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You can search the entire site. or go to the recent opinions, or the chronological or subject indices. Alaska Crude Corporation v. State, Dept. of Natural Resources, Division of Oil and Gas (10/7/2011) sp-6606
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, email
corrections@appellate.courts.state.ak.us.
THE SUPREME COURT OF THE STATE OF ALASKA
ALASKAN CRUDE )
CORPORATION and JAMES W. ) Supreme Court No. S-13708
WHITE, )
) Superior Court No. 3AN-08-09865 CI
Appellants, )
) O P I N I O N
v. )
) No. 6606 - October 7, 2011
STATE OF ALASKA, )
DEPARTMENT OF NATURAL )
RESOURCES, DIVISION OF OIL )
AND GAS, )
)
Appellee. )
)
Appeal from the Superior Court of the State of Alaska, Third
Judicial District, Anchorage, William F. Morse, Judge.
Appearances: Brian J. Stibitz, Reeves Amodio LLC,
Anchorage, and Heather L. Gardner, Shortell Gardner LLC,
Anchorage, for Appellants. Jeffrey D. Landry, Senior
Assistant Attorney General, Anchorage, and Daniel S.
Sullivan, Attorney General, Juneau, for Appellee.
Before: Carpeneti, Chief Justice, Fabe, Winfree, Christen,
and Stowers, Justices.
FABE, Justice.
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I. INTRODUCTION
Appellant Alaskan Crude Corporation operates an oil and gas unit near
Deadhorse known as the Arctic Fortitude Unit. Appellant James W. White is the
president of Alaskan Crude and a leaseholder of an oil and gas lease that is part of the
Arctic Fortitude Unit. Alaskan Crude's unit agreement with the Department of Natural
Resources set work obligation deadlines that Alaskan Crude was required to meet to
continue operating the Arctic Fortitude Unit. In July 2008 the Department of Natural
Resources Commissioner found that Alaskan Crude had failed to meet its work
obligations, gave notice that Alaskan Crude was in default under its unit agreement, and
specified that the Arctic Fortitude Unit would be terminated if Alaskan Crude did not
cure the default by a new set of deadlines.
Alaskan Crude appealed the Commissioner's decision to the superior court,
arguing that a pending judicial decision in a separate appeal qualified as a force majeure
under the unit agreement, preventing Alaskan Crude from meeting its work obligations.
It also argued that the Commissioner's proposed default cure was an improper unilateral
amendment of Alaskan Crude's unit agreement. The superior court affirmed the
Commissioner's findings and decision and Alaskan Crude appealed. We conclude that
(1) the pending judicial decision in Alaskan Crude's separate appeal did not trigger the
force majeure clause of the unit agreement; and (2) the Commissioner's proposed default
cure was not a unilateral amendment of Alaskan Crude's unit agreement. We thus affirm
the decision of the superior court upholding the decision of the Commissioner.
II. FACTS AND PROCEEDINGS
In June 2006 the Department of Natural Resources (DNR), Oil and Gas
Division approved the formation of the Arctic Fortitude Unit (the Unit), an oil and gas
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unit made up of three individual leases located near Deadhorse.1 Alaskan Crude
Corporation is the operator of the Unit, and James W. White is one of the leaseholders
as well as the president of Alaskan Crude.2 One of the leases included in the Unit
contains a pre-existing well known as Burglin 33-1.
Since the formation of the Unit, Alaskan Crude has been involved in two
separate but closely related disputes with several state agencies. The first dispute, with
the Department of Environmental Conservation (DEC) and the Alaska Oil and Gas
Conservation Commission (AOGCC), concerns whether an oil spill contingency plan is
required for the Burglin 33-1 well. That dispute is the subject of a separate appeal before
this court. The second dispute, which involves the DNR Oil and Gas Division (the
Division) and is the subject of this appeal, concerns Alaskan Crude's work obligations
under its unit agreement and whether the pending appeal in the first dispute created a
force majeure preventing Alaskan Crude from meeting those obligations. A discussion
of both disputes is necessary to understand the issues underlying this appeal.
A. The Dispute Concerning Alaskan Crude's Oil Spill Contingency Plan
The operator of an oil exploration facility must develop a contingency plan
in case of an oil spill and obtain approval of that plan from DEC in consultation with
AOGCC.3 The contingency plan requirements are based primarily on the number of
1 See generally Gottstein v. State, Dep't of Natural Res., 223 P.3d 609, 611
n.4 (Alaska 2010) (noting regulations defining "unit" and "unit agreement").
2 We refer to the appellants collectively as "Alaskan Crude."
3 AS 46.04.030(b). AOGCC is an "independent quasi-judicial agency of the
state" created by the Alaska Oil and Gas Conservation Act. AS 31.05.005(a). AOGCC,
which has authority over all land subject to the state's 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;
(continued...)
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barrels of oil per day that the exploration facility should be prepared to contain in the
event of a spill; that number is known as the response planning standard.4 Gas-only
wells, however, are exempt from these requirements.5
When the Unit was formed, Alaskan Crude seemed to suggest that it
intended to use the Burglin 33-1 well to explore for both oil and gas. Almost one year
after the Unit's formation, Alaskan Crude requested an 85% reduction in the response
planning standard for the Burglin 33-1 well, neither requesting a declaration that the well
was a "natural gas exploration facility" nor mentioning the rules exempting gas-only
wells. DEC approved the reduction on AOGCC's recommendation but also noted
AOGCC's determination that it would be inappropriate to classify the well as a gas-only
well. Alaskan Crude requested reconsideration, citing the statutory exemptions for gas-
only wells and arguing that the 85% reduction was insufficient.
After a hearing (which the parties did not attend), AOGCC reaffirmed its
earlier determination that Burglin 33-1 was not a gas-only well and further reduced the
response planning standard based upon new computer modeling of the well's potential
flow rate. Alaskan Crude then indicated that it was now planning to test the well at a
shallower depth than it had previously intended - a depth which would not be "capable
of unassisted flow to the surface" - and requested that AOGCC reconsider its decision
on this basis.
AOGCC treated Alaskan Crude's request as a new application for a
recommended response planning standard based upon the shallower depth and further
3(...continued)
AS 31.05.110; AS 31.05.030.
4 18 Alaska Administrative Code (AAC) 75.434 (2004).
5 AS 46.04.050(c).
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reduced the response planning standard to 115 barrels of oil per day. Alaskan Crude did
not seek agency rehearing of this determination; instead, it appealed to the superior court
pursuant to AS 22.10.020(d), arguing that the well is gas-only and is exempt from oil
spill contingency planning.6 The superior court upheld AOGCC's determination on
December 8, 2010.7 That decision is the subject of a separate appeal to this court.
B. The Dispute Concerning Alaskan Crude's Work Obligation Deadlines
And The Force Majeure Clause
While Alaskan Crude was disputing whether it was exempt from an oil spill
contingency plan, it was also having difficulty meeting the work obligations outlined in
its plan of exploration. DNR regulations provide that to form an oil and gas unit, lessees
must propose a unit agreement and a plan of exploration.8 Failure to comply with the
terms of the approved unit agreement or the plan of exploration is a default under the unit
agreement.9 When a default occurs the DNR Commissioner must provide notice to the
unit operator and a demand to cure the default by a specific date.10 If the default is not
cured by the specified date the Commissioner has discretion to terminate the unit
11
agreement.
6 Alaskan Crude Corp. v. State, Alaska Oil & Gas Conservation Comm'n ,
No. 3AN-07-11471 CI (Alaska Super., Dec. 8, 2010).
7 Id.
8 11 AAC 83.306 (requiring a proposed unit agreement as part of an
application for DNR approval of an oil and gas unit); 11 AAC 83.341 (requiring a unit
plan of exploration to be filed as an exhibit to the proposed unit agreement).
9 11 AAC 83.374(a).
10 11 AAC 83.374(b).
11 11 AAC 83.374(c)-(d).
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Under Article 20 of Alaskan Crude's unit agreement, failure to comply with
the terms of the unit agreement or the plan of exploration because of "force majeure" is
not a default. Force majeure is defined by DNR regulations as "war, riots, acts of God,
unusually severe weather, or any other cause beyond the unit operator's reasonable
ability to foresee or control and includes operational failure to existing transportation
facilities and delays caused by judicial decisions or lack of them."12 White's oil and gas
lease also provided that "[i]f the state determines that the lessee has been prevented by
force majeure, after efforts made in good faith, from performing any act that would
extend the lease beyond the primary term, this lease will not expire during the period of
force majeure." The language defining force majeure in the lease is identical to the DNR
regulations.
The initial plan of exploration for the Unit contained several work
obligation deadlines. The deadlines at issue in this appeal are the "Stage 2 work
obligations"; specifically, that Alaskan Crude move a drilling rig onto the Burglin 33-1
well pad and re-drill the well.13 The initial plan of exploration required Alaskan Crude
to complete the Stage 2 work obligations by October 1, 2007. The plan of exploration
also provided that if Alaskan Crude missed its work obligation deadlines the Unit would
automatically terminate.
On June 26, 2007, a year after the initial plan of exploration was approved,
Alaskan Crude sent a letter to the Division requesting a modification of the Stage 2 work
obligations. The letter alleged that although Alaskan Crude had "diligently pursued
12 11 AAC 83.395(3).
13 At the time the Unit was formed, the Burglin 33-1 well was "suspended,"
meaning plugged with the option to later re-enter and re-drill the well. See 20
AAC 25.990(70) (defining suspended well); 20 AAC 25.110 (outlining the procedures
for suspending a well).
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permits and required authorizations," "winter tundra travel equipment shortages and
summer tundra travel restrictions" made it impossible to meet the work obligations by
October 1, 2007. Alaskan Crude requested that the deadline for these obligations be
changed to October 1, 2008.
The Division denied this request on June 28, 2007. The Division explained
that Alaskan Crude's summer tundra travel plans had been delayed because Alaskan
Crude had not submitted the proper permit application or requested a permitted
contractor and that Alaskan Crude had been given sufficient time to schedule winter
equipment deliveries. The Division reminded Alaskan Crude that the Unit would
automatically terminate if the work obligations were not met and notified Alaskan Crude
of its right to appeal the decision to the DNR Commissioner. Alaskan Crude appealed
the denial of its modification request on July 17, 2007 and requested a hearing. The
hearing was held on September 28, 2007, but Alaskan Crude did not attend.
On November 6, 2007, Alaskan Crude and the Division settled the appeal
by agreeing to an amended plan of exploration. The amended plan of exploration
changed the deadlines for the Stage 2 work obligations, requiring Alaskan Crude to
deliver the necessary drilling equipment to the Burglin 33-1 well pad by May 15, 2008
and to re-drill the well by October 1, 2008.
In January 2008 Alaskan Crude sent an email to the Division stating that
Alaskan Crude was unable to communicate with AOGCC regarding the development of
a contingency plan and that this inability was "delaying [its] ability to obtain a
[contingency plan] and forcing work into a force majeure situation." The email asked
for the Division's advice. The Division responded on January 16 that Alaskan Crude's
claim was "incorrect," that Alaskan Crude was "in control of the process," and that the
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Division saw no cause for delays in the work obligations.14 On February 2, Alaskan
Crude sent a letter notifying the Director of the Division that it was "appealing" the
decision made in the January 16 email to deny Alaskan Crude's request "to have the
Arctic Fortitude Unit contract and associated plan of exploration obligations be placed
in force majeure status due to the unforeseen delay in the ability of [Alaskan Crude] to
permit the re-entry of the Burglin 33-1 well." Alaskan Crude repeated its assertion that
AOGCC was refusing to communicate with Alaskan Crude about its contingency plan.
The Division Director responded on February 15, 2008. The Division
Director informed Alaskan Crude that it could not process the letter as an "appeal"
because the January 16 email was simply informal advice and not a decision capable of
appeal under DNR regulations.15 But the Division Director also said that he would
consider the letter an original request to toll Alaskan Crude's work obligations so long
as Alaskan Crude provided further information within seven days about "the specific
nature of the alleged force majeure and whether it is ongoing" and "which work
commitments [Alaskan Crude] want[s] tolled and for how long."
Eleven days later, on February 26, Alaskan Crude sent a fax to the Division
Director purporting to provide the requested information. The fax stated that Alaskan
Crude "asks again for a declaration of force majeure for an extension of the . . . work
14 Due to the appeal to the superior court regarding the response planning
standard, see supra Part II.A, AOGCC had determined that counsel needed to be present
during any discussions with Alaskan Crude or its consultants. The Division of Oil and
Gas described this not as a refusal of AOGCC to communicate with Alaskan Crude, but
instead as "reasonable procedural guidelines under which those discussions could take
place."
15 See 11 AAC 02.900(4) (defining "decision" as "a written discretionary or
factual determination by the department specifying the details of the action to be allowed
or taken").
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commitment deadlines commensurate with the period of the force majeure caused by
AOGCC actions." It alleged that "[t]he period of force majeure has been 90 days so far
and is still continuing. . . . The AOGCC is holding [Alaskan Crude] hostage in this matter
because of [a] pending appeal [Alaskan Crude] has with the AOGCC on [an] entirely
separate and unrelated matter."
On March 24 the Division denied Alaskan Crude's request to invoke the
force majeure clause and toll its work obligations. The Division Director stated that
there was "no evidence" that AOGCC had delayed Alaskan Crude's ability to prepare
and submit a contingency plan and that "AOGCC did not refuse to discuss matters
involving the well with [Alaskan Crude] or its consultant." The Division Director found
that Alaskan Crude "is requesting to delay its . . . work commitments solely because it
is dissatisfied with the AOGCC's determination that the Burglin 33-1 well is not a gas-
only well" and that AOGCC's determination and Alaskan Crude's subsequent appeal
were "not force majeure events" because they were not beyond Alaskan Crude's
"reasonable ability to foresee or control."16 The Division Director observed that AOGCC
had granted Alaskan Crude's original request for a reduction in the response planning
standard and that "the appeal of the gas-only determination is entirely within [Alaskan
Crude's] control; you can't create your own force majeure through litigation." Finally,
the Division Director also found that "the dispute and litigation with the AOGCC" was
not preventing Alaskan Crude from meeting its work obligations because Alaskan Crude
was not required to have an approved contingency plan to move a drilling rig to the well
pad.
16 See 11 AAC 83.395(3) (" '[F]orce majeure' means war, riots, acts of God,
unusually severe weather, or any other cause beyond the unit operator's reasonable
ability to foresee or control and includes operational failure to existing transportation
facilities and delays caused by judicial decisions or lack of them.").
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On April 10, 2008, Alaskan Crude appealed the Division's decision to the
DNR Commissioner. Alaskan Crude asserted that "from the beginning" it had intended
to explore Burglin 33-1 as a gas-only well, that AOGCC's determination was thus
"clearly unanticipated" and "out of [Alaskan Crude's] ability to control," and that
Alaskan Crude had been "forced" to file a superior court action "to obtain the necessary
determination." The appeal concluded that the pending judicial action regarding the gas-
only exemption was a force majeure because it "will directly affect [Alaskan Crude's]
proposed actions" and "it is not prudent to execute the work obligations . . . until this
issue is decided."
While the appeal to the DNR Commissioner was pending, DNR reminded
Alaskan Crude that its work obligations remained in place. Alaskan Crude then made
two additional requests to the Director of the Division, on April 24 and May 5, to amend
the plan of exploration and push back the work obligation deadlines. Alaskan Crude
suggested new deadlines of March 31, 2009, for moving a drilling rig to the Burglin 33-1
well, and October 1, 2009, for re-drilling the well. These requests were not acted upon,
and on May 15, 2008, Alaskan Crude defaulted on its work obligation to deliver a
drilling rig to the Burglin 33-1 well.
On July 16, 2008, the DNR Commissioner issued findings and a decision
regarding the force majeure appeal. The Commissioner made several factual findings,
including that Alaskan Crude had agreed to the amended plan of exploration and the
May 15 deadline after AOGCC had determined that Burglin 33-1 was not a gas-only
well.17 The Commissioner also decided that there was "no basis to determine a force
majeure exists" under either the Unit's oil and gas leases or the unit agreement. The
17 Alaskan Crude does not appear to have challenged the Commissioner's
factual findings in either the superior court or this appeal.
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Commissioner cited the same reasons provided by the Division Director: that Alaskan
Crude's litigation with AOGCC was not beyond its ability to foresee or control because
Alaskan Crude agreed to the amended deadlines after receiving AOGCC's initial
determination; and that the litigation did not prevent Alaskan Crude from meeting its
work obligations because contingency plan approval was not required to move a drilling
rig to the well platform.
The Commissioner also gave notice that Alaskan Crude was in default
under its unit agreement because it had failed to move a drilling rig to the well by
May 15, 2008.18 The Commissioner set out a default cure demand that required Alaskan
Crude to move a drilling rig to the well by March 31, 2009 and re-drill the well by
October 1, 2009;19 this default cure had "the practical effect of granting [Alaskan
Crude's] requests to delay its work obligations" under the amended plan of exploration.
Alaskan Crude appealed the Commissioner's findings and decision to the
superior court, arguing that the Commissioner erred in determining that there was no
basis to invoke the force majeure clause and that the Commissioner's proposed default
cure was an impermissible unilateral amendment of the plan of exploration. The superior
court affirmed the Commissioner's decision that Alaskan Crude could not invoke the
force majeure clause but used slightly different reasoning. The Division, and the DNR
Commissioner, analyzed Alaskan Crude's "dispute and litigation with the AOGCC" as
a single event and concluded that it was not a force majeure because it was within
18 See 11 AAC 83.374(a) ("Failure to comply with any of the terms of an
approved unit agreement, including any plans of exploration . . . is a default under the
unit agreement."); 11 AAC 83.374(b) ("The commissioner will give notice to the unit
operator and defaulting party . . . of the default.").
19 See 11 AAC 83.374(b) ("The notice will state the nature of the default and
include a demand to cure the default by a specific date, which . . . will be a date not less
than 90 days after the date of the commissioner's notice of default.").
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Alaskan Crude's ability to foresee or control and did not prevent Alaskan Crude from
fulfilling its work obligations. The superior court analyzed AOGCC's determination and
the lack of a decision on the appeal from that determination as separate events. First, the
superior court concluded that the AOGCC determination itself was not a "judicial
decision" covered by the force majeure clause because AOGCC "is a quasi-judicial, as
opposed to judicial, body." Second, the superior court concluded that although the lack
of a judicial decision on appeal from the AOGCC determination could fall within the
clause, it had not prevented Alaskan Crude from fulfilling its work obligations - it only
made those obligations more expensive than Alaskan Crude had hoped. The superior
court did not specifically address whether the lack of a judicial decision was within
Alaskan Crude's ability to foresee or control, but it did comment that when Alaskan
Crude entered the amended unit agreement, it knew that "the lack of exemption [as a gas-
only well] was a certainty, at least pending the outcome of a lengthy appeal."
The superior court also held that the DNR Commissioner's proposed
default cure did not unilaterally amend Alaskan Crude's unit agreement because the unit
agreement "itself sets out the procedure for issuing demands to cure."20 The superior
court therefore affirmed the DNR Commissioner's findings and decision on October 27,
2009.21 Alaskan Crude appeals.
20 Article 20 of Alaskan Crude's unit agreement sets out the same procedures
for default, notice of default, and cure of the default that are contained in DNR
regulations. See 11 AAC 83.374.
21 The superior court also held that DNR had not interfered with Alaskan
Crude's performance under its lease and unit agreement. Alaskan Crude does not appeal
this part of the decision.
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III. STANDARD OF REVIEW
"When the superior court acts as an intermediate appellate court in an
administrative matter, we independently review the merits of the administrative
decision."22 We have "recognized four principal standards of review for administrative
decisions: (1) the substantial evidence standard applies to questions of fact; (2) the
reasonable basis standard applies to questions of law involving agency expertise; (3) the
substitution of judgment standard applies to questions of law where no expertise is
involved; and (4) the reasonable and not arbitrary standard applies to review of
administrative regulations."23 We apply the reasonable basis standard "[w]hen reviewing
an agency's interpretation of its own regulation."24 Under this standard, we "defer to the
agency unless its interpretation is plainly erroneous and inconsistent with the
regulation."25 "Questions of contract interpretation generally raise questions of law that
we review de novo."26
The parties dispute the proper standard of review because they dispute
which force majeure clause - the clause contained in White's oil and gas lease or the
22 Button v. Haines Borough, 208 P.3d 194, 200 (Alaska 2009) (citing
Lakloey, Inc. v. Univ. of Alaska, 157 P.3d 1041, 1045 (Alaska 2007); Gunter v.
Kathy-O-Estates, 87 P.3d 65, 68 (Alaska 2004)).
23 Pasternak v. State, Commercial Fisheries Entry Comm'n, 166 P.3d 904,
907 (Alaska 2007) (citing Handley v. State, Dep't of Revenue, 838 P.2d 1231, 1233
(Alaska 1992)).
24 Id. (citing Simpson v. State, Commercial Fisheries Entry Comm'n, 101 P.3d
605, 607 (Alaska 2004)).
25 Id. (internal citations and quotation marks omitted).
26 Beal v. McGuire, 216 P.3d 1154, 1162 (Alaska 2009) (citing Norville v.
Carr-Gottstein Foods Co., 84 P.3d 996, 1000 n.1 (Alaska 2004)).
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clause contained in the unit agreement - applies to Alaskan Crude's work obligations.
Alaskan Crude argues that the applicable clause is contained in the oil and gas lease and
thus should be reviewed de novo as a matter of contract interpretation. DNR responds
that the applicable clause is contained in the unit agreement, with the definition of force
majeure provided by DNR regulations, and thus DNR's decision that a force majeure did
not exist in this case was an interpretation of its own regulations that should be given
deference.
We conclude that DNR is correct. When Alaskan Crude missed the
May 15, 2008 deadline for its work obligations, it defaulted on the unit agreement. But
the default itself had no consequences for the individual oil and gas leases. By entering
the unit agreement, the original terms of the individual leases were automatically
extended for the duration of the unit's existence. Therefore, only termination of the unit
- not default - could lead to expiration of White's lease term and create the need to
save the lease from expiration by invoking the lease's force majeure clause.27 Thus, the
failure to meet work obligations under the unit agreement due to a force majeure is
governed by Article 20 of Alaskan Crude's unit agreement, which simply states that the
"failure to comply [with the unit agreement] because of force majeure is not a default."
The definition of force majeure for purposes of the unit agreement is contained in DNR
regulations.28 The DNR Commissioner's decision that a force majeure did not exist was
thus an interpretation of the agency's own regulations and the deferential reasonable
basis standard applies.
27 Default will not lead to termination if the unit operator cures the default by
the date demanded by DNR. See 11 AAC 83.374(b). Even if the default is not cured,
DNR must provide notice and an opportunity to be heard before terminating the unit.
See 11 AAC 83.374(c).
28 11 AAC 83.395(3).
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IV. DISCUSSION
Alaskan Crude appeals the same aspects of the DNR Commissioner's
decision that it challenged in the superior court. First, Alaskan Crude argues that the
AOGCC's determination that Burglin 33-1 was not a gas-only well, and the pending
appeal of that determination, were force majeure events that prevented Alaskan Crude
from meeting its work obligations. Second, Alaskan Crude argues that the
Commissioner's proposed default cure was a unilateral amendment of its unit agreement.
A. Alaskan Crude's Pending Appeal Of The AOGCC Decision Was Not
A Force Majeure.
The definition of force majeure that applies to Alaskan Crude's unit
agreement requires the alleged force majeure to be "beyond the unit operator's
reasonable ability to foresee or control."29 The DNR Commissioner concluded that
Alaskan Crude's dispute with AOGCC was not a force majeure because Alaskan Crude
had agreed to the May 15, 2008 deadline after it received AOGCC's final determination
that Burglin 33-1 was not a gas-only well. We agree with this conclusion and hold that
AOGCC's decision and Alaskan Crude's appeal of that decision were not force majeure
events because they were not beyond Alaskan Crude's reasonable ability to foresee or
control.
The requirement that a force majeure event be unforeseeable is a common
characteristic of force majeure clauses in oil and gas leases. "Force majeure clauses
extend [mineral] leases only when the nonperformance is 'caused by circumstances
beyond the reasonable control of the lessee or by an event which is unforeseeable at the
time the parties entered into the contract.' "30 This rule remains applicable when the
29 Id.
30 Goldstein v. Lindner, 648 N.W.2d 892, 899 (Wis. App. 2002) (quoting
(continued...)
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alleged force majeure is a decision made by a governmental body: "A government order
predating the lease execution has never been held to be a force majeure event."31 And
in this case, the government action that Alaskan Crude claims created a force majeure
- AOGCC's decision that Burglin 33-1 was not a gas-only well - predated the
amended plan of exploration that set the deadlines at issue in this case.
Alaskan Crude received Other Order No. 51, AOGCC's final decision that
Burglin 33-1 was not a gas-only well, on October 1, 2007. Alaskan Crude requested
reconsideration of the order on October 11, and AOGCC denied reconsideration on
October 24. On November 6, 2007, Alaskan Crude then agreed to an amended plan of
exploration that included the deadlines of May 15, 2008, for moving drilling equipment
to the well pad, and October 1, 2008, for re-drilling the well. After agreeing to those
deadlines, Alaskan Crude filed an appeal of AOGCC's decision in superior court on
November 19, 2007, without seeking expedited review.
AOGCC's decision was thus incapable of being an unforeseeable force
majeure because Alaskan Crude already knew of the decision when it agreed to the
30(...continued)
Atkinson Gas Co. v. Albrecht, 878 S.W.2d 236, 241 (Tex. App. 1994)); see also Joan
Teshima, Annotation, Gas and Oil Lease Force Majeure Provisions: Construction and
Effect, 46 A.L.R. 4th 976 § 2(a) (1986) ("A force majeure clause . . . does not excuse a
lessee's nonperformance where the condition alleged to constitute force majeure either
was within the lessee's actual or presumed knowledge or was reasonably expectable by
the lessee.").
31 Teshima, supra note 30; see also Erickson v. Dart Oil & Gas Corp., 474
N.W.2d 150, 155 (Mich. App. 1991) (citing Hughes v. Cantwell, 540 S.W.2d 742, 745
(Tex. Civ. App. 1976)) ("Where governmental action is alleged to be the cause of delay,
the parties to the lease are presumed to have contracted with knowledge of any
preexisting law that could have caused delay.").
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amended deadlines.32 It was also reasonably foreseeable at the time Alaskan Crude
agreed to the amended deadlines that if Alaskan Crude chose to appeal AOGCC's
decision, that appeal would not be resolved before the deadlines arrived. Alaskan Crude
filed its notice of appeal to the superior court less than six months before the May 15,
2008 deadline and did not seek expedited review.33 The DNR Commissioner's decision
that a force majeure did not exist was therefore not plainly erroneous or inconsistent with
the regulation defining force majeure, and we affirm the superior court's decision
upholding the Commissioner's decision.
Moreover, policy considerations support the conclusion that the AOGCC
decision and Alaskan Crude's appeal of that decision did not create a force majeure.
Unit agreements and plans of exploration for oil and gas development will often result
in disagreements between unit operators and regulatory agencies.34 If a unit operator
could toll its work obligations simply by appealing any unfavorable decision from the
32 The superior court held that AOGCC's decision could not trigger the force
majeure clause because it was not a "judicial decision" but rather the decision of a quasi-
judicial administrative body. We need not decide today whether the decision of a quasi-
judicial body can be a force majeure as defined in DNR regulations. We simply
conclude that even if such a decision could be a force majeure as a general matter, it is
not one in the present case.
33 Ultimately, Alaskan Crude's opening brief in that appeal was not filed until
January 15, 2009 - eight months after the May 15, 2008 deadline had lapsed.
34 See, e.g., Exxon Corp. v. State, 40 P.3d 786 (Alaska 2001) (appealing the
denial of a request to DNR to expand the area covered by a unit agreement); Conoco,
Inc. v. State, Dep't of Natural Res., Mem Op. & J. No. 668, 1993 WL 13563632 (Alaska,
June 9, 1993) (appealing the denial of a request to DNR to reduce the royalty rate
contained in a unit agreement); Gottstein v. State, Dep't of Natural Res., 223 P.3d 609
(Alaska 2010) (third-party appeal of DNR's approval of a plan for development); White
v. State, Dep't of Natural Res., 984 P.2d 1122 (Alaska 1999) (appealing the denial of a
request to DNR to assign a state land lease).
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State, however minor or foreseeable, and claiming that the appeal was a force majeure,
development could be stalled indefinitely over routine disagreements. This does not
diminish the right to appeal an unfavorable decision; if a unit operator wishes to appeal,
it can always request that the superior court stay any intervening deadlines during the
pendency of the appeal.35
Indeed, if Alaskan Crude believed that it could not complete its work
obligations until the appeal of the AOGCC decision was resolved, it had several other
options available rather than invoking the force majeure clause. The most obvious
course of action would have been for Alaskan Crude, after learning of the AOGCC
decision, to attempt to negotiate different deadlines for the amended plan of exploration
that would accommodate the appeal. But even after agreeing to the new deadlines,
Alaskan Crude could have requested that DNR amend the plan of exploration once again
after the notice of appeal had been filed.36 Finally, it could have requested a stay from
the superior court until the appeal was decided.37 Although there is no guarantee that
these requests would have been granted, they would have been subject to the regular
administrative review and appeal process and could have addressed Alaskan Crude's
concerns without relying on the force majeure clause.38
Because we affirm the superior court's decision upholding the DNR
Commissioner's decision on the ground that the delay in resolving the appeal was
35 AS 44.62.570(f).
36 Alaskan Crude did eventually make two such requests, but not until
April 24 and May 5, 2008, while the DNR Commissioner's decision regarding the force
majeure clause was pending.
37 AS 44.62.570(f).
38 See, e.g., Exxon Corp., 40 P.3d 786; Conoco, Inc., Mem. Op. & J. No. 668,
1993 WL 13563632.
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foreseeable, we need not address whether the unresolved appeal actually prevented
Alaskan Crude from meeting its work obligations.
B. The DNR Commissioner's Proposed Default Cure Did Not Unilaterally
Amend Alaskan Crude's Unit Agreement.
Alaskan Crude also appeals the default cure proposed by the DNR
Commissioner, arguing that it constitutes an improper unilateral amendment of the unit
agreement. The superior court rejected this argument, observing that "the Unit
Agreement itself sets out the procedure for issuing demands to cure and minimum cure
periods" and that the DNR Commissioner had complied with those procedures.
We agree with the superior court and conclude that the proposed default
cure was in accordance with the terms of the unit agreement and was not an improper
unilateral amendment. Article 20.02 of the unit agreement specifies that in the event of
a default:
The Commissioner will give notice to the Unit Operator and
the Working Interest Owners of the default. The notice will
describe the default, and include a demand to cure the default
by a certain date. The cure period shall be at least thirty days
for a failure to pay rentals or royalties and ninety days for any
other default.[39]
The DNR Commissioner found that Alaskan Crude was in default and provided notice
of that default on July 16, 2008. The Commissioner included a demand to cure the
default by moving a drilling rig to the well by March 31, 2009 and re-drilling the well
by October 1, 2009. This cure period was significantly longer than the 90-day minimum
required by the unit agreement; in fact, the dates demanded by the DNR Commissioner
were the same dates proposed by Alaskan Crude in its additional requests to amend the
39 Similar default and cure provisions are also contained in DNR's
regulations. 11 AAC 83.374(b).
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plan of exploration on April 24 and May 5, 2008. We conclude that the default cure was
in accordance with the unit agreement and had the practical effect of granting Alaskan
Crude's own request. It was not a unilateral amendment of the agreement and the
decision of the superior court is affirmed.
V. CONCLUSION
For the foregoing reasons, we AFFIRM the decision of the superior court
upholding the decision of the DNR Commissioner.
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