Energy

Alaska oil and gas agency hears arguments on its authority over Hilcorp’s Cook Inlet leak, 4 years later

It took a win in Alaska’s highest court to get it, but Hollis French has had his day in front of the Alaska Oil and Gas Conservation Commission.

“It went about the way I thought it would,” he said afterward.

The virtual public hearing held Wednesday morning by the AOGCC was more than four years in the making and it appeared as if French had spent much of the intervening time preparing for it. Reciting lines from Teddy Roosevelt, he implored the three-member commission to preserve its authority over petroleum resources wasted in the state and to hold those responsible for the waste accountable to the extent practical.

“Conservation means development as much as it means protection. I recognize the right and duty of this generation to develop and use the natural resources of this land, but I do not recognize the right to waste them, or to rob, by wasteful use, the generations that come after,” French said to the commissioners, quoting the former president and famed conservationist.

At issue was the commission’s decision in 2017 to not investigate Hilcorp Energy for wasting state resources, a violation of state law, during a monthslong gas leak from a Cook Inlet pipeline owned by the company early that year. While French actually chaired the commission during the leak, he was outvoted by now-retired Commissioner Cathy Foerster and current Commissioner Dan Seamount and the commission did not act on the leak.

Alaska’s laws against oil and gas waste are typically viewed as among the most stringent in the country.

The Alaska Department of Environmental Conservation similarly did not take any enforcement action against Hilcorp for the prolonged gas leak.

French insists the commission’s official stance that the agency doesn’t have jurisdiction over oil and gas that has been metered shortly after it leaves the wellhead dangerously cedes authority in favor of industry and would leave the state powerless to deal with similar situations elsewhere.

“Under the rule that the other commissioners were using, you could waste lots and lots of gas in Alaska as long as it was downstream of the meter,” he said.

“It does not matter to the public which side of the meter the leak is on.”

Shortly after French, also a former Democrat state senator, was fired from the commission by Gov. Mike Dunleavy in early 2019, French petitioned the then two-member AOGCC — Foerster and Seamount — to hold a hearing regarding the commission’s jurisdiction over the leak. When his petition was denied, he took the issue to state Superior Court. Another loss in Superior Court led French to appeal to the Alaska Supreme Court, which ruled in his favor Sept. 3.

A production operator in the Cook Inlet oil and gas fields before becoming an attorney, French argued the case himself.

The commission has maintained that the leak of gas for which the state’s royalty would be paid was outside its jurisdiction, in-part because the leak was in an eight-inch line carrying fuel gas back to an oil-producing offshore platform. However, that belief “puts the cart before the horse,” Justice Daniel Winfree wrote in the Supreme Court opinion.

“The commission’s mission is investigating and identifying oil and gas waste, and it therefore has jurisdiction over (according to state law) ‘all persons and property, public and private, necessary to’ investigate oil and gas waste. The commission thus had jurisdiction over the leak at issue,” the Supreme Court opinion reads. “If we accepted the commission’s understanding of jurisdiction, the commission could always undermine (a state law) hearing requirement by deciding the substantive issue behind closed doors and then disclaiming jurisdiction.”

French is not asking for a fine against Hilcorp but he did suggest the commission review the pipeline’s maintenance records.

AOGCC Chair Jeremy Price said after the hearing that he and the other commissioners could not answer questions regarding a pending matter. The commission is expected to issue an order on French’s petition, but there is no timetable as to when.

Price was appointed by Dunleavy to replace French in 2019.

In 2018, Hilcorp applied with the Department of Natural Resources for a royalty reduction for the Middle Ground Shoal Platform A that was shut down as a result of the gas leak. Then-DNR Commissioner Andy Mack wrote in a letter denying the request that Platform A was temporarily shut down due to the pipeline leak, which is a mechanical factor that state law expressly prohibits being used as justification for a royalty reduction.

A Hilcorp spokesman declined to comment regarding the hearing.

On behalf of the commission, Senior AOGCC Petroleum Engineer Jim Regg gave an overview of the commission’s look into the leak in 2017 during the public hearing. Regg is also the commission’s inspection program supervisor. The commission determined that the leaking gas had passed through the customer transfer meter and separated from the production property, according to Regg.

He said AOGCC staff investigated the leak, reviewed field and inspection files along with other Cook Inlet pipeline information at the time.

He also noted that two prior leaks in the pipeline had been reported in 2014 by then-operator XTO Energy, when the gas was determined to be “buy-back gas” from a leaking utility fuel gas line.

In explaining commission’s position, Regg said state law requires that produced natural gas be measured before it leaves the lease it was produced from.

“This is the point AOGCC has always deemed the resource, oil or gas, to be produced,” he said.

Because the gas had been purchased by Hilcorp, the commission “deemed it recovered or produced and not susceptible to being waste,” he added.

Regg’s presentation was a means for the commission to counter assertions in the Supreme Court opinion that there was not a substantive investigation into the leak in 2017 despite what the commission previously claimed.

French said after the hearing that he found Regg’s presentation curious and highlighted that Regg is an engineer, not an attorney.

“He knows the piping and the piping’s interesting, but this isn’t a question about how the pipes are screwed together,” French said.

Administration officials said it is unclear whether the Supreme Court ruling truly broadens the agency’s jurisdiction beyond historical standing or if it just compelled the agency to hold the hearing.

“Absent jurisdiction there is no hearing,” French said in response. “It seems to me fairly obvious that the agency took a highly truncated version of their jurisdiction over that leak and the Supreme Court reversed that decision.”

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

Elwood Brehmer, Alaska Journal of Commerce

Elwood Brehmer is a reporter for the Alaska Journal of Commerce. Email him: elwood.brehmer@alaskajournal.com

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