An Anchorage judge has approved legality of a negotiated commercial agreement between ConocoPhillips and Santos, which is developing the Pikka Project on the North Slope on the west side of the Kuparuk field.
Alaska Superior Court Judge Andrew Guidi said the commercial agreement that ConocoPhillips seeks with Santos to use the KRU (Kuparuk River) Roads follows a long-standing precedent and is a customary practice on the North Slope. ConocoPhillips wants Santos to help out with maintenance costs and is trying to negotiate the fee.
ConocoPhillips has allowed Santos to use the industrial road at no cost since 2018, but now construction of Pikka is under way, and ConocoPhillips wants a contract.
It was the state Department of Natural Resources that said Santos could use the road that ConocoPhillips paid for. The state fought ConocoPhillips in court and won in a lower court. That lower-court decision is now reversed, the judge said.
“DNR [Department of Natural Resources] has no legal basis or authority to grant a third party the right to use CPAI’s [ConocoPhillips] leasehold improvements, by Permit or any other means, even though they are built on state land,” the judge rules.
“Granting [Santos] the right to use CPAI’s leasehold improvements also constitutes an impermissible taking under the U.S. and Alaska Constitutions. For both independent reasons, this Court reverses the Commissioner’s December 1, 2022 Decision and vacates the Permit issued by the March 29, 2022 Director’s Decision, effective immediately.”
Although the road was build decades ago, it requires constant maintenance at a cost of $10-20 million per year. To build such a road today would cost in excess of $1 billion, Guidi acknowledged.
The state, although it owns the land, granted the permit for construction of Kuparuk roads to ConocoPhillips and thus cannot simply allow other oil explorers to use that road system for free, Guidi ruled.
Once developed, the Pikka Project, may add 200,000 barrels of oil to s to the 500,000 barrels now flowing down the Trans Alaska Pipeline System, something that will help the State of Alaska’s budget shortfalls.
Whether the State of Alaska will appeal Guidi’s decision is unknown,
Update: The state has just sent out a press release saying it will appeal the ruling. The commissioner of the Department of Natural Resources, John Boyle, came to his position directly from a job with Santos, which may complicate the matter for him and Gov Mike Dunleavy.
Read the ruling here:
