Opinion ID: 2352543
Heading Depth: 3
Heading Rank: 2

Heading: The Dispute Concerning Alaskan Crude's Work Obligation Deadlines And The Force Majeure Clause.

Text: 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 agreement. [11] 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 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 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 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. 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 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 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.