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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Law Offices of James B. Gottstein v. State, Dept. of Natural Resources, Division of Oil & Gas (1/22/2010) sp-6452
Notice: This opinion is subject to correction before
publication in the Pacific Reporter. Readers are
requested to bring errors to the attention of the Clerk
of the Appellate Courts, 303 K Street, Anchorage,
Alaska 99501, phone (907) 264-0608, fax (907) 264-0878,
e-mail corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
| LAW OFFICES OF JAMES B. | ) |
| GOTTSTEIN, | ) |
| ) Supreme Court No. S- 12942 | |
| Appellant, | ) |
| ) Superior Court Nos. 3AN- 06-06003 CI | |
| vs. | ) 3AN-06- 08094 CI |
| ) | |
| STATE OF ALASKA, DEPARTMENT | ) |
| OF NATURAL RESOURCES, | ) |
| DIVISION OF OIL & GAS, | ) |
| ) | |
| Appellee. | ) |
| ) | |
MONTE J. ALLEN and )
DANIEL K. DONKEL, )
) Supreme Court No. S-13096
Appellants, )
) Superior Court Nos. 3AN-05-
09272 CI
vs. ) 3AN-06-08419
CI
)
STATE OF ALASKA, DEPARTMENT ) O P I N I O N
OF NATURAL RESOURCES, )
DIVISION OF OIL & GAS, ) No. 6452 - January 22,
2010
)
Appellee. )
)
Appeal from the Superior Court of the State
of Alaska, Third Judicial District,
Anchorage, Craig F. Stowers, Judge.
Appearances: James B. Gottstein, Law Offices
of James B. Gottstein, Anchorage, for
Gottstein Appellant, Christopher M. Brecht
and William M. Bankston, Bankston Gronning
OHara, P.C., Anchorage, for Donkel and Allen
Appellants. Richard J. Todd, Senior
Assistant Attorney General, Anchorage, Talis
J. Colberg, Attorney General, Juneau, for
Appellee.
Before: Fabe, Chief Justice, Eastaugh,
Carpeneti, Winfree, and Christen, Justices.
WINFREE, Justice.
I. INTRODUCTION
Interest holders in an oil and gas lease appealed to
the superior court from three final agency decisions relating to
the lease. The superior court affirmed the agency decisions and
the interest holders separately appealed to us, arguing that:
(1) they were wrongfully denied an agency hearing on the first
agency decision; (2) the first agency decision is insufficient
for appellate review and otherwise lacks sufficient findings or a
reasonable basis; (3) the other agency decisions should be set
aside because of the deficiencies in the first agency decision;
and (4) the superior court should have conducted a trial de novo
on the agency decisions. We consolidated the separate appeals
and now address the appellants contentions below, affirming the
superior courts decision to uphold the agency decisions without a
trial de novo.
II. FACTS AND PROCEEDINGS
A. Facts and Administrative Proceedings
This case arises from a Cook Inlet oil and gas lease
issued by the State of Alaska, Department of Natural Resources
(DNR), Division of Oil and Gas (DO&G), designated ADL 369116.
In 1964 DO&G certified a well on what later became ADL
369116 as capable of producing gas in paying quantities. Rather
than comply with an order to place the lease in production, the
lessee instead plugged and abandoned the well and let its lease
expire. DO&G issued another lease for the area in 1981, but that
lessee relinquished the lease after three years.
After competitive bidding, DO&G awarded ADL 369116 to
Danco Inc. effective September 1, 1986. The lease gave Danco the
exclusive right to drill for, extract, remove, clean, process,
and dispose of oil, gas and associated substances for an initial
primary term of 10 years . . . .1
In 1988 Danco assigned one hundred percent of the
working interest2 in ADL 369116 to Amoco Production Company,
subject to a reserved overriding royalty interest.3 In 1990
Danco assigned a portion of its overriding royalty interest to
Monte Allen. Also in 1990, Amoco assigned its entire working
interest in ADL 369116 to Union Oil Company of California
(Unocal). In 1994 Unocal assigned the entire working interest in
ADL 369116 back to Danco. No actual exploratory or development
efforts were undertaken on ADL 369116 between 1986 and 1994.
In 1995, about one year before the expiration of ADL
369116s August 31, 1996, primary term, Danco and Unocal agreed to
create a working unit4 covering ADL 369116 and Unocals adjacent
lease ADL 17595.5 As a part of this agreement Danco re-assigned
its entire working interest in ADL 369116 to Unocal. By this
time portions of Dancos overriding royalty interest had been
assigned not only to Allen, but also to Dancos president, Daniel
Donkel, and other individuals in varying proportions. All of the
assignees consented to the proposed unit agreement. In June 1996
Unocal proposed a standard-form unit agreement6 to combine the
two leases into the North Middle Ground Shoals Unit (NMGS Unit),
except that the term of the proposed unit agreement was two years
instead of the standard five years.
On August 30, 1996, the day before ADL 369116s primary
term was due to expire, the DNR Commissioner (Commissioner)
approved the formation of the NMGS Unit.7 This indefinitely
extended the lease term for the life of the unit agreement.8
Under the NMGS Units initial plan of development, Unocal
committed to (1) continue existing production from ADL 17595, and
(2) drill, by August 31, 1998, an exploratory well from the Baker
Platform on ADL 17595 to determine whether the Shallow Tyonek
Formation gas reserve extended to ADL 369116, which would
indicate that ADL 369116 might contribute to gas production in
paying quantities.
In January 1998 Unocal requested an extension of the
August 31, 1998, deadline for completing the exploration required
under the NMGS Unit agreement. Unocal had drilled the required
exploratory well from the Baker Platform in 1997, but was
concerned that it could not test the well nor justify allocation
of production to ADL 369116 by the August 31, 1998, deadline.
Unocal agreed that in exchange for the extension, it would
acquire a three-dimensional seismic survey of the NMGS Unit by
August 31, 1998, and, by December 31, 1999, drill an exploratory
well on ADL 369116 to determine whether the Hemlock Formation oil
reserve extended under that lease area.
In February 1998 the extension was granted with the
specific conditions that if the seismic survey of the NMGS Unit
was not completed by the deadline, or the new exploratory well on
ADL 369116 was not drilled by the deadline, ADL 369116 would be
terminated and eliminated from the NMGS Unit. DO&G allowed
Unocal to complete its testing program for the exploratory gas
well from the Baker Platform and to apply to establish a gas
participating area9 with production allocated to ADL 369116, but
DO&G expressly advised Unocal that those actions would not
satisfy the obligation to drill the exploratory well on ADL
369116.
Unocal claimed it completed the required NMGS Unit
seismic survey by August 31, 1998. In October 1998 Unocal
applied to DO&G to form the Shallow Tyonek Gas Reservoir
Participating Area. The application proposed a participating
area covering both leases in the NMGS Unit. In June 1999 DO&G
approved the application for a participating area that included
portions of ADL 17595 but excluded all of ADL 369116. DO&G found
the presented data failed to support Unocals contention that gas
reserves under ADL 369116 could be reached by wells from the
Baker Platform on ADL 17595. DO&G noted that if Unocal fulfilled
its commitment to drill the exploratory well on ADL 369116 by
December 31, 1999, it might acquire additional gas reserves
information justifying expansion of the participating area to
cover some or all of ADL 369116. DO&G also stated that if Unocal
failed to meet its drilling obligation by December 31, 1999, ADL
369116 would expire and be eliminated from the NMGS Unit.
In July 1999 Unocal appealed DO&Gs decision to exclude
ADL 369116 from the participating area to the Commissioner. In
August 1999 Unocal proposed an amended plan of exploration for
the NMGS Unit, requesting more time to evaluate the three-
dimensional seismic survey and to drill the exploratory well on
ADL 369116. DO&G denied the request in early September 1999.
DO&G explained that (1) despite Unocals October 1998
representation that it had completed a NMGS Unit seismic survey,
Unocal failed to include a survey interpretation in its October
1998 participating area application, and (2) in the August 1999
request to amend the plan of exploration, Unocal claimed it
lacked access to that seismic survey and needed three additional
years to obtain and evaluate the seismic data and drill the
exploratory well on ADL 369116. DO&G concluded by stating that
[t]he lease has now been in effect for thirteen years with no
evaluation of its hydrocarbon reserves and DNR is not willing to
extend the lease term to more than fifteen years without
exploration of the lease area. DO&G reiterated the critical
date, December 31, 1999, by which Unocal was required to drill an
exploratory well to maintain ADL 369116 as part of the NMGS Unit
and avoid ADL 369116s expiration.
In early November 1999 Unocal again applied to amend
the NMGS Unit plan of exploration and extend the term of ADL
369116. Unocal again asserted that it had fulfilled its seismic
survey obligation under the 1998 amendment and extension
agreement for the NMGS Unit. But Unocal admitted it had not met,
and would not meet, the December exploratory well deadline due to
[c]hanging economic, logistical and current events, which were
beyond Unocals control . . . .
Unocal explained that when it asked in 1998 for an
extension of ADL 369116s term, it was relying on another companys
plan to bring a jack-up rig to Cook Inlet and conduct an
extensive seismic program in the inlet. Unocal stated it had
planned to participate in the seismic program and, subject to
analysis of its seismic survey, had been prepared to use the jack-
up rig to drill the required exploratory well on ADL 369116.
Although Unocal did not explain why the jack-up rig had not
materialized, it stated that given advances in technology another
platform method of drilling might better suit the area, that the
other company planned to use this new platform method elsewhere
in Cook Inlet, and that until the new platform method of drilling
was tested it would be unwise for Unocal to commit to another
platform for [the NMGS Unit]. Unocal proposed yet another
extension framework:
Unocal proposes that the Division of Oil and
Gas approve a revised Plan of Exploration
with the following terms and conditions. If
Unocal fails to meet any of the following
conditions, Unocal will surrender ADL-369116,
on the date that Unocal fails to meet the
condition.
1. Unocal will complete a post-stack merge
and re-migration of Baker 3D and NMGS 3D
seismic by December 31, 2000, to improve
the imaging and regional understanding
of the geology.
2. Unocal or its co-working interest owner,
Forcenergy, will by December 31, 2000,
set a new exploration platform at the
Redoubt Shoals Unit to test the new
platform application in Cook Inlet.
3. Unocal and Forcenergy, will by December
31, 2001, commit to either the orderly
procurement of a new platform, or move
the Osprey platform, or other Cook Inlet
Platform to the [NMGS Unit]. We will
however, through this time period,
continue to analyze the application,
availability and viability of using a
jack-up or floating vessel.
In January 2000, after giving Unocal several
opportunities to provide additional information about gas
reserves under ADL 369116, the Commissioner (then John Shively)
affirmed DO&Gs decision to exclude ADL 369116 from the
participating area. Without specifically responding to Unocals
November 1999 extension request, DO&G issued a notice terminating
ADL 369116 and the NMGS Unit.
Unocal did not appeal to the superior court from the
Commissioners final decision on the participating area, but
Donkel and other overriding royalty interest holders in ADL
369116 did, arguing that (1) they were entitled to, but did not
receive, notice and an opportunity to be heard prior to the
Commissioners decision, and (2) there was insufficient evidence
to support the decision to exclude ADL 369116 from the
participating area. Because the ultimate consequence of the
Commissioners decision was the termination of ADL 369116 and
because DNR indicated it intended to include that lease area in
an upcoming lease sale, Donkel and the other overriding royalty
interest holders moved for and received from the superior court a
stay of the Commissioners decision.
In August 2000 DO&G violated the superior courts stay
order by including a portion of ADL 369116 in a competitive oil
and gas lease sale. In April 2001 DO&G issued a partially
conflicting lease to Richard Wagner. After realizing its error,
DO&G revoked Wagners lease in June 2001. Wagner gave the
Commissioner a one-page notice of appeal, stating an intent to
submit additional written material to the Department within 20
calendar days after the filing of this appeal. Wagner never
filed additional materials and his putative appeal lay dormant.
In March 2002 the superior court decided the appeal in
favor of Donkel and the other overriding royalty interest holders
on the issue of notice, remanding the case to DO&G to reconsider
whether the . . . Participating Area originally proposed by
Unocal should be approved. The parties then reached a settlement
agreement that was approved by the superior court in December
2002.
The settlement agreement specifically required DO&G to
reinstate ADL 369116 and to redefine the NMGS Unit to include
both ADL 17595 and ADL 369116, which it did effective December 2,
2002. ADL 369116s lease term was therefore extended, but Unocal
was required to: (1) commit to drilling an exploratory oil well
on ADL 369116 by October 31, 2003; (2) begin drilling that well
by December 31, 2004; and (3) complete, suspend, or abandon that
well by December 31, 2005. If either the commitment to drill or
the commencement of drilling did not occur by the stated
deadlines, Unocal was to transfer its working interest to Donkel
and others. If the ultimate drilling deadline was not met, ADL
369116 was to terminate on December 31, 2005.
In August 2003 Unocal submitted to DO&G its revised
NMGS Unit plan of development and operations for June 2003
through May 2004 (2003 POD). Unocal stated that the NMGS Unit
has reached its economic limit and is depleted. Unocal further
stated its intention to remove the drilling rig from the [Baker
Platform,] shut in all producing wells, clean the surface
equipment . . . leave all producing and water injection wells
shut-in as is, and light house the facility by October 2003.10
Unocal described its past efforts to market the Baker Platform
and related facilities and stated that additional development was
unwarranted based on this experience. Unocal did state that it
was continuing to analyze and explore the feasibility of
mobilizing a drill ship for the test well still required for ADL
369116, which it acknowledged must occur for Unit maintenance.
DO&G approved Unocals 2003 POD in late August 2003.
In October 2003, in accordance with the 2002 settlement
agreement, Unocal notified DO&G that it would not commit to
drilling on ADL 369116 and that its working interest in that
lease was being assigned to Donkel, Robert Bolt, and George
Kasper. Unocal noted that it was aware of both the drilling
deadline for ADL 369116 and the prospective December 31, 2005,
termination of ADL 369116 if drilling did not occur, and further
represented that it was providing this information to its working
interest assignees. ADL 369116 remained a part of the NMGS Unit
and Unocal retained both its status as the NMGS Unit operator and
its working interest in ADL 17595.
In February 2004 Unocal submitted to DO&G its proposed
NMGS Unit plan of development and operations for the period from
June 2004 through May 2005 (2004 POD). Unocal noted that no
development activity occurred in 2003, the Baker Platform was
decommissioned and presently in lighthouse mode, and it did not
intend to perform any development activities during the plan
period. Unocal stated that the entire working interest in ADL
369116 had been assigned to Donkel, Bolt, and Kasper, and that
they were advised of the December 31, 2005, drilling deadline.
Unocal concluded by stating that the new working interest owners
. . . have not advised the Operator (Unocal) of any plans to
drill the Initial Test Well during this Plan period.11 In May
2004 DO&G approved Unocals 2004 POD for the NMGS Unit, reminding
Unocal: If the Initial Test Well is not drilled as specified in
the Court Order, the NMGS Unit Agreement and ADL 369116 will
automatically terminate effective December 31, 2005.
In June 2004 attorney James B. Gottstein wrote a letter
to the Commissioner (then Thomas Irwin) on behalf of Donkel,
Bolt, and Kasper: (1) complaining that DO&Gs letter had not been
sent to the new working interest holders of ADL 369116;
(2) stating that if the termination reminder was a final decision
on the termination of ADL 369116, the working interest holders
were appealing that decision; and (3) alleging past bad faith by
DO&G in failing to correct its lease of a portion of ADL 369116
to Wagner. As to the Wagner lease issue, Gottstein further
stated:
The problem is real because it is my
understanding a company decided against a
drilling program in Cook Inlet to include ADL
369116 because of the cloud on title created
by the Division. My understanding is that
not only was ADL 369116 affected, but that
drilling of another lease is not occurring
because of the continuing cloud on ADL
369116s title created by the Division.[12]
In August 2004 DO&G responded to Gottstein at the
request of the Commissioner. DO&G clarified that (1) its May
2004 decision was an approval of Unocals 2004 POD for the NMGS
Unit, not a termination of ADL 369116, and (2) notice of the
approval was given only to Unocal because Unocal was the NMGS
Unit operator and therefore represented the other working
interest holders in the NMGS Unit.13 DO&G also reminded Gottstein
that it had revoked Wagners lease in June 2001 after DO&G became
aware of its mistake. Later that month the Commissioner issued
Wagner a letter formally upholding DO&Gs 2001 revocation of his
lease and giving notice of the right to appeal to the superior
court within thirty days. Wagner took no further action.
In October 2004 Unocal requested that the Alaska Oil
and Gas Conservation Commission (AOGCC) approve the abandonment
of wells from the Baker Platform on ADL 17595.14 Unocal noted
that oil and gas production from the Baker Platform had been
suspended since August 2003 and that alternatives for returning
the wells to production had been unsuccessful. Unocal proposed a
formal abandonment plan. AOGCC replied that the formal plan
appeared to comply with relevant regulations, but encouraged
Unocal to explore options to transfer the facilities to another
operator.
In February 2005 Unocal submitted to DO&G its proposed
plan of development and operations for the NMGS Unit for the
period from June 2005 through May 2006 (2005 POD). Unocal stated
that there had been no developmental drilling in the NMGS Unit
during the 2004 plan year, Unocal did not intend to perform any
development activities during the 2005 plan year, and the Baker
Platform had been decommissioned during the 2002 plan year and
was in lighthouse mode. After noting the December 31, 2005,
deadline for drilling the exploratory well on ADL 369116, Unocal
stated that the three working interest holders of ADL 369116 had
not advised the Operator (Unocal) of any plans to drill the
Initial Test Well during this Plan period.15 Unocal stated that
it had been unable to find an operator or purchaser for the Baker
Platform and related facilities and that it intended to follow
its abandonment plan, ultimately removing the Baker Platform if
necessary.
DO&G approved Unocals 2005 POD for the NMGS Unit in
late March 2005. DO&G reiterated the 2002 settlement agreement
term requiring the initial test well on ADL 369116 to be
completed by December 31, 2005, or ADL 369116 and the NMGS Unit
would terminate effective that date. But DO&G expressly
acknowledged that if Donkel, Bolt, and Kasper fulfilled the
drilling commitment by December 31, 2005, the NMGS Unit (and
therefore ADL 369116) would not automatically terminate.16
In April 2005 Donkel and Allen separately appealed to
the Commissioner from DO&Gs approval of Unocals 2005 POD for the
NMGS Unit, identically claiming that: (1) the plan to abandon
the Baker Platform and its related facilities would have a
negative impact on the rights and interests and opportunity to
explore, drill and develop ADL 369116; and (2) the partially
conflicting Wagner lease had unreasonably and unfairly disrupted
and interfered with the working interest holders ability to
fulfill the drilling commitment. They noted, as to disputed
material facts, that [w]ithout the ability to review information
and data consulted and relied upon in connection with the various
abandonment activities, satisfaction and compliance with various
criteria in 11 AAC 83.303 can not be confirmed and verified.17
They requested a hearing and a two-year extension of ADL 369116s
lease term.
Within days of the appeals the Commissioner denied the
hearing requests by noting that all of the information DO&G
consulted and relied upon in approving the NMGS Units 2005 POD
was public record and available for review at DO&Gs Anchorage
office during regular office hours. Neither Donkel nor Allen
responded in any fashion. In May 2005 the Commissioner denied
the appeals on their merits. The Commissioner stated that the
status of the Baker Platform did not adversely influence the
ability to drill the required exploratory well on ADL 369116
because: (1) the Baker Platform was too far away to support an
exploratory oil well into ADL 369116; (2) even if the Baker
Platform were close enough to support an exploratory oil well
into ADL 369116, DO&G lacked the authority to compel Unocal to
make the Platform available for that purpose; and (3) under the
2005 POD the Baker Platform was to remain in place for several
more years. The Commissioner also stated that the Wagner appeal
in no way interfered with the right to seek agency approval for
operations on ADL 369116 after Unocal assigned the working
interest in that lease to Donkel and his colleagues. The
Commissioner concluded that DO&G appropriately considered the
criteria in 11 AAC 83.303 in its evaluation of the 2005 POD and
that approval of the 2005 POD was necessary and advisable to
protect the public interest.
In June 2005 Gottstein, on behalf of Donkel and Allen,
confirmed DO&Gs attorneys clarification that the Commissioners
decision did not terminate ADL 369116. Gottstein advised DO&Gs
attorneys that the entire working interest in ADL 369116 was in
the process of being assigned to Renaissance Resources and that
Renaissance Resources would be submitting a lease extension
proposal. Gottstein also gave notice of his receipt of
assignments of overriding royalty interests in ADL 369116.18
Days later Renaissance Resources requested an extension
of ADL 369116 beyond the upcoming December 31, 2005, termination
date. Renaissance Resources admitted it was unable to commit to
any meaningful expenditure at this time but asserted that if DO&G
denied the extension the owners of the overriding royalty
interest will pursue legal remedies that could jeopardize any
potential investment for the foreseeable future and preclude
leasing at the next sale. At about the same time Donkel and
Allen appealed to the superior court from the Commissioners
decision approving Unocals NMGS Unit 2005 POD and denying their
requested remedial extension of ADL 369116.
In August 2005 DO&G deferred Renaissance Resourcess
lease extension request, expressing a willingness to consider it
if Renaissance submits written documentation of its progress to
mobilize a rig to develop the lease. In early December 2005
Renaissance Resources requested a two-year extension of ADL
369116, claiming to be confident that activity will occur on ADL-
369116 in the next two (2) years and noting that Donkel and Allen
had agreed to withdraw their appeal if the extension were
granted. Pointing out that Renaissance has not proposed a plan
of development with specific milestones and there is no firm
commitment to explore the lease, DO&G denied the extension
request on December 22, 2005. Renaissance Resources appealed the
denial to the Commissioner in January 2006.
Also in January 2006 DO&G notified Unocal that because
ADL 369116 terminated effective December 31, 2005, for failure to
drill the exploratory well required by the terms of the 2002
settlement agreement, the NMGS Unit terminated as well.19 In
early February 2006 Donkel and Allen appealed to the Commissioner
from DO&Gs decision to terminate ADL 369116 and the NMGS Unit.
Requesting a hearing, they raised four points in their appeal:
(1) ADL 369116s termination was the subject of Renaissance
Resourcess appeal to the Commissioner from DO&Gs denial of the
requested lease term extension; (2) [i]ssues concerning the terms
and provisions of the [earlier settlement agreement] relied upon
for the termination of ADL 369116 were the subject of Donkel and
Allens appeal to the superior court from the approval of the 2005
POD for the NMGS Unit; (3) ADL 369116 could not be terminated
because there was a well on the lease area capable of producing
in paying quantities (apparently referring to the well that DO&G
had certified in 1964 and that the original lessee had later
plugged and abandoned); and (4) termination of the NMGS Unit and
ADL 369116 was not in the States best interest.
In late February 2006 the Commissioner affirmed DO&Gs
denial of Renaissance Resourcess request for an extension of ADL
369116s lease term. The Commissioner noted that even though gas
had been discovered in the lease area in 1964, no exploration or
development had taken place since ADL 369116 was issued in 1986.
He concluded it was not in the States best interest to grant an
additional lease term extension in the absence of a firm
commitment to develop diligently the known gas accumulation
underlying the lease area.
In early March 2006 Gottstein executed and recorded his
assignments of overriding royalty interests in ADL 369116 but did
not submit them to DO&G for approval. Gottstein wrote a letter
to the Commissioner the day after recording his interests in ADL
369116, advising of his participation on my own behalf as an
overridding royalty interest owner and stating that Renaissance
Resources is very close to putting together the financing and
other arrangements to be able to commit to drilling a well on ADL
369116. Gottstein pointed to the pending superior court appeal
from the Commissioners approval of the 2005 POD for the NMGS
Unit, suggested ADL 369116 would be tied up in litigation for
several years, alleged prior bad faith by DO&G with respect to
the Wagner lease issue, and requested the Commissioner grant an
extension of ADL 369116. Gottstein stated that in the absence of
an extension of ADL 369116, he would appeal to the superior court
from the denial of Renaissance Resourcess lease extension
request. Renaissance Resources did not appeal to the superior
court from the Commissioners decision upholding the denial of its
requested lease extension. Gottstein did.
In April 2006 the Commissioner denied Donkels and
Allens appeals and affirmed DO&Gs January 2006 decision to
terminate ADL 369116, and consequently the NMGS Unit, without the
requested hearing. The Commissioner focused on the working
interest holders failure to drill the exploratory well as
required by the terms of the 2002 settlement agreement and
concluded that failure sufficiently supported terminating ADL
369116. The Commissioner did not reach the dispute about the
existence of a well capable of producing in paying quantities,
but did note that it was in the States best interest to terminate
ADL 369116 and allow it to be re-offered to a party that might
follow through with exploring and developing the lease.
Gottstein, and then Donkel and Allen together, appealed
to the superior court from the Commissioners April 2006 final
agency decision to terminate ADL 369116.
B. Superior Court Proceedings
In June 2005 Donkel and Allen filed their appeal from
the Commissioners May 2005 final agency approval of Unocals 2005
POD for the NMGS Unit and denial of their request to remedially
extend ADL 369116 for two years. Donkel and Allen claimed
thirteen points on appeal, alleging violations of their Alaska
rights of due process, entitlements to an agency hearing, an
erroneous decision by the Commissioner, abuse of discretion by
DO&G, wrongful inducement by omission of material fact, violation
of lease terms by DO&G, harm as a result of the Wagner lease,
violations of rights to an impartial tribunal, violations of
Alaskas constitutional provision allowing for development of the
States resources, violations of separation of powers, and
arbitrary and capricious decisions by DO&G.
In March 2006 Gottstein filed his appeal from the
Commissioners February 2006 final agency decision denying
Renaissance Resourcess request for an extension of ADL 369116.
His points on appeal were as follows:
1. The Decision to terminate Lease ADL 369116
should be reversed and vacated because the
Appellee violated its implied covenant of
good faith and fair dealing under the
settlement agreement in Donkel et. al., v
Alaska Dept. of Natural Resources, 3AN-00-
3616 CV.
2. The Decision did not comport with the
requirements of due process.
In May 2006 Gottstein filed his appeal from the
Commissioners April 2006 final agency decision terminating ADL
369116. Also in May 2006 Donkel and Allen filed their appeal
from the Commissioners April 2006 final agency decision
terminating ADL 369116. The points on appeal in both instances
were as follows:
1. The Decision to terminate Lease ADL 369116
should be reversed and vacated because the
Appellee violated its implied covenant of
good faith and fair dealing under the
settlement agreement in Donkel et. al., v
Alaska Dept. of Natural Resources, 3AN-00-
3616 CV.
2. The Decision did not comport with the
requirements of due process.
3. The Division failed to follow its regulations
and/or rules.
In June 2006 the four appeals were consolidated for all purposes.
Before consolidation Donkel and Allen filed an opening
brief in their 2005 appeal and Gottstein moved for a trial de
novo in one of his appeals. After consolidation the superior
court denied Gottsteins motion for a trial de novo and
established a briefing schedule. Gottstein informed the court
that he would not be filing an opening brief, intending instead,
if necessary and determined desirable, when ripe, to file an
appeal to the Alaska Supreme Court with respect to the denial of
[his] motion for a de novo trial. Donkel and Allen then informed
the court that they had filed their opening brief in their 2005
appeal and would not be filing anything further as an opening
brief.
DNR subsequently filed a motion to dismiss Gottsteins
appeals and Donkel and Allens 2006 appeal for failure to
prosecute. Gottstein opposed dismissal, conceding that his
earlier notice about not filing a brief was unclear but claiming
an intent to rely on the brief submitted by Donkel and Allen.
The superior court granted the motion to dismiss Gottsteins
appeals and later awarded $1,000 in attorneys fees in favor of
DNR and against Gottstein because Mr. Gottstein, by appealing,
caused [DNR] to incur substantial attorneys fees ($24,559.55),
but Mr. Gottstein failed to prosecute the appeal. The superior
court denied the motion to dismiss Donkel and Allens 2006 appeal,
permitting Donkel and Allen to rely on their 2005 opening brief
for their 2006 appeal but not allow[ing] them to expand upon
their arguments.
Despite the many issues raised in their statement of
points on appeal, Donkel and Allens opening brief for their 2005
appeal was limited to three issues regarding the Commissioners
May 26, 2005, final agency decision approving Unocals 2005 POD
for the NMGS Unit. The issues briefed were whether: (1) the
Commissioner violated 11 AAC 02.050(a)20 or the due process
protections of Article 1, section 7 of the Alaska Constitution by
denying Donkel and Allen a hearing; (2) the Commissioners
approval of the 2005 POD met the criteria set forth in 11 AAC
83.303 in accordance with the States best interest;21 and (3) the
Commissioners denial of Donkels and Allens requests for an
extension of ADL 369116s lease term breached express or implied
terms of the ADL 369116 lease agreement or the 2002 settlement
agreement.
The only issue Donkel and Allen briefed that was common
to the points on appeal they and Gottstein raised in their 2006
appeals was whether the Commissioners refusal to extend ADL
369116s lease term violated implied terms of the 2002 settlement
agreement. Thus no briefing was submitted to support their
appeal points regarding violations of DNR rules and regulations
or due process rights in connection with the Commissioners 2006
final agency decisions (1) denying Renaissance Resourcess request
for an extension of ADL 369116s lease term and (2) terminating
ADL 369116.
The superior court upheld the Commissioners decisions
to: (1) not hold a hearing for Donkels and Allens appeals from
DO&Gs approval of the 2005 POD; (2) affirm DO&Gs approval of the
2005 POD; and (3) deny Donkels and Allens 2005 requests for a two-
year extension of ADL 369116. The superior court found all other
issues waived either because they were not asserted at the agency
level, or were not briefed to the court. Donkel and Allen moved
for reconsideration, but the superior court affirmed its earlier
decision.
Donkel and Allen appealed to us from the superior
courts decision, as did Gottstein. We consolidated the appeals,
and now address the following issues raised and briefed by Donkel
and Allen and by Gottstein, specifically whether: (1) the
Commissioner erred in not holding an evidentiary hearing for
Donkels and Allens appeals from DO&Gs approval of the 2005 POD
for the NMGS Unit; (2) the Commissioner erred in affirming DO&Gs
approval of the 2005 POD and in denying Donkels and Allens
remedial requests for an extension of ADL 369116s lease term;
(3) the superior court erred in denying Gottsteins motion for a
trial de novo; and (4) the superior court erred in dismissing
Gottsteins appeals or in awarding $1,000 in attorneys fees
against Gottstein and in favor of DNR.22
III. STANDARD OF REVIEW
Because the superior court acts as an intermediate
court of appeals in administrative decisions we independently
review the merits of the administrative decision.23 We recognize
four standards to review administrative decisions.24 We apply a
substantial evidence standard to questions of fact, a reasonable
basis standard to questions of law involving agency expertise, a
substitution of judgment standard to questions of law not
involving agency expertise, and a reasonable and not arbitrary
standard to an agencys interpretation of its own regulations.25
We will affirm an agencys factual findings if supported by
substantial evidence,26 but what constitutes substantial evidence
presents a question of law requiring de novo review.27
IV. DISCUSSION
A. The Commissioner Was Not Required To Hold a Hearing
Before Deciding Donkels and Allens Appeals from DO&Gs
Approval of the 2005 POD.
Donkel and Allen argue the Commissioner violated both
their due process rights and a DNR regulation28 by failing to
conduct a hearing before issuing his May 26, 2005, final agency
decision affirming DO&Gs approval of the 2005 POD and denying
their requested remedy of an extension of ADL 369116s lease term.
Critical to the analysis of Donkel and Allens argument is
recognizing what DO&G first decided and what then was the subject
on appeal to the Commissioner.
Unocals proposed 2005 POD described continued winding-
down of the NMGS Unit because the unit had reached its economic
limit and was depleted, Unocal had been unable to market the
Baker Platform and related facilities, the Baker Platform was in
lighthouse mode, and Unocal did not intend to pursue further
exploratory efforts in the NMGS Unit. Unocal had assigned the
working interest in ADL 369116 to Donkel, Bolt, and Kasper in
late 2003 and noted in both the 2004 POD and the proposed 2005
POD that the obligation to drill an exploratory well on ADL
369116 rested with the new working interest holders. Unocal had
not requested an extension of ADL 369116s lease term in the 2003
POD or the 2004 POD, and did not request an extension of ADL
369116s lease term in the proposed 2005 POD.
In short, DO&G was not asked to consider and did not
consider an extension of ADL 369116s lease term in connection
with its consideration of the proposed 2005 POD for the NMGS
Unit. DO&Gs approval of the 2005 POD expressly stated that if
the working interest holders of ADL 369116 fulfilled their
drilling commitment by December 31, 2005, the NMGS Unit would not
automatically terminate on that date as set forth in the terms of
the 2002 settlement agreement.
Donkel and Allen did not participate in the DO&G
proceedings, but they nonetheless filed identical appeals to the
Commissioner from the approval of the 2005 Plan of Development
for the NMGS Unit as set forth in the March 31, 2005, decision by
[DO&G].29 Donkel and Allen appealed DO&Gs decision for two
reasons. First, they asserted that the plan to abandon the Baker
Platform and its related facilities would have a material,
negative impact on their rights and interests, including the
opportunity to develop ADL 369116. Second, they asserted that a
cloud on title due to DO&Gs issuing and subsequently revoking
Wagners lease interest in a portion of ADL 369116 unreasonably
and unfairly disrupted and interfered with the working interest
holders ability to comply with the drilling commitments. Both
claimed they lacked the ability to review the information the
Commissioner relied upon in reaching his decision, and thus were
unable to verify his decision or assert disputed material facts.
Donkel and Allen requested an oral hearing and, as a remedy on
appeal, an extension of ADL 369116s lease term.
Responding directly to Donkel and Allen about the
failure to allege a specific material fact dispute and the
possible need for a hearing, the Commissioner promptly advised
that all of the information that [DO&G] consulted and relied upon
in approving the 2005 POD is available in the public record [and
may be reviewed at DO&Gs] Anchorage office during regular office
hours. Therefore, request for hearing is denied. The
Commissioner further stated that he would make a decision
[f]ollowing review of the case file, applicable law, and any
other pertinent documents . . . .
Donkel and Allen did not subsequently object to the
Commissioners response or give notice of specific disputed
material facts that warranted a hearing, nor did they seek to
submit additional material to support their cursory appeals. At
no time before the hearing did Donkel or Allen make any kind of
showing about disputed issues of material fact or specific
evidence they might present. Even after the Commissioner issued
his decision, Donkel and Allen failed to take advantage of their
opportunity to submit additional information with a request for
reconsideration.30
Under these circumstances we cannot conclude the
Commissioner violated Donkels and Allens due process rights or
the DNR regulation providing for a hearing to resolve disputed
issues of fact.
As to due process, the superior court correctly stated
that DO&Gs approval of the 2005 POD did not involve the
deprivation of any property interest held by Donkel and Allen.
Although due process requires notice and an opportunity to be
heard prior to governmental deprivation or infringement of
valuable property rights,31 this constitutional protection does
not automatically attach to every governmental action without
consideration of what rights are at stake and how they might be
affected.32 DO&Gs approval of the 2005 POD neither deprived nor
infringed on Allens overriding royalty interest in ADL 369116.
Nor did DO&Gs approval of the 2005 POD deprive or infringe on
Donkels working interest or his overriding royalty interest in
ADL 369116. Donkels and Allens property interests in ADL 369116
were unchanged after DO&Gs approval of the 2005 POD. The working
interest holders had the same right to develop ADL 369116 after
DO&Gs approval of Unocals 2005 POD as they had before that
approval the 2005 POD merely reaffirmed that Unocal would not be
responsible for developing ADL 369116 in the coming year. Simply
put, and as the superior court concluded, neither DO&Gs approval
of the 2005 POD nor the Commissioners consideration of whether
that approval should be affirmed or reversed implicated due
process protections for Donkel and Allen.
Donkel and Allen appear to believe that by merely
asserting the right to a lease extension as a remedy for DO&Gs
approval of the 2005 POD, which was unrelated to whether the
drilling requirements for ADL 369116 should be enforced or
modified or whether the lease term for ADL 369116 should be
extended, they have a valuable property right at stake. We
disagree. But even if due process protections could be invoked,
there can be no dispute that Donkel and Allen had actual notice
of DO&Gs approval of the 2005 POD and were heard by the
Commissioner before he issued the final agency decision. Full-
scale evidentiary hearings are not required for every occasion to
which due process applies,33 and Donkel and Allen do not persuade
us that the record hearing afforded to them by the Commissioner
violated any applicable due process.
In White v. State, Department of Natural Resources34 we
noted that neither due process nor 11 AAC 02.050(a) requires a
hearing if there is no dispute. We reiterated that although a
hearing
is normally one of the basic components of
due process, it is subject, at least in the
area of administrative law, to the exception
that one need not hold a hearing if there is
nothing to hold a hearing about; or, more
precisely, there is no requirement,
constitutional or otherwise, that there be a
hearing in the absence of substantial and
material issues crucial to (the)
determination.[35]
In White an assignee of an oil and gas lease appealed to the
Commissioner from DO&Gs refusal to approve his assignment because
the lease had already terminated.36 The assignee asserted on
appeal that one of the lease conditions for an automatic
extension had been met, but the Commissioner denied the appeal
without a hearing.37 When the appeal reached us DNR argued that
the assignee was raising a theory that had not been raised to the
Commissioner.38 We noted that the assignee had stated in filings
to the Commissioner that he would present specific testimony
about disputed factual matters that ultimately underpinned his
later theory.39 We held there was a factual dispute about whether
the condition had been met and that the Commissioner had abused
his discretion by not granting a hearing under 11 AAC 02.050(a).40
Donkel and Allen presented the Commissioner with
theories; they did not show they could present evidence to
support them or to contradict the evidence considered by DO&G in
approving the 2005 POD. Donkel and Allen argue that the
Commissioner should have, on his own, considered Gottsteins June
2004 letter in combination with Donkels and Allens stated bases
for appeal. They contend the Commissioner then would have
recognized an issue of disputed material fact about harm to the
working interest holders from the Wagner cloud on title between
2001 and September 2004. The two passages are as follows, first
from Gottsteins June 2004 letter on behalf of Donkel and Allen
seeking to clarify whether DO&Gs approval of the 2004 POD
constituted a decision to terminate ADL 369116:
The [Wagner lease] problem is real because it
is my understanding a company decided against
a drilling program in Cook Inlet to include
ADL 369116 because of the cloud on title
created by the Division. My understanding is
that not only was ADL 369116 affected, but
that drilling of another lease is not
occurring because of the continuing cloud on
ADL 369116s title created by the Division.
and then from Donkels and Allens appeals:
The ability of the working interest owners in
ADL 369116 to fulfill the drilling commitment
of the Initial Test Well has been
unreasonably and unfairly disrupted and
interfered with due to the cloud on title
arising from the delay and bad faith in
initial selling and then actions to terminate
any interest of Rick Wagner in ADL 389508,
covering a part of ADL 369116.
First, we note it was incumbent on Donkel and Allen to
present the Commissioner sufficient information to conclude there
was a dispute about an issue of material fact it was not the
Commissioners duty to guess what Donkel and Allen were referring
to and to scour DO&Gs files to determine whether a disputed issue
of material fact existed to support their hearing request.
Second, these two vague and conclusory statements are
insufficient to raise a material factual issue the decision
before the Commissioner was whether to affirm DO&Gs approval of
the 2005 POD, not some other action by DO&G implicating ADL
369116s lease term. Finally, after the Commissioner issued his
decision neither Donkel nor Allen made an offer of proof to
either the Commissioner or the superior court as to any specific
evidence that could support their otherwise vague and conclusory
allegations of harm. Even at oral argument before us, neither
Gottstein nor counsel for Donkel and Allen could point to
anything in the record other than the two statements noted above
to support their argument that the Wagner cloud on title actually
affected any working interest holders ability to drill the
required exploratory well on ADL 369116 by December 31, 2005.
We therefore affirm the superior courts decision
upholding the Commissioners denial of an oral hearing on the
appeal from DO&Gs approval of the 2005 POD.
B. The Commissioner Had a Reasonable Basis To Affirm DO&Gs
Approval of Unocals 2005 POD for the NMGS Unit.
1. The Commissioners decision
The Commissioner made specific findings on the two
articulated bases for Donkels and Allens appeals from DO&Gs
approval of the NMGS Unit 2005 POD. He first found that the 2005
POD would not have a negative influence on ADL 369116s working
interest holders ability to drill the required exploratory well
by December 31, 2005:
Abandonment of the Baker Platform
The working interest owners in ADL
369116 have a commitment to drill an Initial
Test Well by the end of 2005. Removal of the
Baker Platform will not impact the
[Appellants] ability to explore for
hydrocarbons within their lease. The
boundary of ADL 369116 is over three miles
from the Baker Platform; too far away to
support an exploration well with a bottom-
hole location on ADL 369116. In 1997, Unocal
drilled a highly deviated well, Baker #32, to
a true-vertical depth of 4,761 feet and
produced gas from the STGR. However, the
bottom-hole location of Baker #32 is about
2.12 miles from the southern boundary of ADL
369116.
Even if a well could be drilled from
Baker Platform to ADL 369116, DNR does not
have the authority to compel Unocal to make
the Baker platform available to the
Appellants. This appeal is not the
appropriate forum for Appellants to obtain
approval to use Unocal facilities.
Appellants need to contact Unocal regarding
the use of Unocals facilities.
Under Unocals plan, the Baker Platform
will remain in place for several more years.
The AOGCC approved Unocals proposed schedule
to plug and abandon the wells on the Baker
Platform over the next three years. However,
the AOGCC and Unocal have not yet agreed on
the procedures necessary to plug and abandon
the wells. The Baker Platform will remain in
place until all of the wells are plugged and
abandoned to the satisfaction of the AOGCC
and perhaps even longer. All of the original
Cook Inlet Platforms remain in place,
although several are shut-in. The lessees,
the Division, and various state and federal
agencies are developing guidelines and
drafting regulations to implement platform
abandonment. It may take several years to
complete this process before the platform
owners can remove the platforms.
Second, the Commissioner also found that the Wagner
appeal in no way interfered with the right to seek approval for
drilling operations on ADL 369116 after Unocal re-assigned the
entire working interest in the lease to Donkel, Bolt, and Kasper
in late 2003.
The Commissioner concluded that: (1) DO&G had
appropriately considered the criteria in 11 AAC 83.303 in its
evaluation of Unocals proposed 2005 POD; (2) [n]either issuance
of [the lease] to Wagner nor termination of that lease interfered
with the Appellants rights [and the] working interest owners of
ADL 369116 were free and are still free and able to exercise
their right to fulfill the Initial Test Well drilling commitment
set out in the [2002 settlement] or otherwise develop ADL 369116;
and (3) approval of the 2005 POD was necessary and advisable to
protect the public interest.
2. The Baker Platform issue
Donkel and Allen argue that they were denied the
opportunity to present evidence of the 2005 PODs potential
adverse consequences on plans to develop ADL 369116, that the
Commissioner therefore did not have the necessary information
before him to make an informed decision, and, specifically, that
the Commissioner did not fully appreciate the effect abandoning
the Baker Platform would have on ADL 369116s working interest
holders.
Donkel and Allens arguments to us differ from the
arguments they made to the superior court. There they argued
that decommissioning the Baker Platform as set forth in the 2005
POD legally resulted in terminating the NMGS Unit. Thus Donkel
and Allen stated they were objecting to the . . . approval of the
cessation of unit production and asserted the Commissioner had
not diligently inquired into Unocals claim that the NMGS Unit was
no longer capable of producing oil and gas in paying quantities.
Nothing in the record supports Donkel and Allens
assertion that they were prevented from submitting supporting
evidence to the Commissioner. They simply chose to rely on
cursory statements of appeal that facially failed to give rise to
the need for an evidentiary hearing. Donkel and Allens assertion
to the superior court that approval of the 2005 POD somehow
terminated the NMGS Unit was similarly incorrect DO&G expressly
stated in its approval of the 2005 POD that the NMGS Unit
remained in place pending fulfillment of the December 31, 2005,
drilling obligation for ADL 369116.
During the pendency of Donkels and Allens appeals to
the Commissioner, the working interest in ADL 369116 was being
assigned to Renaissance Resources. The assignment was effective
August 1, 2005, but even before that time Renaissance Resources
was in contact with DO&G about an extension of the drilling
obligation for ADL 369116. Renaissance Resourcess drilling
proposals for ADL 369116 had nothing to do with the Baker
Platform. And if the Baker Platform were somehow critical to the
development of ADL 369116, Unocal was, as Donkel and Allen had to
have known,41 actively seeking an operator or purchaser of the
Baker Platform and its related facilities Renaissance Resources,
or Donkel and Allen, could have negotiated some kind of
arrangement with Unocal.42
Finally, the superior courts explanation for affirming
the Commissioners findings and conclusions on the Baker Platform
issue sufficiently covers the arguments made in that court and in
this court:
The [facts] clearly demonstrate[ ] that
as of August 2003, [DO&G] had approved the
Revised 2003 POD and Unocals plans to
decommission the Baker Platform. If
Appellants wished to challenge that approval,
they should have done so in 2003. Further,
[DO&G] approved Unocals 2004 POD in May 2004.
Again, if Appellants wished to challenge that
decision, they should have done so in
2004. . . . Unocal suspended production from
the NMGS Unit under the 2002 Plan of
Development and decommissioned the Baker
Platform, located on ADL 17595. All that
Unocal proposed in 2005, and all that the
[AOGCC] approved, and all that [DO&G]
approved, was entirely consistent with the
terms (especially paragraph 7) of the Court
Order Approving Settlement and [DO&Gs]
previous approval of Unocals 2003 and 2004
PODs.
The gist of Appellants substantive
argument on appeal to the Commissioner was
their assertion that the plans to abandon the
Baker Platform would have a material,
negative impact on their rights, interest,
and opportunity to explore, drill, and
develop ADL 369116. The Commissioner
rejected this argument[.]
. . . .
The facts recited by the Commissioner
are undisputed. The factual conclusions
drawn by the Commissioner from these facts
are reasonable and within the expertise of
his agency. As such, they are due
considerable deference. The legal
conclusions the Commissioner reached are also
within the range of subject matter expertise
committed to the agency. They are
reasonable, and are affirmed.
We agree with the superior court and affirm its
decision to uphold the Commissioners findings and conclusions on
this issue.
3. The Wagner cloud on title issue
Donkel and Allen focus most of their attention on this
issue, arguing that the Commissioner erred as a matter of law or
abused his discretion by not granting their request for an
extension of ADL 369116s lease term. They assert that: (1) the
putative Wagner lease was a cloud on title to ADL 369116 from
2001 through September 2004;43 (2) DO&Gs failure to remove that
cloud on title in a timely fashion was a breach of express or
implied contract terms in either or both the ADL 369116 lease
agreement and the 2002 settlement agreement; and (3) the cloud on
title adversely affected their ability to drill the required well
on ADL 369116 by December 31, 2005, specifically that the delay
jeopardized Appellants ability to mobilize the necessary
investment and drilling equipment by the December 31, 2005
deadline.
The fundamental flaw in this argument is that there is
no evidence in the record to support the contention that the
Wagner lease adversely affected development and drilling plans
for ADL 369116. The superior court stated that Appellants make
no real showing that they were in any way harmed by [the]
erroneous lease to Wagner. When asked at oral argument before us
to specify evidence showing harm, neither Gottstein nor Donkel
and Allens attorney could point to any evidence other than
Gottsteins June 2004 letter about his understandings of problems
and Donkels and Allens conclusory allegations of harm in their
appeal papers to the Commissioner.
We note that Unocals 2004 POD (submitted in February
2004 for June 2004 through May 2005) stated that Donkel, Bolt,
and Kasper had not given Unocal any indication of plans to drill
the required exploratory well on ADL 369116. Such notice was
required under the NMGS Unit agreements. Without an actual
showing of harm, specifically some evidence that an investor
refused to participate or an entity refused to commit to drilling
because of the Wagner lease, we cannot say that the Commissioner
erred by finding that the Wagner lease had no adverse effect on
the right and ability to drill the exploratory well on ADL
369116.
Moreover DO&G was not asked to consider, and did not
consider, whether ADL 369116s lease term should be extended
because of the Wagner lease, or for any other reason. The
proposed 2005 POD had no influence on the drilling commitment for
ADL 369116 Unocal already had declined to fulfill that
commitment and had assigned the leases working interest to
Donkel, Bolt, and Kasper. Thus another fundamental flaw in
Donkel and Allens argument is that the Commissioners
consideration of the Wagner lease issue was limited to how it
might influence his decision to affirm or reject DO&Gs approval
of Unocals 2005 POD. After concluding that the Wagner lease
issue had no bearing on the 2005 POD approval, no remedial action
by the Commissioner including the requested extension of ADL
369116s lease term was warranted.
We agree with the superior court and affirm its
decision upholding the Commissioners findings and conclusions on
this issue.
4. The best interest issue
Donkel and Allen argue to us that the Commissioner
failed to identify which criteria listed in 11 AAC 83.303(b),44 if
any, he considered before rendering his final agency decision.
Donkel and Allen did not argue to the Commissioner that DO&G had
failed to consider or identify the criteria it considered in
approving the 2005 POD; they instead gave two specific reasons
for their appeal of the 2005 POD, which the Commissioner
addressed.
But Donkel and Allen now contend that DO&Gs March 31,
2005, approval letter and the Commissioners May 26, 2005, final
decision do not permit intelligent appellate review. They urge
us to remand to the agency for better findings supporting the
conclusion that approval of the 2005 POD was in the best
interests of the State. They also contend that because oil and
gas reserves remain under the NMGS Unit, removal of the Baker
Platform and the cessation of drilling in the NMGS Unit are not
in the best interests of the State. This argument is
unpersuasive.
As early as August 2003, shortly before Unocal gave
its October 2003 notice that it would not commit to drilling the
required exploratory well on ADL 369116 and then assigned the
working interest in ADL 369116 to Donkel, Bolt, and Kasper, the
plan for the NMGS Unit was to wind it down. At that time DO&G
approved Unocals plan to remove the drilling rig from the [Baker
Platform,] shut in all producing wells, clean the surface
equipment . . . , leave all producing and water injection wells
shut-in as is, and light house the facility by October 2003.
Donkel and Allen did not appeal from the approval of the 2003
POD. In May 2004 DO&G approved Unocals plan to discontinue its
exploratory operations in the NMGS Unit and to maintain the Baker
Platform in lighthouse mode. Donkel and Allen did not appeal
from the approval of the 2004 POD. In October 2004 Unocal gave
the AOGCC notice of its plan to ultimately abandon wells from the
Baker Platform. There is no evidence in the record that Donkel
and Allen raised any concerns or objections with the AOGCC.
It is from this posture that DO&Gs review of Unocals
proposed 2005 POD must be considered, with the further
understanding that the proposed 2005 POD: (1) covered only the
time period from June 2005 through May 2006; (2) contemplated
only the continuing status of lighthouse mode, not imminent
removal of the Baker Platform; and (3) expressly noted that if
the exploratory well on ADL 369116 was drilled by December 31,
2005, the NMGS Unit would continue in existence. DO&G and the
Commissioner considered all of the specific factors of 11 AAC
83.303(b) when the 2005 POD was approved: (1) the known reserves
underlying the unit (11 AAC 83.303(b)(2)); (2) prior exploration
in the unit (11 AAC 83.303(b)(3)); (3) Unocals future plans for
the unit, acknowledged by the AOGCC (11 AAC 83.303(b)(4)); and
(4) the environmental and economic costs and benefits of
maintaining the status quo pending results of the required
drilling on ADL 369116 (11 AAC 83.303(b)(1), (5)).
We can discern the agencys consideration of these
factors from the record and do not need to remand for additional
or more specific findings. DO&G and the Commissioner considered
the criteria of 11 AAC 83.303(b) and the record reflects a
reasonable basis for the Commissioners conclusion that approval
of the 2005 POD was in the States best interest. We therefore
affirm the superior courts decision upholding the Commissioners
decision on this issue.
5. The 2006 final agency decision
Donkel and Allen argue that the Commissioner also erred
in his April 2006 final agency decision terminating ADL 369116
and the NMGS Unit for failure to have the required exploratory
well drilled on the lease by December 31, 2005.
This decision was the subject of Donkel and Allens
second appeal to the superior court. Donkel and Allen did not
file a brief for their second appeal, advising the superior
court that they would rely on the arguments raised in the brief
they filed for their appeal from the Commissioners May 2005 final
decision affirming DO&Gs approval of Unocals 2005 POD for the
NMGS Unit. The superior court allowed Donkel and Allen to do so,
but without the ability to raise new arguments. The superior
court denied Donkel and Allens appeal on all of the issues they
raised and rejected all other issues as waived for failure to
raise them at the agency level or to brief them at the superior
court level.
Donkel and Allen now suggest it is not clear whether
the superior court intended its decision to dispose of their
appeal from the Commissioners April 2006 final agency decision
terminating ADL 369116 and the NMGS Unit. They argue that for
all the reasons set forth in their appeal from the Commissioners
May 2005 final agency decision on Unocals 2005 POD for the NMGS
Unit, the Commissioners May 2006 final agency decision
terminating ADL 369116 should be reversed.
Because we affirm the Commissioners May 2005 final
agency decision as to all issues raised by Donkel and Allen, and
those are the only issues raised in connection with their appeal
from the Commissioners April 2006 final agency decision on the
termination of the ADL 369116 and the NMGS Unit, we therefore
affirm the superior courts decision upholding the Commissioners
April 2006 final agency decision as well.
C. The Superior Court Did Not Err in Denying a Trial De
Novo.
Gottstein requested a trial de novo in the superior
court under Alaska Rule of Appellate Procedure 609(b)(1),45
asserting that (1) DNR is disqualified as the decision maker
because it is acting in its proprietary capacity as the
owner/lessor of the property involved and (2) there was evidence
of DNRs bad faith in continuing to cloud title on ADL 369116
through the failure to finish terminating the Wagner lease.
Appellate Rule 609(b)(1) leaves the decision to grant a
trial de novo to the discretion of the superior court.46 We
review a decision to deny a trial de novo for abuse of
discretion, which is found only when we are left with a definite
and firm conviction after reviewing the whole record that the
[superior] court erred in its ruling. 47 We have noted that a
trial de novo is
a departure from the norm. A court normally
reviews an agencys decision on the record.
While Appellate Rule 609 affords the superior
court discretion to conduct a trial de novo,
it is rarely warranted. This court has
upheld or directed application of de novo
review where certain issues are not within
the expertise of the reviewing body; where
the agency record is inadequate; where the
agencys procedures are inadequate or do not
otherwise afford due process; or where the
agency was biased or excluded important
evidence in its decision-making process.[48]
In ConocoPhillips Alaska, Inc. v. State, DNR we
implicitly rejected the argument that DNR has a proprietary
interest in leasing land for oil and gas development that would
disqualify it as an impartial decision-maker.49 We reiterate here
that DNRs regulatory oversight of State leases is insufficient to
show actual or probable bias in connection with DNR decisions
involving private interests in those leases. We also reiterate
that agency personnel are presumed to be impartial until a party
shows actual bias or prejudgment.50 Commissioner Irwin was not
the Commissioner when: (1) ADL 369116 was terminated as of
December 31, 1999; (2) the Wagner lease was issued and revoked in
2001; or (3) the termination of ADL 369116 was reversed by the
2002 settlement of Donkels appeal from Commissioner Shiveleys
decision affirming DO&Gs denial of Unocals application for a
participating area covering ADL 396116. Even accepting at face
value Gottsteins unsubstantiated allegations of bad faith on the
part of some DNR personnel with respect to the Wagner lease,
Gottstein has made no showing that Commissioner Irwin, who
decided the appeals from DO&G, prejudged any facts or was
motivated by actual bias against Gottstein, Donkel, or Allen in
connection with any of the three final agency decisions on
appeal.
There is no basis to conclude that the superior court
abused its discretion in denying Gottsteins motion for a trial de
novo. We therefore affirm the superior courts decision on this
issue.
D. The Dismissal of Gottsteins Appeals Was at Most
Harmless Error; We Affirm the Attorneys Fee Award.
After his motion for trial de novo was denied,
Gottstein gave notice that he did not intend to file any briefs
on the merits of his appeal issues but instead would, if and when
appropriate, appeal the trial de novo issue to us. When faced
with the later motion to dismiss his appeals for lack of
prosecution, Gottstein then stated an intent to rely on Donkel
and Allens briefing to support his appeal points. The superior
court nonetheless dismissed Gottsteins appeals for failure to
prosecute.
Gottstein argues that the superior court erred in
dismissing his appeals when he was prosecuting them by filing the
trial de novo motion and relying on Donkel and Allens briefing.
We do not need to decide this issue because even if Gottsteins
appeals should not have been dismissed, they were voluntarily
limited to the issues raised and briefed by Donkel and Allen.
The superior court denied Donkel and Allens appeals and we agree
with the superior courts decision. Therefore, any error in
dismissing Gottsteins appeals was harmless.
Gottstein also argues that it was an abuse of
discretion for the superior court to enhance the attorneys fees
award in favor of DNR and against him because of his alleged
failure to prosecute his appeals. After the superior court
disposed of Donkel and Allens appeals, it awarded DNR $1,000 in
attorneys fees against Gottstein, stating that the amount was
chosen because Mr. Gottstein, by appealing, caused the State to
incur substantial attorneys fees ($24,559.55), but Mr. Gottstein
failed to prosecute the appeal. Despite the superior courts
language, the nominal amount of the attorneys fees award does not
reflect an enhancement for the alleged failure to prosecute. In
context, the superior court was explaining that because of the
substantial proceedings regarding the requested trial de novo,
DNR was a prevailing party entitled to a discretionary fee award
under Appellate Rule 508(e) notwithstanding the general rule of
Appellate Rule 508(a) that attorneys fees not be awarded when an
appeal is dismissed. We affirm the superior courts award of
$1,000 in attorneys fees in favor of DNR and against Gottstein.
V. CONCLUSION
We AFFIRM the superior courts decision.
_______________________________
1 The following summarizes conditions under which the
lessee could have extended the primary term or entered a
secondary term: (a) oil or gas being produced in paying
quantities from the lease area; (b) the lease being committed to
and remaining in a state-approved unit agreement; (c)(1)
commencing drilling by the end of the primary term and continuing
drilling with reasonable diligence (well completion clause);
(c)(2) commencing diligent drilling or reworking operations
within six months of production cessation (temporary cessation of
production clause); (d) failing to produce oil or gas in an area
that could produce in paying quantities if the state gave no
notice requiring production; (e) the state suspending operations
or production in the lease area; or (f) failing to produce or to
perform specific actions because of an unanticipated natural
cause (force majeure clause).
2 An agency regulation explains: working interest means
the interest held in lands by virtue of a lease, operating
agreement, fee title or otherwise, under which the owner of the
interest is vested with the right to explore for, develop and
produce minerals; the right delegated to a unit operator by a
unit agreement is not a working interest. 11 Alaska
Administrative Code (AAC) 88.185(32).
3 An agency regulation explains: royalty interest means
a basic royalty or overriding royalty in the production of oil
and gas. 11 AAC 83.295(27). An overriding royalty interest is
a percentage of the gross production payable to some person
other than the lessor or persons claiming under the lessor.
Allen v. Alaska Oil & Gas Conservation Commn, 1 P.3d 699, 700 n.1
(Alaska 2000) (quoting 38 Am. Jur. 2d Gas & Oil 215 (1999)).
4 Agency regulations explain: unit means a group of
leases covering all or part of one or more potential hydrocarbon
accumulations, or all or part of one or more adjacent or
vertically separate oil or gas reservoirs, which are subject to a
unit agreement and unit agreement means the agreement executed
by the State of Alaska, working-interest owners, and royalty
owners creating the unit. 11 AAC 83.395 (7) -(8). We have
further explained: [u]nit agreements and participating areas are
organizational schemes approved by the Department of Natural
Resources to efficiently extract oil from a common reservoir that
is the subject of multiple leases. ConocoPhillips Alaska, Inc.
v. State, Dept of Natural Res., 109 P.3d 914, 917 n.16 (Alaska
2005).
5 In 1962 DO&G certified a well from the Baker Platform
on ADL 17595 as capable of producing in paying quantities.
Commercial oil production from the Hemlock Formation and the
Lower Tyonek Formation began in 1966, and commercial gas
production from the Shallow Tyonek Formation began in 1982.
6 11 AAC 83.326 (mandating that a unit agreement must be
executed on, or in a manner consistent with, a standard state
unit agreement form and that the Commissioner will modify the
standard form only upon request and when reasonably required to
meet the needs and requirements of the particular unit).
7 Unocal was designated the unit operator and accepted
the obligation to conduct the unit operations and explore for,
develop, and produce oil and gas. Although Unocal already held
the working interest in both ADL 17595 and ADL 369116, under the
unit agreement the working interest holders delegated to Unocal
the exclusive rights and obligations of the Working Interest
Owners to explore for, develop, and produce oil and gas in the
NMGS Unit. However, this delegation was expressly subject to the
lessees obligation to comply with all lease terms.
8 See note 1, above.
9 An agency regulation defines participating area as that
part of an oil and gas lease unit area to which production is
allocated in the manner described in a unit agreement. 11 AAC
88.185(21). Another agency regulation, 11 AAC 83.351, provides
in pertinent part:
The participating area may include only the
land reasonably known to be underlain by
hydrocarbons and known or reasonably
estimated through use of geological,
geophysical, or engineering data to be
capable of producing or contributing to
production of hydrocarbons in paying
quantities. If any portion of a lease is
included in a participating area formed under
a unit agreement, the entire leased land will
be committed to the unit and the lease will
not be severed. Under 11 AAC 83.371(a), the
unit operator also shall submit to the
commissioner for approval of a proposed
division of interest or formula setting out
the percentage of production and costs to be
allocated to each lease or portion of lease
within the participating area. Upon approval
by the commissioner, the area of productivity
constitutes a participating area.
See also Exxon Corp. v. State, 40 P.3d 786, 788 n.4 (Alaska
2001); see generally note 4, above (defining unit and unit
agreement).
10 In the context of Cook Inlet oil and gas
infrastructure, lighthouse mode means wells shut in, production
facilities cleaned, decommissioned but not removed, and
navigational aids intact. Dept of Envtl. Conservation,
Comprehensive Evaluation & Risk Assessment of Alaskas Oil & Gas
Infrastructure, Proposed Risk Assessment Methodology, Rev. 1
(2009)
11 Under the unit agreement:
Any Working Interest Owner shall be entitled
to drill wells on the unitized portion of its
lease when the Unit Operator has declined to
drill such wells, so long as such activities
are conducted under an approved permit to
drill and a plan approved under Article 8
[Plans of Exploration, Development, and
Operations] of this Agreement.
. . . .
No exploration, development, or production
activities may be commenced or conducted on
the Unit Area except in accordance with an
approved plan.
12 A few days after writing this letter, Gottsteins law
office received, as payment for legal services in another matter,
assignments from Donkel, Bolt, and Kasper totaling a 1.5%
overriding royalty interest in ADL 369116. For ease of
reference, we will refer to this interest holder as Gottstein.
DO&G was not notified of these assignments until June 2005;
Gottstein did not record his assignments until March 2006.
13 The unit agreement provided that as the unit operator
Unocal had exclusive control over unit operations and was
required to notify other working interest holders of all of its
actions. The unit agreement also provided that [a]ny order or
notice relating to this Agreement which is given to the Unit
Operator of record shall be deemed given to all Working Interest
Owners in the Unit Area.
14 The AOGCC is an independent quasi-judicial agency of
the state created by the Alaska Oil and Gas Conservation Act. AS
31.05.005(a). The AOGCC, which has authority over all land
subject to the states police power, regulates to prevent waste,
insure greater recovery, protect correlative rights and
underground water, and further public health and safety. See AS
31.05.027; AS 31.05.095; AS 31.05.100; AS 31.05.110; AS
31.05.030.
15 See note 11, above.
16 Before DO&G issued its decision, Donkel, Bolt, and
Kasper assigned their working interests in ADL 369116 to
Renaissance Resources, Alaska, LLC. The assignments were not
approved until August 2, 2005, effective August 1, 2005.
17 11 AAC 83.303 provides:
(a) The commissioner will approve a proposed
unit agreement for state oil and gas leases
if he makes a written finding that the
agreement is necessary or advisable to
protect the public interest considering the
provisions of AS 38.05.180(p) and this
section. The commissioner will approve a
proposed unit agreement upon a written
finding that it will
(1) promote conservation of all natural
resources, including all or part of an oil or
gas pool, field, or like area;
(2) promote the prevention of economic
and physical waste; and
(3) provide for the protection of all
parties of interest, including the state.
(b) In evaluating the above criteria, the
commissioner will consider
(1) the environmental costs and benefits
of unitized exploration or development;
(2) the geological and engineering
characteristics of the potential hydrocarbon
accumulation or reservoir proposed for
unitization;
(3) prior exploration activities in the
proposed unit area;
(4) the applicants plans for exploration
or development of the unit area;
(5) the economic costs and benefits to
the state; and
(6) any other relevant factors,
including measures to mitigate impacts
identified above, the commissioner determines
necessary or advisable to protect the public
interest.
(c) The commissioner will consider the
criteria in (a) and (b) of this section when
evaluating each requested authorization or
approval under 11 AAC 83.301 - 11 AAC 83.395,
including
(1) an approval of a unit agreement;
(2) an extension or amendment of a unit
agreement;
(3) a plan or amendment of a plan of
exploration, development or operations;
(4) a participating area; or
(5) a proposed or revised production or
cost allocation formula.
18 See note 12, above.
19 Unocal was directed to continue its annual plans of
development for ADL 17595.
20 11 AAC 02.050(a) provides that [t]he department will,
in its discretion, hold a hearing when questions of fact must be
resolved.
21 See note 17, above.
22 An issue apparently not raised below, and not before us
in this appeal, is the standing of the overriding royalty
interest holders in ADL 369116 to request a lease extension or to
appeal from either the lease extension denial or termination.
See Ridge Oil Co. v. Guinn Invs., Inc., 148 S.W.3d 143, 155 (Tex.
2004) (noting that an overriding royalty interest is a
nonparticipating interest, which means that the royalty owner is
wholly dependent on the lessee to keep the lease alive); 38 Am.
Jur. 2d Gas & Oil 217 (2009) (An overriding royalty interest is
subject to the terms of the lease upon which it is founded, so
generally, when the lease terminates, either by its own terms or
in some other regular manner consistent with good faith, the
royalty itself comes to an end.); Blacks Law Dictionary 1356 (8th
ed. 2004) (An overriding-royalty interest ends when the
underlying lease terminates.). Because DNR implicitly concedes
standing, we express no view on how the issue would be decided in
the absence of such a concession. See Allen v. Alaska Oil & Gas
Conservation Commn, 1 P.3d 699, 702 n.7 (Alaska 2000).
23 Button v. Haines Borough, 208 P.3d 194, 200 (Alaska
2009); accord Handley v. State, Dept of Revenue, 838 P.2d 1231,
1233 (Alaska 1992) (citing Tesoro Alaska Petroleum Co. v. Kenai
Pipe Line Co., 746 P.2d 896, 903 (Alaska 1987)).
24 Handley, 838 P.2d at 1233.
25 Id.; accord Bartley v. State, Dept of Admin., Teachers
Ret. Bd., 110 P.3d 1254, 1263 (Alaska 2005).
26 Button, 208 P.3d at 200.
27 Id.
28 DNR will, in its discretion, hold a hearing when
questions of fact must be resolved. 11 AAC 02.050(a). But 11
AAC 02.050(b) qualifies subsection (a) by providing that the
hearing procedure will be determined . . . on a case-by-case
basis.
29 Appeals to the Commissioner must be in writing and,
among other things, specify: (1) the decision appealed; (2)
bases on which the decision is challenged; (3) material facts
disputed by the appellants; (4) the requested remedy; and (5)
whether an oral hearing is requested. 11 AAC 02.030(a)(1), (7)-
(10), (13).
30 See 11 AAC 02.030(e) (allowing submission of additional
written materials, including evidence and legal argument, upon a
request for reconsideration).
31 Heitz v. State, Dept of Health & Soc. Serv., 215 P.3d
302, 305 (Alaska 2009) (quoting Bostic v. State, Dept of Revenue,
Child Support Enforcement Div., 968 P.2d 564, 568 (Alaska 1998)).
32 See id. (When a party raises a due process claim, we
first must determine whether there is a deprivation of an
individual interest of sufficient importance to warrant
constitutional protection. (quoting Bostic, 968 P.2d at 568)).
33 Id. at 308 n.30 (quoting Haggblom v. City of
Dillingham, 191 P.3d 991, 995 (Alaska 2008)).
34 984 P.2d 1122 (Alaska 1999).
35 Id. at 1126 (quoting Estate of Miner v. Commercial
Fisheries Entry Commn, 635 P.2d 827, 834 (Alaska 1981) (citations
omitted) (quoting Natl Labor Relations Bd. v. Bata Shoe Co., 377
F.2d 821, 826 (4th Cir. 1967))).
36 Id. at 1124.
37 Id. at 1124-25.
38 Id. at 1127.
39 Id.
40 Id. at 1126, 1128.
41 See note 13, above.
42 The operating agreement for the NMGS Unit provided that
if the working interest holders in the unit approved the
abandonment of unit wells, objecting working interest holders
could buy out the other working interest holders. Donkel was a
working interest holder between December 2003 and August 2005,
and he and his assignee, Renaissance Resources, presumably could
have taken advantage of the buy-out provision of the operating
agreement.
43 Assuming the Wagner lease created a cloud on title to
ADL 369116, Donkel and Allen exaggerate the period of time it
could have affected drilling. ADL 369116 was reinstated in
December 2002. Unocal held the working interest in ADL 369116
from December 2002 through December 2003, when the assignments to
Donkel, Bolt, and Kasper were approved. No one asserts that
Unocal was dissuaded from drilling on ADL 369116 because of the
Wagner lease. Any cloud on title the Wagner lease created was
extinguished in September 2004 when Wagners time expired for an
appeal from the Commissioners final decision approving the
revocation of his lease. Thus the relevant time period is
December 2003 through September 2004.
44 See note 17, above.
45 Alaska R. App. P. 609(b)(1): (In an appeal from an
administrative agency, the superior court may in its discretion
grant a trial de novo in whole or in part.).
46 Id.
47 S. Anchorage Concerned Coal., Inc. v. Municipality of
Anchorage Bd. of Adjustment, 172 P.3d 774, 778-79 (Alaska 2007)
(quoting Christensen v. NCH Corp., 956 P.2d 468, 473 (Alaska
1998)).
48 Id. at 778 (internal citations omitted).
49 109 P.3d at 924 (noting that the proprietary issue was
raised by the appellant, but affirming the commissioners decision
without further comment); see also Conoco, Inc. v. State, Dept of
Natural Res., No. S-4803, 1993 WL 13563632, at *2 (Alaska 1993)
([W]e have rejected the argument that DNRs involvement in oil and
gas leasing was a proprietary function. (citing State, Dept of
Natural Res. v. Arctic Slope Regl Corp., 834 P.2d 134, 143
(Alaska 1991))).
50 See AT&T Alascom v. Orchitt, 161 P.3d 1232, 1246
(Alaska 2007).
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