes too far. The TBUOA makes reference to generic "production facilities"
and purports to govern those facilities through the provisions of
reference is made to the West Foreland onshore facility site. There is only a boilerplate clause
stating that the provisions of
the TBUOA "shall be covenants running with the lands, leases and
7 Shaffv. Leyland, 154 N.H 495, 499, 914 A.2d 1240, 1245 (NH 2006) ("the burden of covenants running with the land is upon the part claiming the benefit of
Housing Authority, 278 N.C. 95, 100, 178 S.E.2d 824, 829 (NC 1971); Waikiki Malia Hotel, Inc. v. Kinkai
Properties Ltd. Partnership, 75 Haw. 370, 384, 862 P.2d 1048, 1057 (Haw. 1993); Cheatham v. Taylor, 148 Va. 26, 41,138 S.E. 545, 549 (Va. 1927); Mosely v. Bishop, 470N.E.2d 773, 777 (Ind. Ct. App. 1984); Charpingv. J.P.
Scurry & Co., Inc., 296 S.C. 312, 314, 372 S.E.2d 120, 121 (SC Ct. App.1988).
21
68773-002\DOCS _ SF:67039.5
interests covered thereby, and shall be binding upon and inure to the benefit of the legal
representatives, successors and assigns of the Paries hereto." TBUOA, Article 31.4.
51. Union contends that this clause means that all propert in any way
associated with the TBU in which PEAO has any interest is burdened by the TBUOA. However,
in the context of oil and gas units:
(A) provision declaring that all covenants contained in the contract are real covenants that touch and concern the affected estates is not likewise have to determine binding on a court that wil independently whether the agreement otherwise contains the minimum requirements for the creation and enforcement of real
covenants ... (p )rovisions that attempt to make legal conclusions, rather than provisions that describe the nature of the relationship
52. Thus, Union must show that the TBUOA actually binds the production
facility properties by satisfying the test for covenants running with the land. In order for a
covenant to run with the land, three general requirements must be met: (1) the covenant must
"touch and concern" the land; (2) the original covenanting parties must intend the covenant to
run; and (3) there must be some form of privity of estate. 9 Here, the last two requirements are
not met.
53. First, there is no connection between the TBUOA and the West Foreland
property so as to permit the covenants contained in the TBUOA to burden the real property.
Contrary to Union's argument, the TBU itself and the paries' real property canot be conflated
for the purposes of
does not own any propert, including the facilities, but rather only has the right to use, possess,
8 Kramer & Marin, The Law of Pooling and Unitization 19.01(3) at 19-43. A tre copy of
22
68773-002\DOCS _ SF:67039.5
and manage the propert within the unit for the benefit of the its owners. All real property is
owned by the respective lessees, not the Unit. 10 Neither PEAO's Fee Parcels nor Easements are
included in the definition of "tract" or "Working Interest" or any other property interest
described in the TBUOA.
54. The Fee Parcel ADL 37596 at issue was conveyed from the State to
Marathon several years after the TBUOA was executed. Neither Unocal, in its role as TBU
Operator, nor the TBU were even within PEAO's chain oftitle with respect to this property
(indeed, as explained above, the TBU cannot "own" property). i I It is further undisputed that
neither of the two Fee Parcels at issue are within the boundaries of
contained therein. Accordingly, under the current Restatement view, the covenants that apply to
the TBU (through the TBUOA) cannot run to the unconnected Fee Parcels. 12
55. Second, and even more crucially, the parties did not intend for the
TBUOA to burden these properties. The intention requirement for covenants running with the
land "focuses on the subjective state of mind of
probative in determining the intent and meaning of an agreement under Alaska law.15
10 See id.
11 See Powell on Real Property 673(2) at 60-57 - 60-58 ("'privity of estate' describes common interests in land
burdened or benefited by a covenant").
12 Cf Restatement (3d) of Property: Servitudes 2.5 ("an attempt to create a servitude on land owned by another is
not effective, absent facts sufficient to establish prescription"); 5.2, cmt. "e" ("A person cannot imposed servitude burdens on propert owned by another"). 13 Powell on Real Property 673(2) at 60-49. 14 Hurst v. Victoria Park Subdivision Addition No. J Homeowners' Ass'n, 59 P.3d 275, 278 (Alaska 2002) (citations
omitted).
15 Sowinski v. Walker, 198 P.3d 1134, 1143-1144 (Alaska 2008).
23
68773-002\DOCS _ SF:6 7039.5
56. Here, numerous documents attest to the fact that the West Foreland
property was not purchased on behalf of
part that "(t)he subject acquisition was made without Trading Bay Unit paricipation in order to
service both the Trading Bay Field and the McArthur River Field." (emphasis added).
Additionally, the conveyance documents (including the quitclaim deed, etc.) and related
correspondence between Marathon and Unocal consistently refer to the purchase of interests in
the property by the two companies, but never reference the property purchase in conjunction
with the TBU working interests.
57. These documents evidence Union's intent not to burden the real property
with the TBUOA, and so the TBUOA canot be construed so as to burden the Fee Parcel
property as covenants running with the land. The Alaska Supreme Cour has explained that:
Once the intentions of the paries to the covenant are known, their intention serves to limit the scope and effect of the restriction.
Because restrictions are in derogation of
containing the covenants alleged by Union as to the TBU - has never been recorded against the
real property underlying the TBPF so as to put successors-in-interest on notice as to the alleged
covenants running with the land. i 7 This is further evidence that the TBUOA does not apply to
16 Hurst, 59 P.3d at 278 (citing, respectively, 20 Am. Jur. 2d Covenants, Conditions, and Restrictions 171;
Lamoreux v. Langlotz, 757 P.2d 584, 587 (Alaska 1988); Kalenka v. Taylor, 896 P.2d 222, 226 (Alaska 1995); Lenhoffv. Birch Bay Real Estate, Inc., 587 P.2d 1087, 1089 (Wash. App. 1978)). 17 See AS 40.17.080 (recorded document is constrctive notice of the document to subsequent the contents of
purchasers and holders ofa security interest in the same propert or a par of
the propert).
24
68773-002\DOCS _ SF:67039.5
closest boundary of
the TBU.
59. Finally, even aside from the extrinsic evidence, the TBUOA and the
amendments thereto provide all the evidence that is needed to find that its provisions do not run
with the Fee Parcel property. The TBUOA was recorded in August 1967. The Fee Parcel
property was not acquired from the State until
these amendments mention the Fee Parcel property, let alone purort to
the TBUOA.
sense on a practical level as well. An oil and gas unit is formed in order to efficiently capture the
resources in a single reservoir where multiple paries have leasehold or proprietary rights to the
reservoir.18 Under Alaska law, "(a) unit must encompass the minimum area required to include
all or par of one or more oil or gas reservoirs, or all or par of one or more potential hydrocarbon
accumulations.,,19 Thus the Unit extends only to the hydrocarbon supply itself. The Court
cannot imply an intent to extend the provisions of
TBUOA was intended to apply to the TBPF, and then to make the inferential
these production facilities the TBUOA was intended to burden the underlying land - even though
18 Wiliams & Meyers, Oil and Gas Law 901 at 1-2; Kramer & Martin, The Law of 6.02 at 6-9, 17.01. A tre copy of
relevant portions is attached hereto as Exhibit G. 19 Alaska Administrative Code ("AAC"). II AAC 83.356(a).
25
68773-002\DOCS _ SF:67039. 5
by statute the land does not belong to the TBU, Union and Marathon had no privity of
interest
with respect to the land, and Union (by its own admission) had no intention to bring the land.
within the puriew of
the TBU. Because covenants on land are strictly construed under Alaska
law, the Cour must reject Union's creative efforts to burden PEAO's Fee Parcels, Easements
and right-of
ii. Even if the Covenant Runs With the Land, the Relief Sought by the Motion
62. Even if
the TBUOA was found to burden the Fee Parcels, the actual effect
on this property is nominal or non-existent. Under Alaska law, covenants should be construed
narrowly and any doubt resolved in favor of the free use of
may do with its property, where that property is within the scope of
is
based without the approval of the Paries owning such well, platform, or production facility, as provided in Subsection 5.3D. Upon such use, a fair and equitable apportionment of risks and liabilities, investments, and operating and other costs shall be made
between the Parties, therefore. Such use shall include but not be
the production, transportation and handling of
limited to the Driling of Wells, multiple completion of wells and Unitized Substances.
language of
replaces "that upon which ownership thereof is based" in this subsection with the bracketed
"(TBU purposes)" in purporting to quote this provision for the Cour in its Objection at ir 31. In
26
68773-002\DOCS _SF: 67039.5
fact "ownership thereof' is based on the intent of the owners of the property to use it for a
variety of
purposes, many having nothing to do with the TBU. The unit itself, under Alaska law,
the TBlJOA can only be
referring, as to the Fee Parcels, to its actual owners, who are today Union and PEAO. PEAO's
contemplated use (or that of its assignee) of
estates) were considered to be "production facilities" for TBUOA purposes, which they are not.
65. But even if "that upon which ownership thereof is based" is read, contrary
to the express contemporaneous intention of the parties and the forty year history of use, to mean only "TBU purposes," the abandonment requested by the PEAO would not violate the TBUOA.
66. The mechanism specified in section 16.3 for allowing non- TBU uses is
that provided for in subsection 5.3D of
approving the use of production facilties. The only parties entitled to vote are the parties
owning the facility in question under section 16.3. If section 16.3 applied to the owners of the
Fee Parcels, such section would limit the vote to Union and PEAO.
67. Under subsection 5.3D of
of the voting power cannot defeat the proposal without the support of another pary entitled to vote. Thus, Union could not defeat any fair and equitable proposal by PEAO to use the Fee
Parcels. Therefore, under the express terms of
of any applicable propert is that it be fair and equitable. As discussed above, under the
common law in Alaska, as a cotenant, PEAO is under a duty irrespective of
the TBUOA to
27
68773-002\DOCS _ SF:6 7039.5
ensure that its use of property is fair and equitable. Thus, the TBUOA imposes no burdens on
this property that are not already present simply as a result of the tenancy in common ownership
of
68. In its Objection, Union fails to even allege that that it recorded the
Rejected Contracts in the title records of
believes that they were not recorded in a way that they would be found in a title search of
the Fee
Parcels and Easements and it is Union's burden to establish that they were. Logically, no title
searcher would find the Rejected Contracts recorded upon these properties because, among other things the Rejeted Contracts pertain to the TBU and the Fee Parcels and Easements are not
within the TBU. Even if
the Rejected
E. PEAO is not Required to Reject the Facilties Ae:reement and is not Seekine: to
Assie:n it bv the Motion.
70. PEAO is rejecting, in their entirety, all three Rejected Contracts, which are
arguably interdependent contracts. Union suggests that the Facilties Agreement must be
rejected along with the Rejected Contracts because it is inextricably intertwined with them.
71. This argument is a red herring because whether the Facilities Agreement is
rejected or not, Union can terminate it upon 30 days' notice. Facilities Agreement, 10.
28
68773-002\DOCS _ SF:6 7039.5
72. Moreover, the Facilities Agreement is not integrated with the Rejected
Contracts. In re Karfakis, 162 B.R. 719, 725 (Bank. E.D. Pa. 1993) (intent of
parties is primary
inquiry in determining whether contracts are separate or inseparable; factors for finding that
lease and franchise agreement were "inextricably interwoven" were that they were executed on
the same date, were coterminous, had the same paries, had cross-defaults and "one agreement is
of no utility without the other").
73. First, the Facilities Agreement was not executed at the same time as the
other agreements - it was signed 35 years after the Unit Agreement and TBUOA and five
months after the Alignment Agreement. Second, it is not co-terminus with the other agreements
- the Facilities Agreement, as amended, pursuant to section 10, terminates by its terms on
April 15, 20 i 1, subject to extension for five years, and critically is terminable without cause
upon 30 days notice by either party, while the Unit Agreement, TBUOA and Alignment
Agreement are expected to remain in existence as long as the TBU is productive. See Unit
Agreement 20; TBUOA Aricle 29.2. Third, the Facilities Agreement does not have the same
paries as the Unit Agreement and TBUOA. Fourth, it does not address the same subject matter
- Recital A of
operations." Fifth, it is not cross-defaulted to any other agreement and does not rely on the Unit
Agreement, the TBUOA or the Alignment Agreement for its operative terms.
74. The Motion does not ask this Court to approve any assignments; it is an
abandonment and rejection motion. Union's contention that the Facilities Agreement may not be
assumed because it may not be assigned is irrelevant here.
29
68773-002\DOCS _ SF:67039.5
Conclusion
75. For the foregoing reasons, the Motion should be granted in full and the
1F3(o~8
o. 109084)
Kenneth H. ro CA No.1 00396) Maxim B. Litvak (CA Bar No. 215852) Robert M. Saunders (CA Bar No. 226172) James E. O'Neil (DE Bar No. 4042) 919 North Market Street, 1 ih Floor
Wilmington, Delaware 19801
30
68773-002\DOCS _ SF:6 7039.5
."
.COCO 7
ANCHOE, AL 9955937
. t\ rn ~ rn..\!j tit\f~!
~. ti. ,;',1) I Q .10.33. . \\\..1 \\ \\
.~.... .-..-_...::.:.:-.....~ . .-
.~~ONm.
your letter dated July 25, 1997 (see atthed), you informed us of an Assigmnent dated Deceinl:r 30, 1996, by which Marthon Oil Company a.ssi:g~ed theidnterest in certain
By
1
.1 !
pr',pertes to FOfcenergy. Inc.. To transfer yout interest the Rights of Way and Tideland
FOrCfiergy, Inc., assignients on our offcialy approved fonns inust be
casefile.
Lease '(fn state owned. pr6pe.r listed on lms Asigi1ilt dated Dece1l?er 30~ 1996 to executed for each
I
I have enclosed .our Assignment ofRight-of- Way form to. assign your casefiles to Forcenergy, Inc. The other casefIles wil be
The enclosed form wil assign your interest n the Right-of-Way Permts for the Tradig Bay
Outfal Line, ADL No. 224467; and
Production Airstrp, ADL No. 220-602; the Trading Bay Production Facilty Submarine
the Steelhead Platform Pipelie, ADL No. 221085~
Please coniplete the form according to the attched instrctions and forward thee copies of
each form with original, notazed signatus to tls offce.
To approve the assignments, we:also requi
Sincerely,
'0uo. y"V ~ ~i..,Deborah Heebner .
Natura Resource Offcer
n.L ( IJ It
1O-16LH
EXHIBIT A
A ;G(p/ () D()O~
....-
,.ii
;
,
f~'
.n
,
RIGHT-OF-WAY PERMIT
PRIVATE NON-EXCLUSIV
.;.,;.;..
;
. J..to
,
....~ ....'
:W i .-\.-
~l
THIS AGREEMENT made and entered int.o this. 4day of 192:hyand between the STATE OF ALIV, acting by and through the Depart of Natural. sourcs; Division
of Land hereinafer referred to. as thegiattor and Marathon Oil Company, whose a dress is P. O~ Box
196168,
regulations proinulgated thereimder, the perm.tteehavng med a;ii application fo.r a right,of-way withi the and
Anchorage Reeordg; bistnct Jor an aistrp with the Division of Land together with a map showig the
defini te location thereon of the nght-of-way which the periitteehas adopted
purpose' following the location, constructiGn, operation and maitenance of said right-or-way Over and acros~s the other than
described state lands, to wit~ located withi S% S:eton 32, TOwiship9 North; Rage 14 Meridian, Alaska run~g 1a20 feet in leng:h anlr containg 12.10 acres, more
Theanliual rental.fee for thi right-of-way p-ermit is $1,200.00 ($100~00 per acre per year). This
way granted herein shall be attached hereto and made a part hereof. .
In the event that the right-of-way granted shal in any manner conflct with or overlap a previously
with the peaceful use and enjoyment of the previously issued right-of-way and no improvements shall be
granted right-or-way the permittee herein shal use this right-or-way in such a manner as not to interfere
constructed by the permittee herein upon the overlapping area uness the consent therefore has first been
obtaned from the permittee under the pre-existig right-or-way.
Thepermttee in the e:ierdse orthe.rights and privieges granted by this and all other comply with all regUlations ilow in effect or as hereafer established by the Division of Landindenture shallfederal, state.
BK 0 2 5 -l L~ PG 5 6 I
Up.on abandonment, termination, revcation or cancellation of this .indenture, the permittee shall within 90 (ninety) days remove all structures and improvements from the area herei:igranted,exc~pt those owned by the gra.ntor and shall restore the area t the sme or simar condition as the same was upon the issuance of this permt. Should thep.ermittee fail or refuse to reIIve. sd strctures or improvements, within the tine allotted; theshal revert t and become the permittee shaUnt bitelieved of
restoring the area. Provided further, however, that thegraior,inhis w;SCi:etQil,mayalter or DlOdl the requirements contained in tms provsion: if it is in the, bst interestot The Steof Alaska to do so. ..
The permttee shall utilze the 1ands .liere'lni'a.tited co~sitentwith thepuxpSes of 'the .proposed
use, as re'Valed by th ap'piicatin therefor, aid 'sIiall nttai the:premises In:a neat and orderly maner
expiration. .
:=J. . .
Deparment of Fish aid Game and file. ai intage .copy thereof with the grantor.
,Any la;nd$; inchided in ths .pernt Whih :ae sold under: '~.;contra'tto purchase shall be subject to
this permit. Upon is.suance ottitle t.o the purehser, this p'etmt shall reiii in effect until its date of
In case the necessity for the right-of-way shal no'longer exist, or the permittee should abaidon or fail to use the same, then thi permit shall terminate,
The State of Alaska shall be forever whllyabsolved from any liiibilty for damages which might result to theperm.ittee herein on account of this perithaving been cancelled,torfeited, or teriinated prior
to the expiration ofthe i time for which it Was issue?. ... . .. .
, .: Perntteewill be requited to submit proo(ofilurance everytwo.(2) years. The anniversary date . '. will be January 1. Inurance will be a mium ot$l,OOO;OOO coDibind single limit per occurrence and
$5,000,000 annual aggregates where generaly applicable and shal include airort premise-operations
liabilty, independent contractors, productcompleted operations, broad form property damage, blanet
BK 0 2 5 7 i~ PG 5 6 2
NOW THREFORE, in accordance with the provisions of AS 38.05.850 and the rules and regulations
promulgated thereunder and In accordance with the conditions heretofore set forth ot attached made apart hereof, the permtteeherel is said nght-of~wayover and
hereto and
IN WITNSS WHREOF, the said grantor has t!le permIttee herem has hereunto affixed his
Permittee.:
. Production Manager
State of Alaska )
~. .'.. I.. ;. This is -to cert/that onthel7th day I . R. Dartez to be ham and known to me to
)s
IN TESTIMONY WHREOF, I have hereunto set my hand and affixed my offcial seal, the day and
year in this certifcate fist above written.
'. :~~'\"'~'~"'.';""~,\r- .
./~'.....,. -; .....~~:.\?;;...
~
:tiN" .,
. BK 0 2 5 7 4 PG 5 6 4
ii:x H i HIT
''.'
LEGAL DESCRION
RIGHT OF WAY PERIT
ADL 220602
A parcel of State land lyig with the Anchorage Recording District, Thid Juclcial
District, in Section 32, Township 9 Nort,
Seward M'eridian,proceed South 89 41' SH" West:. along the township line of
LEGAL DESCRIION:" .
Thence proceed along the townsmplie between Township 8 and
West, Seward Meridian, North 89 41' 58',' East a distance of 145 feet to a point;
...- "' ,- . .
Thence South 01 07' 42" East a distace of 1314.2-2 feet to a point on the township
1Inebetween Townsmp 8 and 9 Nort, Range 14 West, Seward
Meridian;
Thence Nort 89041' 58" East a distace of 255.04 feet to the 'TRUE POIN OF
Tils parcel contais approximately 12.10 acres more or less. Tils legal description
is derived from the Maiathon Oil Company plat :for application of Right-of:Way Permt dated November 1984 at a scae of 1"::400'.
BK 0 2 5 7 L~ o~ 5 6 6
c .~- 0 0 i 8 1 0
i.
D/STn/GT .
ANCHOR!,GE REe.
;3C -C!C
REQUESTED BY fl/LJ-L-pt M
J(...
..
-~"'~~':~~:?l~~~~~:Y~~~t~~~~~~~~*~~~~~~~~'?t~~1~
.',.--. :.-.- ,":
;'-.':'.-...:
............
. .;"'.
. -.- ~
~j.
i( .
.i
\ ,'.
tlfm G~IT
- ugiisl4, 1973.
..Gentlemen:
cently obtaIned title to the captioned sunac acreage from the State of Alaska in the proport.ions of Union 50 percent and Marathon SO percent.' the subject acquisition was made without Trading Bay Unit
partiCipation in order to service both the Trading Bay field and the
.license or lease to Pacific Alaska LNG Company to utflize a portion
of said parcel in and around the Union-Marathon gas transmission Hne, therefore. it becomes necessary to clarify and delineate the
rights of Union and Marathon and the Trading Bay Unit regarding said
surface acreage,
This letter shall constitute an agreement between your company and Union and Marathon whereby you relinquish all claim, right, title and interest in and to all of said 194 acre parcel which is the Trading Bay onshore production facility site located at West Foreland. Notwithstanding any provisions to the contrary contained herein, it is under-
EXHIBIT B
~~~ ~~
.,
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. :..:'::...:..;;.~~..~:.:..
:.1...'-
.;~~ji~~~J~r~~~~.L~r.
,
.. ..t.
(
oJ'
\5!.l
1~
c;:
Aug\lst 14, 1973
Management Comrittt'e _ 2 _
Trading Bay UnJt
.hereto.
Very trily. 'Yours.,
'.
_day. of 1973.
COMPANY
By:
:*0~~"~::,~~.~~~~:~~z~~~~~~~~~~?:::~~P~,~~~~~l*~t?~~~~~~~~~~~~~~
-. ., '. -. . ..... :'.. -'.;
. ~ '''.' :' ~
. ". . . . .
. .,. .; .:.::~-.,::::~~f~(::: ".:; .
",- ~ - ..' ~ ",. -,'~ :
.: ~;:~: ~~.;
/'
AUG. 2 1913
FROM
ru~t T,HIS ,LINe. '0'" rILE IlIE'-ERf;NC; .. Jiu_."i:'C.TI
H. L. 1.00~n
OFFICE Anchorage. 81
""-, The subjiic.t letter is hot t.echnkallycrrect. The original 36 acre she w.as
p.ad for by Marathon an.a Uni:Oh (5.0Xea.ch) and title i~as ieqi:l red
~~~..
and l:s iiYs~n'tl'y he~d in :l,JJi~ms' name aloneA The addition to th.e pr.oduc'ti"pn sHe of 146.,30 atre: was purchased by!.larathon in February,. 1968 by UContract for the 5ile of Real . Property." from the State. In this instanee Union .was Dille:d for 5.0% of th.e
purchase pri ce. We ha:.v requested hd have approval .to p.ay the. i'il.ance df tlie
pUf"ch~e in'i ce andre ceive tooveyaJce. of the ti tl e to this addit.iona'l 1 nd. P:i* l1nt was lIade. On July 2. 197:3. ~ut the.title papers !lave 'not yet b.een rece.ived.
permissi.on of the Trading Bay Unit Horking Interest owne'rs \..as l)ot acqijired,.
The only diffference I can. see in this case is that Cook Inlet Pipeline Company
is handHng all Working .Interest Owners crude. a:"d. in tbe eas.e of Pacific Alaska LNG
that they are acquiring rights which at this time are owned only. by Marathon and
Uni on .
rhe correct acreage. count of the t\./O (2) tracts of land ;.S 182.30 acres.
Except for the abpve coimnts I find no real obJection to Un1.Qn's letter.
0# o rF j_~~
tr~.$ ~.(~ ' ~~" .;, --~ ~ ~i-.. .,~~-Yv,-v /l ~ ~ ~A' IY -= - ~..-r~.- ~.q~/rL~) --(.~ . /V''-~ ~ o: A'---7; J ~ 'h ..~/~y .-t. .-,_d._~_.g:-r.
lI ~ '- ~C-.7. - -("A.. ."
~ F ~. i ~
~~ __A~"-J-~--~ ~~.
to"
..1..-
rf;;
Plai.ntiff,
vs.
UNION OIL COMPANY OF CALIFORNIA d/b/a UNOCAL
ALASKA,
Defendant.
I. INTRODUCTION.
Defendant Union Oil Company of California ("Unocal U)
moves for partial surr~ary judgment on its affirmative defense of
waived, dismissed and released any and all claims against each
3; 05-CV-0078-RRB
EXHIBIT C
/'''
favor. .
has determined that oral argument would not assist the court in
resolving the motion. Because the Court finds that, as a matter of
law, Article 7 can not be construed to extend to encompass Forest's
is GRATED.
II. BACKGROUN/FACTS.
Id.
Clerk's Docket No. 27. Clerk's Docket No. 39.
I. Unocal and Forest are the sole working interest owners of the oil assets underlying the Trading Bay Properties. Id. at 4.
ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 2
3: 05-CV-0078-RRE
The Trading
("TBFOA") . ~
Bay
Field
Operating
Agreement
interest owners in the Trading Bay Properties, and mul tiple parties
Properties
were
-:omprised
of
numerous
'.vor king
interest
Id. at Ex. A. for Tabler Declaration. 11 rd. at Ex. A, p. 50 31.2; Ex. B., p. 28 23.2; Ex. A for
lij
3: 05-CV-Q073-RRB
Page 4 of 13
By 1996,
through mesne conveyances, the only working interest owners in the
Forcenergy.
At that point, Onocal and Forest became the sale working interest
owners of the oil assets underlying the Trading Bay Properties.
3 :05-CV-Q078-RR8
.' .'
Page 5 of 13
46.8% working interest in all oil WIPAs comprising the Traing Bay
Properties.
Article 7 of the Alignment Agreement provides;
Forest and Unocal hereby waive, release and dismiss any Production, revenue, and Cost
Forest's first claim asserts breach of ontract seeking an unspecified amount of damages, alleging that
Unocal, as the operator, acted impudently by incurring unnecessary
J: 05-CV-007a-RRB
..
/,-
2002.
III. STANAR OF REVIEW.
Summary judgment is appropriate if, ,,,hen viewing the
evidence in the light most favorable to the non-moving party, there
jUdgment, the opposing party must set forth specific facts Showing
,
Case 3:05-cv-ol~ ~ :u-RRB
truth at trial.
iv. DISCUSSION.
court, this Court "must predict how the highest state court would
III L.P. (In re Filtercorp, Inc.), 163 F.3d 570, 578 (9th Cir.
1998) .
Schmidt v. Lashlev, 627 P.2d 201, 204 n. 7 (Alaska 1981). 15 Norville v. Carr-Gottstein Foods Co., 84 P. 3d 996, 1004
U.:
. (continued. . .)
ORDER DENYI NG DOCKET 23 and GRANTING DOCKET 39 - 7
3: 05-CV-0078-RRB
Interp~etation of a contract is ordinarily a question of law. But interpretation becomes a. task for the trier of fact when the parties
towards conflicting interpretations of the contract, and when the. contract itself is
reasonably susceptible of ei ther meaning.
ig (... continued)
ami tted) .
~ Herrick's Aero-Auto-Aaua Repair Service v. State. OeD!. of Transp. and Pub. Facilities, 754 P.2 1111, 1116 (laska 1988) .
~, Alaska Di versi fied Contractors. Inc. v. Lower Kuskokwim Sch. Dist., 778 P.2d 581, 534 (Alaska 1989) ("Extrinsic evidence
may always be received on the question of meaning. H) .
ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 8
3: 05-CV-0078-RRB
may look to "the language and conduct of the parties, the objects
sought to be accomplished and the surrounding circumstances at the
time the contract was negotia ted. ,,:l:l The conduct of the parties
subsequent to the agreement is also relevant to the determination
considered to be probative. Rather, the court must look to express manifestations of each
before it.
~. Pepsi-Cola Bottlina Co. v. New Hampshire Ins. Co., 407 P.2d 1009, 1013 (Alaska 1965).
North Paci fic Processors, .Inc. v. Ci tv and Borouqh Yakutat. Alaska, 113 P.3d 575, 585 (Alaska 2005).
of
of Mi tcheii Fischback in opposition to Unocal' s motion that subsequent to January 1, 2002, Unocal either did not raise or wi thdrew any objections to audi ts of 1999, 2000, and 2001 by Forest. Clerk's Docket No. 27, Fischback Decl. Whi 1e this is of
(con tinued. . . )
ORDER DENYING DOCKET 23 and GRANTING DOCKET 39 - 9
3: 05-CV-0078-RRB
to the intent of the scope of the release must be derived from the
and the
surrounding circumstances.
Paragraph 3 of the preamble to the Alignment Agreement
states the general intent and purpose of the agreement.
~. Forest and Unocal desire to align their respective Working Interests relative to all Production and Costs in the Trading Bay Field and all Production and Costs relative to all interests (excluding the Grayling Gas Sands) in the Trading Bay Unit, as provided in this Agreement, so as to create an area of common
lease i.nterests.
agreement between the parties was the varied ownership .of the
provides:
~s ( . . . continued)
some probative value concerning the scope of the release, the Court does not accord it any significant weight.
ORDER DENYING DOCKET 23 and GRANT ING DOCKET 39 - 10 3: 05-CV-Q07fi-RRB
incurred.
5.2 Abandonment. Conuencing on the Effective Date, the Costs of all Abandonment operations in the TBF, TBU, or TBPF due on or after the Effective Date, regardless of when they were
Relati ve Interests.
motion,
Kevin A.
CIa ims,
of the
~.
3: 05-CV-0078-RRB
Agreement.
nothing in the Alignment Agreement itself or the circumstances preceding or surrounding its execution chat logically tends to
support the expansive interpretation advanced by Unocal. The Court
ruling, to the extent that Forest's claims are predicated upon the
preceding 2002, those claims have been ',.aived and any and all
claims related to allocation are precluded.
V. CONCLUSION/ORDER.
For the foregoing reasons,
3: 05-CV-0078-RRB
/1 -.J(f -0(.
, ,
\......:
Plaintiff,
vs.
i. INTRODUCTION.
At Docket No. 91 Defendant Union Oil Company of
reconsideration of
California CUnoeal") has moved for the Order Denying Defendant's Motion for Partial Summary Judgment at
Docket No. 23 and Granting Plaintiffs Motion for Partial Summary Judgment at Docket No. 39.'
At Docket No. 94 Plaintiff Forest Oil Co. ("Forest") has tlled its opposition.
reconsider and modify an interlocutory order for sutTcient cause.2 That inherent power is not
unfettered: "the court may reconsider previously decided questions in cases in whieh there has
been an intervening change of controlling authority, new evidence has surfaced. or the prvious
1 City olLos Angeles, Harbor Division v. Sanla Monica, 254 F.3d 882, 885 (9th Cir. 200 I)
) Leslie SaIi Co. v. Uniied Slales, 55 FJd 1388, 1393 (9th Cir. i 995); see also ,)'chool Disrricl No. 11, A1ulrnomah County, Or. v. ACandS, Inc., 5 FJd 1255, 1263 (9th Cir. 1993) ("rrJeconsideration fof
grant of summary j udgmentJ is appropriate if the district court (I) is presented with newly discovered evidence, (2) committed clear error or the initial decision was manifestly unjust, or (3) if there is an intervening change in controlling law").
EXHIBIT D
III. DISCUSSION.
The first two grounds for reconsideration, intervening change of law or n.ewly discovered
evidence, are not at issue in the motion at bar. Unocal argues that the Court erred "by finding
that the tenn 'Cost' as used in Article 7 is limited and narrowed by the undefined term
'participation .claims.''' Unocal misreads the decision of
definition or
meaning of
Trading Bay Field Joint Operating Agreement or the Trading Bay Unit Operating Agreement.
But that is not the question the Court was required to answer. The Court was not defining the
word "Cost"; it was determining the intent of
What Unocal would have this Court do is determine the intent of an agreement focusing
on the meaning ora single word. This is manifestly incorrect as a matter oflaw. A contract is
read as a whole.4 Article 7, upon which Unocal rests its arguments, states in relevant part "Forest and Unocal hereby waive, release and dismiss any Production, revenue, and Cost
participation claims." The word "participation," as do the words "Production, revenue, and
Cost," modifies, limits or defines the extent of
sought by Unocal would require the Court to treat the word "participation" as mere surplusage
and read it right out of
have that sentence read "Forest and UnocaJ hereby waive, release and dismiss any Production,
revenue, and Cost claims." This would not only be contrary to the over all purpose of
the
Alignment Agreement (to adjust the allocation between the parties) but also would result in a
rewriting of the express language of
than it can read out ofthat sentence the words "Production, revenue, and Cost," or any of
contracts as a whole"); Matanuska Elec. Ass 'n, Inc. v. Chugach Elec. Ass 'n. Inc., 99 P.3d 553, 562
(Alaska 2004) (';(iJn reaching a reasonable interpreiation of a contract, we attempt to give effect to all of
its tenns"); RESTA TEMENT (SECOND) CONTRAcrs, 202, cm!. d. ("'( w)here the whole can be read to give
CONTRACTS. 203(a) ("an interpretation which gives a reasonable, lawtl, and ef1ctive meaning to all
the terms is pretrred to an interpretation which leaves a part unreasonable, unlawful, or of no effect"); see Id, cmt a. ("(slince an agreement is interpreted as a whole. it is assumed in the first instance that no part of it is superfluous").
()RDER DENYING DEfENDANT'S MOTION FOR RECONSIDER" TION (DOKET 91) - 2
3 .05-CV .00078- RR
Although it was not mentioned in the Order, the Court did not overlook the Declaration
of Kenneth W. Griffn. All Mr. Griffn does is state his understanding that the term "Cost" has
the same meaning in the Alignment Agreement as in the Trading Bay Agreements (a point not at
issue) and that he did not "recall the specific intent of either Union Oil or forest to exclude
audits foin the scope of Article 7 of
recollection. This is
the fact that what the Court was called upon to interpret was the
scope of
the percentage of each Party's Relative Interests." While the Alignment Agreement did not alter
the detnirion or meaning of
miist do, the claims released by Aiiicle.7 are the "Cost participation" claims, which are within
the context of
iv. CONCLUSION/ORDER.
For the foregoing reasons, Detndant's Motion for Reconsideration of
Order at D9cket
"h
'"
rCRM NO OL-l
(REVIsED APRIL. UIS.)
STATE OF itSKA
of Alaska, acting by and through the Director of the Division of Lands. Departent of Natural Resources or lis author_
THS LEASE, dated the......l.t...day of ....~.t.9J~.tn:......_................., 19......G-.~.; is made by and between the State
....mm...........IDQJ.LQi....C-QMtA:N...QF...QALIf.OBN...lLsl11'Qnli..s9J:Q!:.:tlQIL.s..nL...........................................
lease unto Lessee. exclUSively. without warranty. for: the sole and only purposes of exploration. development, prodUCtion
hereinafter called "Leee". whether one or more. . ........._................. 1. GRANT. For and in consideration of a cash bonus and the first year's rental. the receipt of whi-:h is hereby acknOWledged. and of the rentals. royaties, covenants, and conditions herein contained on the part of the Lcssee to be paid. kept and performed, and subject to the conditions and reserations hereil! contained. Lessor does hereby grant and
.......~."........-im..QRrO_.Oli....QWA.NY,._~!LQh.i.Q....QJ:Q.:ia.UO.t_.m._....__........._........._.........._.......... ..
and for driling water wells and taking underground and suriace water for use in its operations thereon. and for housing. and boarding employees in its operation .thereon. the fOllOWing described tract of land in Alaska;
Trct 8-13-5-58
proceSSing and marketing of oil. gas. and associated substances. produced therewith. and of installng" pipe lies and :strctures thereon to find. produce. save. store. treat, process, tranport, take care of and market all such SUbstances,
surveys.. .
land attached hereto. maTked Exhibit A and by this reference made a part of ths lease.
For the purposes ot this lease. said land contains........ 6~.....__..._.....-iegal SUbdiVisions. as shown on the plat of said
If said land i,; described above by protracted legal .sudivisions, or by offiCially designated tract numbers, and Lessor hereafter causes said land .to be surveyed under the public land rectangUlar system. the boundaries of said land shall be
those eStablished by such survey, when approved, subject, however. to the provisions of the regulations relating to such
2. "OIL AND GAS". "OU" mean crude petrOleum o and other hYdrocarbons regardless of gravity which are produced :ind saved in liqUid ioon at the well by ordmary production methods. "Gas" means all natural gas and all hydrocar_
tion with oil or gas and not defned herein as oil Dr gas
bons produced at the well not defied herein as oiL "Associated substances" means ll substaces produced in associa_
3. TERM. This lease. is issed for an initial priry term of five years from the date hereOf. SUbject to. extension as provided in Paragraph 4 hereo"i. and shall Continue so long thereafer as oil and gas or either or any of them are
the interest of conservation, directs or assents to the Suspension of all operations and production. if any, hereunder.
the primary term wil be eJltended by adding the periOd of SUSpension thereto.
produced in paying quantities from, sa.id land; provided, that this lease may be extended beyond its primary term as prov.ided in Paragraph 5 hereof altd shall not expire under the conditions set fOrth in Pargraphs 6. 7. and 8 nereof. 4. EXTENSION BY SUS1.ENSION OF OPERTIONS. If. prior to the expiration of the primary term. Lessor. in
scribed by Lessor as provided in .the r.egulations. productiOn of oil or gas is had in paying quantities under the agreement, and.a .PO:ition of suCh production is allocated to said land under the agreement. In such event this lease shall con-
5. EXTENSION BY UNIT. PRODUCTION (a) This lease shall without application be extended beyond its. primary term if Upon or prior to the expiration date of such term the lease is committed to a unit agreement apprOved or pre"
said land; (b) The Commissioner may, in his discretion prOVide for the extension of the term of .ths lease, if such lease is on the expiration date thereof included in an approved unit plan or if it. is included in a program of secondary recovery Operation designed to bring about or restore production, provided, hOwever, that if any lease or portion thereof is eliminated from such unit plan or recQvery program. or if such unit plan Dr recovery program is terminated, then no such lease or portion thereof shall continue in full force and effect for ninety (90l days from the date of such elimination or termination and so .long thereafter as drlling or redrg operations are being conducted thereon and so long thereafter as oil or gas is produced 1n paYing quantities.
tinue in effect so long as it remains. SUbject. to such agreement and action production "under said agreement is allocated to
by the lease are lands that have been seected by Alaska under laws of the United States granting lands to Alaska and the conditional lease was i-"Sed thereon. the teon of the lease shall be extended for a period equal to the period during which (he lease was conditional.
term. and if, at the end of the primary term, or at any time prior. to the end of the primary term, such production shall have ceased from any cause, or in the event production shall at any timeobtained in paying quantities during the priar or times after. the expiration of the primary tenn cease from any ca.use. then this lease shall not tenninate if the Lessee commenes driling or reworking operations (either in a well from which such production has ceased or in a new well) within sixty days after the cessation of production. and the lease shall remain in full force and effect so long as such operations are prosecuted with. reasonable dilgence or are suspended under Paragraph 27 hereof; and. if mch driing or reworking opertions result in the prOduction of oil or gas. the lease shall remain in full force and effect so long as oil or gas :is produced therefrom in paying quantities; (b) if actual drillng has cOl1enced on the expiration date of the primary terms of the lease and 15 continued with reaSonable dilgence. such operations to include redriIing, sidetracking or other means necessary to re.ach the originally proposed bottom hole location, the lease shall continue in full force and efect until ninety (90) days after such driling had ceased and for so long thereafter as oil or gas is produced in paying quantities; (c) if all or part of the lands covered
7. EXTESION BY SHU-IN PRODUCTON. If. upon the expiration of the primary term or a.t any time or ties
of Lessor. h.
is allowed by Lessor. .
operations in Dr upon or prOduction from said land
after such status is established such production shall Continue on the said land unless and unti SUspnsion of prodUction
less than sixty days. after such notice to place the Well on a producing sttus, and Lesee fai to do so; provided, that
thereafer, there is on said land a well capable of produCing oil or gas in paying qu:mtities, ths lease shal not expire because Lessee fails to produce the same Uless Lessor gives notice to Lessee allOWing a reasonable tie, which shall not be
8. EXTENSION BY SUSPENSION OF PRODUCTION. Ths lease shall not exire because of any SUnson of
EXHIBIT E
provIded In Psraph 13 ot thIs leae. If L.".or"s orrtce I. not open ror buslne:8 on the annlveniar date the ti.. tor xYmeit la extenaed
Bum equal to i1.00 per acre, .or tractlon tber-eot,. then Included In this lease. or unlc:B .such annual rental baa been waJvAd or 8uaponded as
ptoduclng all or guB In P871ni: quaitJties.. unless 00 or betoT6 saId anniversary date Leee shoI payor leader to Lesor as annia. r.enta a.
v. RENTAL ThIs l""e shall termr.ate 0" any annherall aate bereot prIor to tbe complotlon on old land Dr a w..II ""&hI.. ot
te !nclud. tbe "ext day on whIch salcl oNlc.. Is open tor buslnes.. Any rental psld (or anyone lease ye.. "liall b. crealted on a"y ro:rlty tor tlt Year.
the yea It I..s than ;I.OO per acre and ths prescrIbed mlnlmuw roYAlty.
prouclnl oU or ga In payIng quantltJea. Les.. shall ~y Lessor, at the expIration ot each leas Yea. In lieu ot rent a mInimum royalty equal to il.OO por acre. or traction tber""t. then Incluaea In thIs I.as.., or tiie dltterence between the actual r07alty Paid on production during
10. MINIM ROYALTY. Commencing with the lease year begInning on or aCtor completion on saId land ot a welt capable or
Lesa~lb..lo~~i:~;"o~i:s :i~s'.8&~~~~iio~;~t tor 011 and g. 1I.. on saId land tor development and production or unaVOidably 10..1,
(a) On 011 ....._ per csnt In amount or valus or the 011 produced and saved and rems-ved or sold trom ssld land.
tlonCb) On ga. ~-~ gasllb~a.mou:it or YaluB or-the ga prodUCed and isaved and Bold or used oU Ba1a land or lld 1'or the extlAcot n..tural per cent 10 -Or other prOducts theretrom. '
(c) wd landa.On associated substances -1-5 per cent In amount or value of such substances produced and 61lved and' reIoved or BOld from 12. REDUCTION OF ROYALTY RATES FOR DISCOVEY. It Lesse. sball drill on aald land aDd male the tlrat dlcovery or 011 or rri!: t~~::;:'~~~t ~~n,:I~~'ioi. :tnre:e;~~f~'ti:~~~urg t3:t~0:ra~~Jl'~~:::;~l:~di~~~~.i~~~~,: ~:t~::aYf/~:t~t,"iJf'l"e~li;e.~ ~".~~~.t~~ Pagraph 11. I'C this lease Is commUted to a unit agreement approved or prescribed by Les:sor as provIded In the. regulations, the five per cent royalty rate ahall apply to an, but onlY. the production allocated to this lease under such agrement. 13. REDUCTION OF RENTAL AND ROYALTY. Rental OT mInImum royalty may be waived. suspended, or reduced. or rOYalty may be reduced on allot aald land or any tract or porUon tbereot sgregsted tor royalty purposes It Lessor tlnds that such rellet Is necessary tor
tha.t Buch reUe! J.s necessar 10 order to promote development or that th~ )llase cannot be .suci:esstulJy operated "Onderresources and eJther I the terms provJded
the PUrpose ot encouraglng1he GTeatest ullJniate recovery ot oU or Bar and is In the interest ot con~ervaUon ot nature
U. ROYALTY IN KIND. VI'lenever, at tbe opU'm or Lessor, wblch llay be eurclsed Irom tIme to time upon not less tban alx montbE notlet- to Lessee, Lessor eiect~ to ta.ke lts royalty in kJnd. Lessee shall d~ih'er tree ot charge (on said land or at such place aa Le.aoT and Le.see mutually B.rd0s iipon) to L""sor Dr to sucb In!llvldua\. fIrm, or corpOration as Lessor mal. desIgnate all royalty 011 and/or gas prOduced
Le"see shall not be held Hable (or lO~3 or destruction of ra~lty oJ! and/oT ::is from C3uses be:yond Lessee's reaonable control. Should Lousee ~:~~~t;o~~I't;~'i ~~eg~;. or gas producad trom said land, es.ea shall ba entitled to an allOWance or the ..ntual c",t ot dehYdrat!ng or clee15. ROYALTY IN VALUE. At tho optlon ot Losor whIch may br exercIsed (Tom time to tlma upon not lesa tl. elx months' notlcs to
~~:art;';~lI~:' g: gh~",':~ 1~~Cti~~~ "3:t~r..fle"r ~~~I~~~ ~~ f~ ":~~d~r~iin~\~~~ ;.i'~Alll~ ~u~e~r':~~~;,Jt t~~":'i:;cli:;i:t::e':et~~r
hereIn.
.royalty that may becoms payable In money to Le.sor shall be paid on or betore the last day of tbe calendar montb tollowJng the month In
Lo.ee, and In lieu 01 royalty In kInd, Lesa" shall pay to Lssor the tleld market prlco or value at the well ot all roYalty 011 ana/or gii All
)OSIJ by reason 01 drainage resul Ung trom roductlon on other land. WUho;t JlmiUng- the gener2.Uty of the toregoing 8eJ)t~ncel Jt all or gas
16. PRICE. The tleld market prIce or value or royally oil or gas shall not be Irss than .the hIghest ot: (1) Tbe price actually paid or alleeil to be paId to Lessee at the well by the purchaser tbereor, It an)'; or (~i The posted price bt Lessee In the tleld tor such 011 or ga at tbe w611. If any; or, (3~ The prevalJng price receIved by other producers In the tJeld at the well tor 011 ot like grade and llv\ty or gas oC 17. PAYMENS. All peyments to Lessor .under tbis lelse sball land o~ run Into storage. or ineb gas ot dellverad oi an extractionAliuk. be made payble to the Department Is Ravenue to the State ot planL and shaU b tendered tD Lessor at the place designated under ParalP4ph 43 for giving notices to Lessor.. . 18. OFFSET WELLS. Lessee shall drm such well. as a reasonabl)' prudsnt op"rator would dril to prolen! Lesor adequately trom
like kind and quality at lbe time sucli 011 or gas Is removed trom saId
WhIch tb.. 011 or gas Is produced, 1:'Ie payments shall be .accompanled b)' copies ot run tickets Or other satisfactory evidence ot eales. .hlpmntll, and amounts or gross produet1on~
ahould be produced In a well on other land not owned by Le.!sor or on whIch Lessor receives B lower rate at royalty'than the royalty under
thl. leaso. whIch well Is wIthin 500 teet In the cae ot an 011 well or 1,500 feat In the ""se or a gas. well ot lands tben subject to tbls lea...
~~~ii';~~ .:ee~e:~t.ll.i~~~ciig~~ ~i,f~...ide~li:,: t~~::n~~~i" ~~ri tl3~~~~I~~ \~:;J; ~~;"iu~l~:i dt~il~nt.~~e~~s~~t~'ito ~~~~e Iad~s0v.~'l~;
productive operations; shall use reasonable care and all proper safeguards to prevent the pollution of water; shall plug
strata to the destrction or injury of such deposits and the preservation and conservation of the propert for futue
all operations hereunder in a good and workmanlike manner in accordance with approved methods and practices, having duc regard for the prevention of waste of oil and gas and the entrance of water to the oil and gas bearing sands or
ably prudent Operator would drill having due regard 10r tle interests of Lessor as wel as the interes of Lessee, 20. DILIGENCE; PREVENTION OF WASTE. Lesse shall exercise reasonable dlIgence in drilling, producig, and operating wells on said land unless consent to suspend operations temporarily is granted by Lessor; shall car on
19. OTHER WELLS. This lease contemplates the reasonable development of said land tor on and gas as the 1act may justHy. Upon discovery of oil or gas in paying quantiies on said land, Lessee shall dril such wells as a reason-
shall c.arry out at Lessee's expense all reasonable orders .and requirements of Lessor relative to the prevention of waste
securely in an approved manner any well before abandoningit: shall allow Lesor to inspect all operations at any time;
and conform to valid applicable rules and regulations of the Alaska Oil and Gas Conseration Commisson and the regulations of Lessor relating to the matters covered by this paragraph in effect on the effective date hereof or hereafter in efect if not inconsistent with any specIfic provisions of this lease.
and the preservation ot said land, and on failure of Lessee so to do. Lessor shall have the right together with any other recourse available to it to enter on said land to repair dama.ge or prevent waste at Lesor's expense; and shall abide by
21. WELL LOCATIONS. Lessee shall within five days after spudding in a well advise Lessor in writing of the location and date of spudding of said well.
stration of the functions. responsibilties. and duties vested by law In the Commissioner of the Department of Natural
Resources or in the Division of Lands or the Director thereof. Including but not limited to functions, respsibilties, and duties arising In connection with any litigation or administrative adjudication relating to ths lease or to the rights,
22. APPROVAL OF .PLANS. Lessee shall not place into actual operation any plan or method for the purpse of stimulating or increasing production on said land other than plans and methods in common use without fist having obtained the written approval of Lesor. 23. LOGS AND RECORDS. An electric log or radioactive log, If taken. and a descrptive geologic sample log, If taken, and a record of all tests run for each well drfled on said land, together .with a plat showing the exact location of each such well, shall be fied with Lessor within thirty (30) days after such well has been completed. suspended, or abandoned. Any and all information fied by Lessee with Lessor in connection with this lease shall be available at al times for the confdential use of Lesor for the purpose of enorcing Compliance with the terms, covenants, and c:onditions of this leare and the regulations of the Lessor but shall not be open for inspection by any person other than officers, or employees of Lessor and persons performing any function or work assigned to them by Lessor for a period of twenty four (24) months after the thirty (30) day filng period, except upon written consent of Lessee. Notwithstanding any other provision hereof. said information may be disclosed to any person where such disclosure is reasonably necessary for the admini-
each welL.
Insure the most accurate figures reasonably available without requiring the Lesee to provide separate tankage for
examine the same. Such records. and reports of producton shall be based upon such methods and techniques as sha
24. RECORDS. Lessee i:h;iJJ keep and have in its possession books and records showing the production and disposition of all oil and gas produced from said land and shall permit Lessor or its agents at all reasonable hour to
~~ce.~a:y to determine the damage which the owner of such I"nrl m"v s"ffP-T. Lessee hPTPhv "",pp" tn n,w .mv n..nl_
25. DAMAGES. Sect. 2 of Article VII of the Alaska Land Act. Chapt. 169, S.L.A., 1959, as amended, provides in part that no rights under rescrvalions contained in certain leases or grants of Alaska land shall be exercised by Lesor or its Lessee unti provision has been madp to pay to the owner of the land upon wr;~h the reserved rights are. sought to be exercised full payment for al.'~ :es sustained by said owner by reaso~"1 .ering upon said land; provided, that if said owner ior any CJusc wi ! .-efuses or negl~ts to settle said d~ Leor or its Lessee shall have the right' to instiute such legal pro"""di.;gs In a court of competent jurisdiclio,. ';hb:ein the land is situated as may be
"
. will be regarded by va. .iu l.VUUt:c".vn provision for the payment of al ui " tIna in compliance with tls Leasen.. .--r"__ _.-..~ __...Lesor as a suffIcient WAU.. ~ut:u ui:wagt:. ine rong
26. BONDS. _
$2.00 ~i' acre or fraction thereof COntained in said land but .not less than $l,Or. ..vO. ( b) Before beginnIng drillng operations on said land Lesee must have furnished and shal mainta a bond 1n
(.:) Lessee may. in lieu of the foregoing, furnsh and maintain a statewide bond in the amount of $100,000.00 (d) Lessor may, after notice to Lessee and an Opportunity to be heard, require a bond in a reasonable amount
(a) Lesee sh:;Il maintain .. furnished prior to the issuance of .lIi dse in an amount equal to at leai
greater than the amount specified above in this pargraph where such greater amotlt.is justiied by the nature of the ?f operations be:ng or to be carrIed out under this lease. A statewide bond will not satisfy any requirement of a bond
surface and its uses and improvements in the vicinty of said land and the degree of the risks involved in the tyes
(e) If said land is committed in whole or in part to a cooperative o! unit agreement. approved or p~escribed by
unposed Under this SUbparagraph but wil be consIdered by Lesor in determining. the need for and the amount of
Lessor pursuant to law and the regulatlons and a unit bond is furnished In accordance with the regulations, Lesee
27. ACTS OF GOD. Should Lessee be prevented from complying with any expresed or implied cov.enant of this lease. from i:onducting driling operations thereon. or from producing or marketing oil or gas from said land after efforts made in good faith, by reason of war, riots acts of God severe weather In the area of said land, acts of governmental authorities.. failure or l:ick.of adequate tra~sporttion f~cllties, or any other calise beyond Lessee's reason~ble ~ontro.l whether similar to those enumerated or not, then while so prevented and for a reasonable time thereafter withIn WhlC!i to resume operations. Leee's obligation to comply with such covenant shal be susp&nded and Lesee ~bal not b~ liable for damages for failure to comply therwith. If driling or reworking operations are suspended ?y :virte of this paragraph and the prosecution of such operations would have had the effect of preventing the eXpiration or termIn.ation of this lease, then this lease shall not terminate during the period which the obligation to perform such
to .suspend the p:iyment of rentas or of minlmum royalties. 28. SUSPENSION. Lessor Inay from time to time direct or assent to the suspension of production or other operations or both under this lease if such action is necessary or justified in the interest of conservation. 29. RESERVATIONS. Lessor rese.rves the right to dispose of the surfac~ of said land to others SU?lect to this lealie, and the right to authorize others by grant. lease, or permit subject to this lease and under such ~onditions as will
(a) To explore for riii or g:is by geological or geophysicii means Including the drillng of shallow core holes or stratioperations is suspended under this paragraph; provided, however, that nothing in this paragraph shall he consted
prevent unne~essary or unreasonable interference with the rights of Lessee and operatIons under this lease, to enter
upon :ind iise si'd land:
graphic tests to a depth of not more than 1,000 feet.
(b) To explore for. develop and remove natural resources other than oil. gas, Bnd associated substances on or
(c) For nonexclusive easements and rights of way for any lawful purpose inclUding shafts and t'innl'ls necessary or appropriate for the working of said land or other lands for natural resources other th:n oil. gas or associ.t~d substances.
( d) For well sites and well bores of wells drilled :from or through said land to explore for or produce oil, gas, (e) For any other purpose now or hereafter authorized by law and not inconsistent with the rights of Lessee
30. UNDERGROUND STORAGE. Tlis lease does not authorize the subsurface storage .of oil or gas exci:pt as a
necessary incident to recycling presre maintenance, repressuring, or other similar o~erat1ons designed to i~crease the ultimate recovery of oil orgas or prevent the waste of all or gas produced from said land or from any umt area ot whIch the said land is a part. Lessor reserves the right to authorize the subsurface storage of oil or gas in said land by Lessee or by others in order to avoid waste or to promote conservation of natural resources and upon such con-
ditions as wil prevent unnecessary or unreasonable interference with the rights and operations of Lessee under this lease, inclUding conditions prohibiting the storage of oil or gas without the consent of Lessee in any reservoir covered
31. ASSIGNMENT&. This lease or any undivided interest herein may with the approval of Lessor !,e. assigned or s.ubleased as to said land or anyone or more legal subdiviSions included therein, or any separate and distinct ~C?ne or geOlogical horizon underli'ing said land or such one or more legal subdivisions, to any person or I;ersons qualified to hpld a Icase. No transfer of any interest in thk lease including assignments of working or royalty interests. an~ opcrating agreements and subleases shall be bindIng upon Lessor unless approved by Lessor., Lessee sha~l remain liable.
for all Obligations under this lease accruing prior to the approval of such transfer. Approt.al of transfer of this lease
with Ihe regulations and must be fied within ninety days after the date of final e~ecution of the inst:ume~t of transfer. Where a transfer is made of all or a part of Lessee's interest in and to a portion of the acreage In said land the assigned acreage shall, at the option of Lessor, or may upon request of the transferee and with the approval of Lessoi:" be segregated into a separate and distinct lease having the same effective date as this lease. 32. UNITrZATION. Whcnever determined and certified bv Lessor to be necessary or advisable in the public interest lor the purpose of proerly conserving the natural resources of any oil or gas pool, field or like area or any part thereof. which includes or underlies said land or any part thereof. Lessee may unite with other Lessees of Lessor or with others owning or operating lands not belonging to Lesor including lands belonging to the United States and with others, jOintly or separately, in collectively adopting and operatinjt under a cooperative or unit agreement for the development or operation of the pool or field or like area or part thereof. Lessee shall within thirty days after demand by Lessr subscri~e t? s~ch a c~opera!ve or unit agreement, which agreement shall be reasn~ble and shall adequately prot~ct all parties in interest InCluding Lessor. Lessor may with the consent of Lessee establish. alter. change, or revoke dnIllng, prOducing, rental. minimum royalty, and royalty requirements of this lease if committed to any such cooperative or unit agreement and may make such regulations with rE'erence to this lease with the like consent of Lessee in connectioii with the institution and operation of any such cooperative or unit agreement as Lessr may detennne to be
of Lessee and with the atlproval of Lessor be segregated into a separate and distinct lease haVing the same efective date as this lease. . - ...._
lease or any portion thereof comprising one or more legal subdivisions or, with the consent of Leor, of any separate
neccsSc-iry or proper to secure the proper protection of the public interest. If a portion of said land is committed to an approved or prescribed unit agreement, the committed acreage shall at the option of Lessor and.l upon the request.
Lessor, where the transfer .covers any distinct zone or geological horizon, or (3) where Lessor determines that the discretion of best interests of Lessor justify such action. Applications for approval of a transfer under this paragraph must comply
or an interest therein wil not be denied except (1) for failure to comply with the regulations (2) in the.
33. SURRENDER. Lessee may at any time make and fie with Lessor a written surrender of all rights under this
and distinct Zone or geological horizon underlyin~ said lands or such one or more legal subdivisions thereof. Such a surrender shall be effective as of the date of flUng subject to the continued obligations of Lessee and his surety to
make payment of all royalties theretofore accrued and to place all wells on the surrendered land or in the surrendered
trom all other Obligations accrued or to accrue under this lease with respet to the surrendered lands. zones. or horizons.
zones or horizons in condition satisfactory to Lessr for suspensIon or abandonment; thereupon. Lessee shall be released
34. DEFAUL'l'; TERI\HNATJOl"~. Whenever Le :fils LO comply with an). of the provisions of lhis lease other lhan the Pdyinem-if reli.i.lli.. Lei;ee fais withn sixty days after written notice ot such default to commence to remedy
and thereafter prosecute dilgently opentfons to remedy such default, Ler may cancel ths lease if at that tle
a well capable of producing oil or gas in payig quantities. this lease may be cancelled only by judicial proceedgs. In the eve.it of any cancellation under ths paragraph, Lee shall have the right to retain under this lease any and al
there is no well on said ln ~apable of producin: oil or gas in paying quantites. If at such time there is on sad land
such retaed well or wells. 35. EXCESS ARE.:. If for any reaSIJD said land includes more acreage than the maximum permitted under aplicable laws and/or regulations, thi, lease shall not be void but the acreage ihcluded in said land shall be reduced to
If such a surrendel' is. not filed within such sixy days Lessor may terminate thi lease as to the acreage that mus be eliLessee stating the amount of acreage that must be eliated, Lessee may withn sixty days after such notice surrender one or more legal subdivisions included in said lands comprising at least the amount of acreagetbatmust be elimiated.
or wells and such ri!!hts of waJ' through said land as may be reasonably necesary to enable Lessee to dril and operate
driling or producing well as to which no default exits together with a parcel of land surroundig each such weII
the pen.tted maximum. Wnenever Lessor deterines that th .lease so exceeds the Pertted acreage and notitei
inated by maUingnotice of such lermin:ition to Leee deSCribing tie parcel or parcels eliminated. Such a notice shal
have the effect ot. ternating this lease as to the parcel or parcels descrbed in such notice
36. RIGHTS ON TEMiNATION. Upon the exiration or earlier termination of this lease as to aU or any portion of said lands, Lessee shll have the privilege at any time ""ithin a period of six months therea!ter, or such exensIon thereof as may be granted by Le.c:or, of removing frqm said land or portion thereof all machinery. equipment, tools. and materials other thun improvements needed for producing wells. Any material. tools. applianc~s. machinery, stctures, and equioment subjcc~ to removal ai; abo\'e .provided which are allowed to remain on said land or portion thereot . shall become the property of Lessor upon expiration .of such period; provided, that. Lessee shal~ remove any and all of such properties when so irected by Lesr. Stibject to the foregoing, Lessee shall deliver up said lands or such portion
37. INTE~ il "f~D. It is the intention o:f the parties that the rights vested in Lssee by tlu lease shal
tion which its interest bears to the whole and undh'ded fee.
38. LESSOR INTEREST. It. Lesor own a lesser interest in the oil and gas deposits in said land than the entire and undivided fee simple estate. then the royaltes and rentals herein provided shall be paid Lesor only in the propor-
39. CONDITIONAL LEASE. If all or a part of said land is land1that has been selected by the Lessor under lawii this lease Is a conditional lease as provided by law until such pate,lt become effeiitive. If 1.or any reason such a selection is not :finally approved or such a patent does not become effective, and .rental. royalty or minimum royaty pay_ ments made to Lessor under this lease wil not be refunded. 40. DIlILLING OPERATIONS. As used in this lease. "drillng operations" mean any work or actual operations undertaken. or commenced in good faith for the purose of carrying out .any. of the rights. privileges or duties of L~ssee under this lease, followed dilgently and ln due course by the constuction of a road or derrick and/or other necesar .sctures for the driling of an oil or gas well, and by the acj;al opeation of driling in the ground. Any such work or operations preliminary to driling in the ground may pe tiderken either on said iand or in the viiiinity of said land in any order Lessee shall see fit. 40. (a) ACTUAL DP..LIG. As used in this lease, '~actual drling" means iiny and all operations necessary or convenient to the driling of II well in the .ground after the first driling or spUdding with equipment. of suficient sie
of the United States granting lands to Lessor, but such land has nt been patented to Lessor by the United States, then
and capacity to dril to the total depth proposed for the welL.
41. RULES AND REGULATI0NS. k used in this lease "r.egulations" mean the applcable and valid oil and gas leasing regulations of the Commissioner o~ the Department of Natural Resources in effect on the effective date of
42. INTERPRETATION. As iised in this lease words which are defined in the regulations have the meaning 35signed by such definition except where the context clearly requires a di;ferent meaning. The paragraph headings are not a part of this lease and are insertea only for convenence. 43. NOTICES. Any notice required or permitted under this lease shall be in Writng and shaLl be given by reg-
~l~t~i~/LliAl~~~ue .g.Q.5..P~1lg.L:tT-.~:L............ Anchorage,when delivered A!!.n-Q:l~~....~~k~L.._......... Alaska to the 1.oregoing address. Either part may change the addres Any such notice shaH be deemed given
contained in this lease shall extend to and be binding upon the heirs, exectors, administators, successors. or assgns
to which such notices are to be sent, by a notice given in accordance with thi paragraph. 44. HEIRS AND ASSIGNS. Subject to the other provisions of this lease. the covenants. conditions. and agreements
45. WIDLIFE STIPULATIONS. This lease is subject to sich stipulations as are attached. IN WITSS WHEEOF the parties have exected this lease.
By ~~::~~~:~~RI~~~:=::::=::
..._..._--...._..A:tj,Q.:r.~Y-.-=.:jD.::~-.j;...........__......_._
STA'lE OF ALASKA
By;2........_. ...~~~~...C.:... .: ..~ '.;..
By . .~,-:~Xe:__~.L(.p~;:.r.;..-"~:_.........
~ Division Manager LESSEE
THE z:. HI..OIL..COMAni....._._......s"'._:-........._ NITED STATES OF AMERICA- )
...l.~.c ~ ~ .,....~
thE: person described in and 'Who executed ttie foregOing lease on bth'!ii or the S~te of b-i~B. 'R~ ot the DIVision ot Lands. Depart-
m.nt ot Natural Eesou.c.... or his authorb;ed a:en:. The snid......._.._~O~.:..~~_~::.._L_:......__...___...._ex.cuted ..nld leae In my
.N..tural ~ U.~~&. i _
or Nomr"l R'~n","n... or hi.. authorized a:rent. and has authority pursunnt to law 10 execute the tore.iolng I.aoe as such ~or authorized ::;;:;'t~"'ei~eha~t ::'Ilt~t~~~;t~.. fh;'i,;.~~n. sirtl~fu~~~:~~II~~dnj;~~i':~ l~e~~~s~fl':~I~la".t. ,,~ "l3~iih~'fiY~r~~~ "o1dahn"J..:'v:;.e;t~;~tt~i
_..~_ir~~:.......::.._..:..~.i:.~.~:~~:.~.~..~:.~::t~::~::::::I:t:..b;:: AJas1t~. My CommIssIon exoir.. 9 - ~ 7- L r
presence ""d. ntter behlt; duly sworn according to law, slnlr.d to me under oath that be Is 'tli. Dl. .H.. ur ih. DivisIon or Land... Dep:itmeni
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Rli8llurcr.1 lor tlt,,- li.C'aUuu "11'" type 01 ..,.ch lilruC'r)'r~ bcforo fe h rr.cted
Oil tldf! or liul.llCKed lAnd. .'I~iirrlJl:..t ,,~. h~J. (III IsppJ Stlttlonll' r.,r "yen
lOlinr: or Hic"r.) Kt:ouun:ell "lth II'*' nn~ lUlC' Iddr....1i .ut .."..It nJlent.
()) Aaura. rhllt .11 Clhiftci-urUon or de'lltll)~ni iict!vltle"
uk.: uther "",..I,y ",i.ii.iiic. pruv"hnl 'or i., thii u" aiill a." c:onlJa=rvac:lon
re&uJliilulll llt' unJ&!llid lly th... Cmi..J.HIDn~r of thL. Sliitc- of AI,,"k. Oep"ri.lnf)l
U( ll"LUr ". kl:if.uui CI'N.
I1nlit'1' Il"'~hr"rt."'ry fu 'hi: SI.Ie' It' AJ,,"k. IJ"I'..rt"i.nt tir N.harnl R.:.ource.
11;.~ltil1l( 'rlill iiuy vlul.ltlllh "r Dr ...lIl1r~ Lu (:~ply vlth n01 viilid I,UL.
lleS")'U Jun. .., 'iirll OJ flny ,."1'. 'i:.iblii 1"U..r.a "lli" '.,."ee'S rCdpon.'bli'ty
..hIiJI iil.ll C'....1I..11.IIDH "\:1.. I.' iiml":.'t,.,, ur Ii" ..~ie't,.. l'mpJnyeea. and con..
Ii.oceiii.ii.
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nij,s erratum nppl1ea to the correction5 of three typo~~l1pbtcDl error" In the State DC AIHsk.. Coinhecttlve otl and Ca, LeAse FDr... DL-l. tll of which re noted in Provbton 5. .ETENSION BY UNIT PRODUCTION. iind the one \lhlchlSs noted in Provhln 39. CONDITIONAL LEASE. The. present
expiration d8te of 8uch 'term the lease 11 committed to a unit. ..srelrnnt approved or prescribed &y Les~l-or .. provided ,In the rl:gulat1on8.. produc.tlon or oU or &8'. Is had tn paying quant1tli8 undltr the agreetDt. IlZld a portlon of uch product.on fa .Iloc.-'ed Co said land under the aKree~t.. In such
'n::rei!~rrt ~r"d ".,cilve" prod.JC:Uon undeT said agreement- b 8_llocated to said land; (b) The COlRbliJoner may. in bie d1acretton pro.vf.de for the'
even,t tlila leaae shall continue in effect eo iori~ 8. it relllna subject to 3uch
,extenllJdn of the 'terii of thie le,ne.. 1f such least' i. on the expiration date
thereof included In an .ppro\r4d unit pl.n or if it j. I.ncluded in . prograii of .econdairy recovery operation desilgned to bring .bout or restore prodc.. tlO". provided. hO\Ierl th.t If rlny le.ue .or portion ther~o is el:hdnated
operatlon.s ar., be1nR conducted thereon ami 3D lORA rhered,ter ois 011 O~ i.a3 19 produced tn ""71"3 qultn t (t J 1:3 .
t.oue in full force and efect for nJnety (90) ;iaya frori the date of out:h el,hdnitlon or terrdnat:on God 80 long thereafter sa dE'lJJnjt or rt:drllllns;
)9~ CODITIONAL 1.SL 11 all or _ li/U.t u1' 3.id !.rid 1s iand,
fi-ofA .uch unit plan Dr rt!CDvery progr.m. 01 1 such untt phn or recovery prog,i-i- 19 terlDinated. then u!!" ouch lease Dr poreton thereof .hall COI.-
that has bt"eh selected by the le:t.uc under )a"" of th~ UnIted State, Krntln~ bods Co 1.1:38or. bllt .uch land hll3 not been patented to Les_or by the
UlIJ(C'd Stnte:r. the" rhl. lese h .. condh:Jonnl IcoRe ad! provided by law until such i..cent b~c:um etfectl.vl!. II ror an)' re..on iluch & 8election 11
royalty or ml.nblU' cuy"lty pliinent. inadce to Le:uor under thb lea.e 'Wtll not
be refunded..
not lnally "pproved DC :iuch " patent does not bee-oiiie ~llecc:1ve. ii!.,. retal.
, "1/.. .) i
1'". t.iil .! .i.i.i .'.. -it. .
:ir.(1-' t.6u.L
THE
Kf
1&63
/(73
VOLUM 1
Bruce M. Krer
Madx Professor of Law Emeritus
Lubbock. Texa .
Patrick H. Marn.
Campanile Professor of Mineral Law Paul M. Heb.t:rl Law Center . . Louisiana State Universit Baton Rouge,. Lquisiana
2008.
OJ':' . Filed Through: RELEASE NO. 38 ocOBER 2008
.. LexisNexis.
EXHI.'BIT F
6-9
REGULATORY PROGRAMS
6.o
11-15.
the unitized area there may be many spacing, drilingi or pooled units. Unitizationi as discussed earlier, is designed to maximize production by draining the reservoir utilzing the best engineering techniques efficiently' that are economically feasible. While unitization in many cases is in the
best interests of all of the parties, voluntary unitization of all the owners has ~en difficult to attain.22 As a result, all producing states, except for Texas, have adopted a compulsory unitization statute that allows the state conservation age~cy to unitize minority interess who have chosen not to voluntarily
encompass only one statutory provision, compulsory unitization statutes cover more sections and. are lengthier and more complete. As with the compulsory pooHng statutes, the compulsory unitization process is initiated
by.the submission to the state conservation agency of detailed plan.24 In
some statesi compulsory unitization can be used for specific purposes onlyi such as recycling operations or secondary recovery operations; l1 but the
UThe problems Inherent in getting voluntary unitization of a common source of supply are shown quite dearly in Western. Gulf Oil Co. v. Superior Oil Co., 92 Cal. App. 2d 299, 20& P .2d 944 (1949), where a voluntary plan that would produce an additional $1 &6 milion
in oil and gas could not get unanimous approval by all of the owners in the proposed unitized
area. 23 For some representative compulsory unitization statutes, see, e.g, ArK. Code Aiin. 15-72-308 to 15-72-315; Cat Pub. Res. Cod 3640 et se.; Kan. Stat. Ann. 55-1301
.et seq.; La. Rev. Stat. Ann. 30:5; Miss. Cod Ann. 53.3-7; N.M. Stat. Ann. 70-7-1 et se.; Okla. Stat. Ann. tit. 52, 287.1 et se.; Wyo. Stat. 30.5-110. Texas, although lacking in a compulsory unitization statute, has accomplished many of the statutory goals by using innovative administrative orders relating to poolwide development. For a thorough history of the Railroad Commission's surreptitious compulsory
unitization program, and the political reasons for the lack of a compulsory unitization statute,
. ~e j. Weaver, Unitzation of Oil and Gas Fields in Texas: A Study (0 Legislative, Administrative and Judicial policies (198&).
24\n most states the minimum requirements for the petition are set out In great detail. Thes normally include a list of persons having interests in the unitized area, a unitization and unit
operating agreement, an accurate map, and substantial geological and engineering data. Se,
~_"Co.1""1
lRL2-llm PI.oI5)
6.02
POLING AN UNITATION
6-10
majority of sttes authorize compulsory unitization in order to prevent waste,. increase the ultimate amount of hydrocarbons recovered, avoid the driling of unnecessary wells, and/or protect correlative rights.- The North Dakota
compulsory unitization law provides a goo example of broad authorization
necessary, under the circumstances and for the purposes hereinafter set out, to authorize and provide for unitized management, operation,
and further development of the oil and gas properties to which .secions
prevented, the drilling of unnecessary wells eliminated, and the correlative rights of th~ owners ina fuller and more beneficial oil and gas nghts to be proteced.27 enjoy~ent of the.
One of the requirements that must be met is the identification of the common source of supply, which is going to be unitized either partially or in its entirety. In most cases, th~ state conservation agency must make a
specific.finding that a common source of supply exist and that the unitized
28
area encompasses that common source.
aD Jones Oil Co. v. Corporation Commission, 382 P.2d 751, 18 O.&G.R. 1041 (Okla.), cer. denied, 375 u.s. 931,19 O.&G.R. 32 (1963).
30 See also Palmer
Oil Corp. v. Philips Petroleum Co., 204 Okla. 543, 231 p.id 977 (1951),
appal dismissed sub nom. Palmer Oil Corp. v. Amerada Petroleum Corp., 343 U.s. 390,
(R-1J 1'.4S5)
6-11
REULATORY PROGRAMS
6.02
of an
agency ordel the interphase between the public interest and the private parties is oftentimes unclear. In the first decision in Frey v. Amoco Production Ca.,30.i the plaintiff sought to apply the Louisiana Public Record Act30.2 to
Amoco, the unit operator of the Morganza Field since Amoco had been
designated unit operator by virtue of a Commissioner of c:onservation order. Th plaintiff was seeking information regarding production figures, production costs and royalty payments. The court found that Amoco's status as a
stat-designate unit operator did not make it either a "public body" or a "custodian" of public records under the Act. The later iterations of Frey
relating to the lessee's obligations to pay royalty on take-or-pay or settlement monies did not discuss the public records issue.
With few exceptions,31. compulsory unitization statutes require the applI-
cants for an order to show that a minimum percentage of the working interest . owners within the pmposed unitized area have consented to the unit agreement. Many states require approval of the unitization plan by owners of 75 percent of the working i.nte.rest before the state conservation agency wil force-uniti.ie the remaining interests, although other percentages range from 62.5 percent in Nevada to 85 percent in Mississippi.32 Under certin
. No order of the Commission creating a unit . . . shall be effective unless and until the
plan of unitization h.as ben signed, or in wnling ratified or aproved by lessees of record
of net less than sixty-three per cent (63%) of the unit area affectd thereby and by owners of record oi not less than sixt-three percent (63%) (exclusive of royalty interests owned by lesses or by subsidiaries of any lessee) of the normal one-eighlh (1/8) royalty interest in
Nevada prvides the low minimum r~.qjrement of 62-1/2 percet, Nev. Rev. StaL 522.0834(1)(a),
while Mississippi provides the high ilnimum requirement of 8S percnt. Miss. ('..e Ann.
53-3-107. .
and to th unit area. . . Okla. Stat. Ann. tit. 52, 287.5.
33 Gilmore v. Oil and Gas Conseralion Commission, 642 P.2d 773, 75 O.&G.R. 172 (Wyo.
1982). .
(Rl. 31.llV1 r.bAS5)
6.02
6-12
in Kidd v. Jarvis Drillng, Inc.34 While the statutory provisions for compulsory
unitization are quite short and general,3l the Tennessee Oil and Gas Board has promulgated regulations that fill in the blanks. Before the Board may
issue a compulsory unitization order, it must find that: 'unitization (1) is necessary to conserve the State/s natural resources, (2) wil prevent waste of oil and gas and the driling of unnecessary wells, (3) wil appreciably increase the ultimate recovery of oil and gas from the affeced poot (4) is economi-
cally feasible, and (5) wil protect the correlative rights of both landowners. and owners of mineral interests."34 Furthermore, the Board must find that the
unitization plan .assures that the owners of the separate tracts receive their just and equitale share of the recoverable oil and. that the cost of production
is proportionately allocated.37 Somewhat unusually for compulsory unitization, the Board imposes a risk penalty of between 150 and 350% for those working interest or unleased. mineral owners who do not consent to pay their
allocble .shart of the costs of the unitized projec.38 tn addition, the Board
they differ in the amount of information that must be provic!ed to tpe state
CHAPTER 17
Voluntary Unitization
SYNOPSIS
17.01
17.02
(2J Defiitions
(3) Unit Creation.and Effect
(14j Indemnifcation
(iSl Exnsion or Contraction of the Unit Area
(16) Preferentil Right to Purchase
17.03
Statutory Approval
(1 Texas
(21 Uta
(31 Wyoming
17-1
17.01
POLING AN UNITIZION
17-2
more parties who own interest within th unit the more diffcult it is to
secure final agreement on all of the vital terms of the unitization agreement
and the unit operating agreement. Before unitization can be achieved,
substantial amounts of geological, geophysical, economic, fiiiancial, and other data must be collected and digesed to see if the unitization project is feasible.
. The. unitization idea may come from a petroleum geologist, a reservoir engineer, or other offcial of a working interest owner. In some cases the impetus for voluntary unitization agreements has come from external
sources such as a state cons~rvation agency. The Railroad Commission's l!se
of "no-flare" orders to encourage voluntary unitization of several fields in Texas has been well documented.2 However, in most cases, it wil be the working interest owners who wil initiate the discussion of the need for unitization. Following the informal discussions, if a consensus appears
showing an interest in the concept of unitization, then a more formalized . structure ma)" be created. At this time all working interest owners, regardless
of size, should bE! contacted becuse it is important to control as much of the
1 The literature on volunta unition is volumious. See. e.g., 6 P. Main & B. Iainer.
Willams & Meyer Oil and Ga Law. 921.-921.6 (LexisNexis Mattw Bende) lberete
Williams & Meyers Oi and Gas Law 1; R. Sullvan, Hanbok of on and Gas Law. 337-431 (1955);
. Dogget. Practical Legal.Problems Encountered in the Fonnaion,. Operaton 0111 Dissolutin of
Fieldwid Oil an Gas Units, I, II & l1. 16 Okla. L. Rev. I. 124.189 (1963. 1964); Kirk, Conten.
of Royqlty Owners' and Operators' Unitization Agreements. 3 Sw. Legal Fdn. Oi & Ga Inst. 19
(1952); Roark, Matters of Mutual C01em to the Lawyer and Engineer li Iie Unitization
Agreement. 7 Sw. Legal Fda. Oil & Gas lnst. 275 (1956); Willams. Th Neg.oriaiion and
Preparaono/Unjtization Agreements, I Sw. Legal Fdn. Oil & Ga Inst 43 (1949); Fred E. Shantz.
La's ConiributiD in a C02 Flood Project. 45 Laman. 57-63 (Mar/iAprl 200).
For an excellent analysis of unitizaon outside of the United Stas seeJacueline Lan Weaver
& David Asmus. Unitizing Oil and Gas Fields Aroun the World: A Comparative Analysis of Narional Laws and Private Contracts, 44 Rocky Mln. Min. L. Fdn. J. 35 (2007).
2 See generally J. Weaver. Unitizaion of Oil and Gas Fields iii Texa; A Study of Legislative.
Administ..uive and Judicial Policks (1986). For other instances in which UJe courts have viewed
Stat agencies as encouraging voluntar unitization agreements. see Dobson v. Arkaas Oil & Gas Conu'n, 218 Ark. 160, 235 S.W.2d 33 (1950); Union Pacific R.R. v. Oil & Gas Conservation
Comnln, 131 Colo. 528. 284 P.2d 242.4 O.&G.R. ii79 (1955); Mobil Oil Corp. v. Slaie Corp. 227 Kan.594. 660.&G.R. 19.608 P.2d 1325 (1980); Republic Naiuml Gas Co. v. Baker. Comm'n,
197 F.2d 647, 1 O.&GK 1142 (lOth Cir. 1952); Halbouiy v. Rairoad COnu'D. 163 Tex. 417. 5
Te;i. Sup. Ct. J. 246, 357 S.W.2d 364. 16 O.&G.R. 788 (1962), cerro denied sub nom. Dilon v. Halbouty, 371 U.S. 888, 83 S. Ct 185,9 LEd 2d 122. 17 O.&G.R. 173 (1962).
'JM.3.I0fOU7 l'b.55)
17-2.1
VOLUNTARY UNITTION
17.01
;;:.
When unitization moves from the initial decison phase, a technical committee is usually created in order to develop the necessary geological and technical information that will be needed to make the ultimate decisions
regarding the unit
(Tex continued on page 17-3)
3 See generally. Wiliams, The NegotiatUJn & Preparation of UnitiZttUJn Agreements, J Sw.
Legal Fdn. Oil &. Gas. JnsL 43, 72-76 (1949) for th thoughts of lI expeence oil-company
attoniey on th~ neotiation and pi:eunitzaon agreement pr.oc.
17-3
VOLUNARY UNmZATION
17.01
legal subcommittee, to deal with any of the issues that might arise as to the statutory requirements for voluntary unitization
approval or compulsory unitization. In .addition, the inclusion
unit, the royalty owner may stil need to be informed:' Informed royalty owners are less likely to hold out or to fight the
proposed unitization. Again, th~ fewer the holdouts, the more
th~t unitization agreements are primarily either of the development type or the operational type.' The development unit4 See Amoco Producion Co. v. Jacobs, 746 F.2d 1394, 83 O.&G.R. 82 Ooth Cir. 1984), in which the Tenth Circuit in a cryptic and poorly wrtten . opinion suggests that a lessee who holds the power to uo.itize the lessors interest must seek out the lessor, inform him or her of the negotiations and
.
the terms of the proposed unitizatin agreement, and solicit his or her inpui.
in order to meet the lessee's good-faith obligations under the unitization
clause. .
Most leass do nol. authorize the fessee to unitze the lessor's interest. . There are some leas~ fonns in use in the Rocky Mountain area, however, that do empower the lesse to unitize the royalty interest. S In Kirk, .Contents of Royalty Owers' and Operators' Unitization Agreements,'! 3 Sw. Lesal Fdn Oil & Ga5 Inst. 19, 24-29 (1952), he describes four
different type of unit plans. They are (1) secondary recovery, (2) new developed pool, (3) partially develope pool, and (4) Benton. The secondary recovery plan is self-explanatory; the plan is designed to achieve some form
of enhanced recovery project that cannot take place without unit opera....._w
tions. The new developed pool plan Is one in which a large number of wells have been drilled according to the appropriate spacing rules, and the plan
wil be designed primarily to prevent a loss of reservoir pressure so that primary production techniques can be utilzed to the greatest extent possible. Th partially developed pool plan occurs even earlier, prior to the full characteristics and nature of tlie reservoir becoming known. Again, the purpose
is to extend primary production effciencies through the overall maintenance
of resrvoir pressure. The.Benton Plan provides for unitization immediately
afer a pool is discovered and is much like the federal exploratory unit in that, as new wells are drilled, participating areas expand and more owners share in the production.
(ReI. 18-10/89 Pub.4SS)
.or
17-4
ization plan presumes early unitization. for the purpose of per.t milling. rapid but systematic development of a reservoir. Some
feel that the differences are somewhat minimat essentially dealing with the greater lack of information on the reservoir.
The exploratory unit merely gives the engineers and geologists
. more lead time to most effciently drain the reservoir, without
having to. worry about individual leasehold operations. The operational unit is one designed to permit some conservation m~asures .to be applied to the reservoir and usually occurs at
or .near the end of the primary production regime.' In either event,' royalty- and working-interest owners wil be attempting to negotiate a unit or unitization agreement that wil allow for the unitized development of all or part of the common sour.ce of supply. lnaddtion, the working-interest owners wil be negotiating a unit operating agreement, which wil cover the allocation of driling and development costs, as well as the delegation ()f decision-maki.ng power to one or more of the working-int.erest owners. Model-unit agreements ~nd unit-operating
known. The operational unit agreement stil requires forecasts, not about the. underground conditions that are fairly well known, but about the impact of the enhanced recovery operation that is being planned to increase or maintain production
levels from the reservoir. In many cases, the various working-interest owners. create some form of working committee
that develops the information and acts as a conduit for infor-
found in 7 H. Wiliams & C. Meyers, Oil & Gas Law 920.1 et seq. (1988).
(RtlI8-10/89 Pub 45S)
II
17-5
17.01
l,'
the decision-making process from all affected parties, rather than the major owners in the field.
showing proposed boundaries. Parties to the negotiations may have their own views as to what should be included and what
should be excluded. The geological and financial data may drastically change depending on the configuration of the unit-
ized area. If particular parcels are omitted, the entire enhanced recovery project may be rendered geologically or economically infeasible. Projections and forecasts must be made
based on an accurate prediction of what lands wil be included .within the unit. Owners of essential tracts undoubtedly wil hold out for special benefits since exclusion of their acreage wil be critical to the success or filure of the unit. This is espeCially true of operational units in which the underground. conditions are well known, and the engineers nd petroleum geologists can agree on an optimum enhanced recovery project. In operational units. there is also a tendency to exclude
. ~flank tracts," meaning those tracts that are imm.ediately adja.cent to the outside producing wells.' A problem arises be-
cause these .tracts have not been developed, but they still may have value either because of the reserves they contain or because they may be useful in the "injetion program that is be-
ing planned for the unit. In addition, leaving the flank tracts outside of the unit, may allow them to benefit from the enhanced recovery project that wil take place within the unit
. boundaries.'
The boundaries problem for a developmental and explor~
& See Roark, -Matters of Mutual Concern to the lawyer & Engineer in the
Unitization Agreement/ 7 Sw. Legal Fdn Oil & Gas Inst. 275, 276-279
(1956).
'There is also a problem with an injection program that uses wells near the external boundaries of the unit area, which may damage the adjacent
surface or mineral estate. The problems caused by unitized activities that injure non-unitized lands is discussed at Chapter 23 infra.
rRd 18-1G89 Pub 455)
17.01
17-6
unit~.lO The first, which is probably the most unsatisfactory, limits the original unit area to the areas immediately surrounding the existing wells. As new wells are driled and attain productive capabilty they are admitted to the unit. This method
has several weaknesses, since there is nothing that can force . the operator of the new wells to join the unit. It also loses the potential of driling the field in the most effcient means possible. The second method is one that has been adopted by the
federal government for the creation of exploratory units on federal oil and gas leases. It The federal exploratory unit. agreement deals. with the lack of information by having a widely in-
are driled and geological information becomes available. Thus, all of the lands that can be reasonably included in the unit area
are included, although the undrmed.areas neither share in the benefits or cost of unitized production until such time as a
well is driled, confirming the existence or. non-existence of
unitized substances.. The unit agreement in tl)ese cases must be carefully drafted to exclude immediately all barren acreage
from the unit as soon as the evidence points to a lack of unitized substances beneath. the surface..
.federal exploratory unit, n the Benton Plan unit, all unitized owners share immediately in the costs and production from the unit rea. This would include undriled parts of the unit.
The possibilty of barren acreage, or acreage that is substantially more or less productive than other tracts, is dealt with by
10 The three methods of unilization are discussed at Roark, "Matters of
Mutual Concern to the lawyer & Engineer in the Unitization Agreemen.t," 7
Sw. Legal Fdn Oil tI Gas Ins;' 275,276-279 (1956). J1 See 16.02 supra. 12 See generally Kirk, .Contents of Royalty Owners' and Operators' UnItization Agreements," 3 Sw Legal Fdn Oil & Gas Inst. '19, 28-29, 52-58
(1952).
IRd.18-10/89 Pub.5S)
11-1
VOLUNARY UNATION
17.01
use of an adjustable participation formula that changes tract alloction as new information is received from the driling program. In addition, the agreement should allow for the exclusion of acreage proven to be barren as soon as that information becomes available. In many cases, the initial participation
formula may be based on surface acreage, changing- in time lo a multi-factor formula that better represents the underground conditions in the unit. 13
to deal with secondary recovery operations, the true benefits of unitization accrue when the unitization comes as early as possible. Ever since A.L Doherty began railng against the abominations of the rule of capture and extollng the benefits of unitization, it has become increasingly clear that the earlier
the unitization the.greater the savings to all parties. In the first
annual meeting of the Oil and Gas Institute of The Southwestern legal Fnur)dation, which was dedicated to the concepts of
pooling and unitization, the following questions were rhetorically posed about the costs of not unitizing or unitizing late in
the game. They stil ring true today: Why launch into a competitive and wasteful program of driling an excessive number of costly wells in a pool,
Why lay duplicate water, fuel and gas gathering systems, build duplicate warehouses and duplicate everything else when ultimately you plan to unitize and wil
consolidate all such systems and installations?
energyi hear the vented gas as it goes to the air and suf13 See infra 17.02(5) for a discussion of participation formula.
17.01
17-8
fer al/ the other disadvantages of competitive cupidity, all with the thought of later going in and, in part nly and at great expense, repairing. damage that should
never have occurred in the first place?
Why wastefully blow gas to the air expecting to later buy.back replacement gas at a high figure?
Why follow a program of pressure depletion, followed by an artificial repressuring of the formation?
Why not adopt a program of unitized pressure maintenance instead, making full use of the natural pressure?
Why cn:petitively produce edgewater wells or wells close to water, accelerate channeling or create needless problems of-water disposal and pollution when it would
be to the advantage of the reservoir to leave such wells
The need for early and equitable unitization agreements is as important today as it was then and as it was in the i 920'5
and 1930's. Unitization agreements are often diffcult to negotiate because of the fractionalized ownership pattern that
plagues the oil and gas industry. The more parties to the
agreement, the more difficult it becomes to reach a universally satisfactory solution to the many problems of unitized rather
. than leasehold development. The following section. reviews
19.01(3)
19-42.2
does not cause the subdivided tract to be labeled as a legal subdivision .and
thus entitled to a well without an exception permit. In this case, Exxon was challenging the issi,ance of a replacement well on a 40 acre legal subdivision
that had been pooled into a i 60 acre unit The.court did not directly respond to the cross-conveyance argument made by Exxon beause the Commission had issued the well permit under Rule 38(d)(1) allowing legal subdivisions to
drill a "first well" without the need for. an exception permit In theory,
however, if a poling is treated as a cross conveyance, the ownership in the pooled unit destroys the prior unitary ownership of the legal subdivision and would not allow a welf.be to driled without receiving an exception permit.
(3) Effect of
Express Provisions
In many of the cases discussed in this chapter, the court were searching for the elusiv.e intent of the parties, which was often not stated expressly in the Instrument that pooled or unitized the affected interests. The court in those case were lookingto see if the parties intended to cross-convey interests or
unitization agreement or community lease. For example, if in Texas, the parties to a voluntary unitization agreement included the standard provision
suggested
ment that states, "Nothing. herein shall be construeQ to result in the transfer of title to Oil and Gas Rights by any part hereto to any other part or to Unit
Operator," then the Texas court should enforce that provision and find no cross-conveyance of interests. 85 likewise, if in a contract doctrine state the parties inserted a provision clearly evincing an intent to cross-convey royalty and working interests, the courts should enforce the agreement as written.
The cases that deal with these express agreements follow the terms of the
agreement, rather than rely on the common-law choice made by the court
to deal with the agreements that are silent on the choice to be made. 86
8S The Amenca Petroleum Institue's various Model Unit Agreements and Unit Operating
Agreements are locted in Volume 3 iiifra. !I Leo Hoffman argued vigorously that the paies could avoid the result of the cross-conveyance
dotrne in Texas, but ils conclusion would also work in cotrCt doctrine siates should the partics
. intend to cross-convey theirinteresis. He said: 'There can hardly be any objection in the law to such an expre agreement that the pooling or uniti7.aon shall not constitute an exchange or iransfer of real propey interests. Preumably such a provision is valid, and, therefore. dlcx!Ive for tlie purpose
19-42.3
.11:
UNZED TITLE
19.01(3)
Before discussing the cases a few caveats need to be added to the. above
analysis. While partes are free to determine their own rights under many
circumstances, they are not free to do so und~r all circumstances. For
example, if the partes to a unitization agreement. merely state that the
19-3
UNITIED TIE
19.0131
violate the R~le Aginst Perpetuities or that nothing that the agreement accomplishes is intended to violate the rule, that agreement is dearly not binding on a reviewing court that wil have to make its own independent determination on whether
or not the rule has been violated. Likewise, a provision decaring that a1l covenants contained in the contrat are real covenants that touch and concern the
affected estates is not binding on a court that wil likewise have to determine independently whether the agreement otherwise contains the mini-
.. ship between the parties, may not be effective means of achieving the desired result. The drafter of pooling and unitization agr~ements or community leases should take care that
the language clearly would show a court what result the parties intend, whether it be a cross-conveyance of propert interests or, as is more likely, merely the creation of certin contractual rights. A provision such as the A.PJ. form analyzed above, shoul be suffcient to achieve the purpose of treating
the nature of the unitized title as creating only contractual
One of the earliest cass recognizing the rights of the parties to structure their own relationship was Phillips Petroleum
(ir. 1954), eM. denied 349 U.S. 947, 1178 (1955). See 19.01 (2)blLi supra for a discussion of the Peterson case. .
(ll8-tOlS9 Pi4SS)
In re: )
STATE OF DELAWARE )
) ss:
)
Case No. 09-10785 (KJC)
Debtors. )
(Jointly Administered)
Debtors in the above-captioned action, and that on the 2th day of August, 2009 she caused a
copy of
the following document(s) to be served upon the parties on the attached service lists in
Reply Brief of Debtors to Objections to Alternative Motion of Pacific Energy Alaska Operating LLC for an Order Authorizing Abandonment of Interests in Oil and Gas
Properties at Trading Bay, Alaska and Rejection of Executory Contracts Relating
Thereto
~lL~
Kathl orte Finlayso
MARY E. CORCORA
NOTARY PUBLIC STATE OF DELAWARE
ttf/rJ
i The Debtors in these cases, along with the last four digits of each of Energy, Inc. (9487); and Gotland Oil, Inc. (5463). The mailing address for all of
the Debtors' federal tax identification number, are: Pacific Energy Resources Ltd. (3442); Petrocal Acquisition Corp. (6249); Pacific Energy Alaska Holdings, LLC (tax J.D. # not available); Cameros Acquisition Corp. (5866); Pacific Energy Alaska Operating LLC (7021); San Pedro Bay Pipeline Company (1234); Cameros
the Debtors is ILL W.
Ocean Boulevard, Suite 1240, Long Beach, CA 90802.
Pacifc Energy/Objectors to
Hand Delivery (Counsel for Union Oil Company of California, a California Corporation) Norman M. Monhait, Esquire
Rosenthal, Monhait & Goddess, P A
Citzens Bank Center, Suite 1401 919 Market Street, P.O. Box 1070 Wilmington, DE 19899
Maria Aprile Sawczuk, Esquire Stevens & Lee PC i 105 N. Market Street, Ste 700 Wilmington, DE i 9801
Via Overnight Delivery (Counsel for Union Oil Company of California) Richard L. Epling, Esquire David A. Crichlow, Esquire Roger Elder, Esquire Pilsbury Winthrop Shaw Pittman LLP 1540 Broadway New York, NY 10036
Overnight Delivery (Counsel for State of Alaska) Lorenzo Marinuzzi, Esquire Samantha Martin, Esquire Morrison & Foerster LLP
1290 A venue of the Americas
14 - Hand Delivery
09 - Express Mail
34 - Overnight Delivery
Hand Delivery (United States Attorney) Ellen W. Slights, Esq. United States Attorney's Office District of Delaware
1007 N. Orange Street, Suite 700
Wilmington, DE 19801
Hand Delivery (Counsel for the Debtors and Debtors in Possession) Ian S. Fredericks, Esquire Skadden Arps, Slate, Meagher & Flom LLP One Rodney Square P.O. Box 636 Wilmington, DE 19899 Hand Delivery (Counsel for 1. Aron & Company) Don A. Beskrone, Esquire Amanda M. Winfree, Esquire Ashby & Geddes, P.A.
500 Delaware Avenue, 8th Floor
Counsel for Debtors) Laura Davis Jones, Esquire James E. O'Neil, Esquire Kathleen P. Makowski, Esquire Pachulski Stang Ziehl & Jones LLP 919 North Market Street, 17th Floor P.O. Box 8705 Wilmington, DE 19899-8705
Interoffice Pouch to Los Angeles Counsel for Debtors) Robert M. Saunders, Esquire Ira D. Kharasch, Esquire Scotta E. McFarland, Esquire Pachulski Stang Ziehl & Jones LLP
10100 Santa Monica Blvd., 11 th Floor
Wilmington, DE 19899
Hand Delivery (Counsel for Union Oil Company of California, a California Corporation) Norman M. Monhait, Esquire Rosenthal, Monhait & Goddess, P A
CitZens Bank Center, Suite 1401
Hand Delivery (Counsel for Oxy Long Beach Inc.) David L. Finger, Esquire Finder, Slanna Liebesman, LLC One Commerce Center
1201 N. Orange St., 7th Floor
Hand Delivery _
Wilmington, DE 19801
Hand Delivery
(Official Committee of
Unsecured
Creditors) David B. Stratton, Esquire James C. Carignan, Esquire Pepper Hamilton LLP
Hercules Plaza, Suite 1500
Hand Delivery (Counsel for Forest Oil Corporation) Robert J. Dehney, Esquire
Curis S. Miler, Esquire
Morris Nichols Arsht & Tunell LLP 1201 N. Market Street Wilmington, DE 19899
Express Mail
Secretary of State Division of Corporations Franchise Tax P.O. Box 7040 Dover, DE 19903
Hand Delivery (Counsel for Marathon Oil Company) Kevin J. Mangan, Esquire Womble Carlyle Sandridge & Rice, PLLC 222 Delaware Avenue, Suite 1501 Wilmington, DE 19801 Hand Delivery (Counsel for Cook Inlet Region, Inc.) Eric Lopez Schnabel, Esquire Dorsey & Whtney (Delaware) LLP
1105 North Market Street, Suite 16th Floor
Express Mail
Secretar of Treasury
Express Mail
Internal Revenue Service P.O. Box 21126 Philadelphia, P A 19114-0326
Wilmington, DE 19801
Hand Delivery (Counsel for Area Energy LLC) Norman L. Pernick, Esquire Karen M. McKinley, Esquire Cole, Schotz, Meisel, Forman & Leonard,
P.A.
Express Mail
line P.O. BOX 1360
Pollard Wire
Kenai, AK 99611
Express Mail
SWEPI LP
Express Mail
Linda Lautigar
Overnight Delivery (United States Attorney General) Eric H. Holder, Jr. Office of the Attorney General U.S. Department of Justice 950 Pennsylvania Avenue, N.W. Washington, DC 20530-0001
Overnight Delivery Secreta of Treasur 15th & Pennsylvana Avenue, N.W. Washington, DC 20220
Banptcy Coordinator
MMS / Denver Federal Center POBox 25165 Mail Stop 370B2 Denver, CO 80225
Express Mail
Kristina Engelbert RDI Royalty Distributors, Inc. PO Box 24116 Tempe, AZ 85285
Overnight Delivery
Attn: Insolvency
Express Mail
(Claims representative for the County of Kern)
Att: Banptcy Division
District Director Internal Revenue Service 31 Hopkins Plaza, Room 1150 Baltimore, MD 21201 Overnight Delivery Attn: Insolvency Internal Revenue Service 1352 Marows Road, 2nd Floor
Newark, DE 19711-5445
Overnight Delivery Mark Schonfeld, Esq. Regional Director Securities & Exchange Commission New York Regional Offce 3 World Financial Center, Suite 400 New York, NY 10281-1022
Overnight Delivery Michael A. Berman, Esq. Securities & Exchange Commission Offce of General Counsel-Banptcy
100 F Street, N .E.
Washington, DC 20549
Overnight Delivery
Matthew Berr, Esquire
Overnight Delivery MTGLQ Investors, L.P. 85 Broad Street New York, New York 10004
Overnight Delivery Goldman Sachs E&P Capital Attn: Matthew C. Tarer 1000 Louisiana, Suite 550 Houston, Texas 77002
Washington, DC 20554
Overnight Delivery Chevron Oil Company
Attn: Steven Lastraps
Overnight Delivery Aera Energy LLC 10000 Ming Avenue Bakersfield, CA 93311-1164
Overnight Delivery
Noble Energy, Inc.
Greenwich, CT 06830
Chicago, IL 60606-1720
Overnight Delivery (Counsel to United States Deparment of Interior, including the Minerals
Management Service)
E. Kathleen Shahan, Esquire U.S. Deparment of Justice 1100 L Street, NW Washington, D.C. 20005
Overnight Delivery (Counsel for Westchester Fire Insurance Company) Robert McL. Boote, Esquire Ballard Spah Andrews & Ingersoll, LLP
1735 Market Street, 51 st Floor
Philadelphia, P A 19103
Overnight Delivery (Counsel for Rosecrans Energy, Ltd. And Sherwn D. Yoelin)
John J. Haris, Esquire
Overnight Delivery
(Official Committee of
Unsecured
Rachel M. F eiertag, Esquire Meyers, Nave, Riback, Silver & Wilson 333 South Grand Avenue, Suite 1670 Los Angeles, CA 90071
Baltimore, MD 21209
Overnight Delivery
(Counsel for Noble Energy Inc.) Rhett G. Campbell, Esquire
Anchorage, AK 99501
Overnight Delivery (Counsel for the State of Alaska) Lorenzo Marinuzzi, Esquire Morrison & Foerster LLP 1290 Avenue of the Americas New York, NY 10104
Mitchell E. Ayer, Esquire Thompson & Knght LLP 333 Clay Street, Suite 3300 Houston, TX 77002
Overnight Delivery
(Official Committee of
Unsecured
Creditors)
Francis 1. Lawall, Esquire
Pepper Hamilton LLP 3000 Two Logan Square Eighteenth & Arch Streets Philadelphia, PA 19103
Overnight Delivery
(Official Committee of
Overnight Delivery (Counsel for DCFS Trust subservicer for DCFS Trust) Marin A. Mooney, Esquire Deily, Mooney & Glastetter, LLP 8 Thurlow Terrace Albany, NY 12203 Overnight Delivery (Counsel for Aera Energy LLC) Steven E. Rich, Esquire Mayer Brown LLP
350 South Grand Avenue, 25th Floor
Unsecured
Joshua Taylor, Esquire Steptoe & Johnson LLP 1330 Connecticut Avenue NW Washington, DC 20036
Overnight Delivery (Counsel for Union Oil Company of California) Richard L. Epling, Esquire David A. Crichlow, Esquire Roger Elder, Esquire
Pilsbur ~inthrop Shaw Pittman LLP
Overnight Delivery (Counsel for Minerals Management Service) DeAn L. Owen, Esquire
Office of
Region
755 Parfet Street, Suite 151
Lakewood, CO 80215
Overnight Delivery (Counsel for Amadon Limited and Catherwood Limited) Philip M. Abelson, Esquire
Dewey & LeboeufLLP