On July 15, the State of Alaska filed a brief against ConocoPhillips Alaska in a years long dispute over Santos’ use of gravel roads in the Kuparuk River Unit (KRU). In December, the Landmine published an extensive investigation into the history of the dispute between ConocoPhillips and Santos (Oil Search Alaska when the dispute began in 2019).

Since 2019, ConocoPhillips and Santos (then Oil Search) have been in a dispute over roads located in the KRU, which are located on leases that ConocoPhillips owns. Santos needs the roads to access their large Pikka oil development. State oil and gas leases are clear: the lease holder has the right to produce the oil located on the sub-surface. They do not own the land.

In 2021, Santos offered ConocoPhillips $1 million a year for 30 years, plus money to help pay for road upgrades. ConocoPhillips countered with $20 million a year, an exorbitant $600 million over 30 years. Santos offer eventually went up to a total of $60 million over 30 years. This is described in the state’s brief:

CPAI’s proposal was described as “an attempt to extract exorbitant value from OSA, but it also so severely burdens Pikka project economics to favor processing at CPAI facilities” and that one of CPAI’s offers could have OSA paying “more than $600 million” and “possibly more than three times that to develop all the leases [OSA] currently operates west and south of KRU.”

In April 2022, the Department of Natural Resources (DNR) granted Santos a permit to use the roads. Conoco appealed. In December 2022, then-Acting Natural Resources Commissioner Akis Gialopsos issued a lengthy decision denying Conoco’s appeal for failing to “identify how or why the Division or DNR lacked the authority to issue the Permit, erred in is adjudication process, or undertook a Constitutional taking.”

Soon after, ConocoPhillips appealed the state’s decision to the Superior Court. In the meantime, Santos has had access to the roads.

In their brief, the state does not mince words on their decision to grant Santos the road permit. “Functionally, there is no other way to use the surface of state land with a road than to cross the road. DNR’s authority to manage state land and concurrent uses of state land exists regardless of the other uses of the land. Under CPAI’s view, the regulation would need to list every potential use of state land and then identify when DNR could or could not manage state lands for reasonable concurrent uses in that circumstance. This is neither a required nor a reasonable interpretation of the regulation.”

Here are some particularly scathing statements made by the state in their brief:

Although CPAI is rightfully careful to note that it has not “blocked” OSA from using the KRU roads, CPAI’s arguments are premised on its assertion of a right to do just that—to exclude OSA from access to the KRU over roads installed on state land absent a “commercial use arrangement.”

CPAI attempts to distract the Court from the only issue here—the use of state land containing a road that is commonly used as a road by others. CPAI’s arguments as to other improvements are entirely speculative and contrary to CPAI’s own assertion about what this case is really about: “[t]his matter is about the commercial terms for [OSA’s] use of privately owned roads within the KRU during the development and operation of the PKU project.” 

CPAI’s message of doomed future investment is nothing more than disappointment that its unapproved, monopolistic, rent-seeking efforts have not been furthered by the Permit.

CPAI’s bridge-troll-blustering in this case to extract commercial rents from another oil and gas lessee is not a reasonable surface use for an oil and gas lessee that is being “interfered” with by the Permit.

Under these “Kingdom of Conoco” arguments—where gravel roads impede entry onto state land instead of facilitating it—could CPAI still block perpendicular crossings of the otherwise parallel roads that it posits that OSA could be authorized to unnecessarily build? This interpretation and outcome are an anathema to reasonable concurrent use.

The state also refuted one of ConocoPhillips’ arguments concerning a road the Alaska Industrial Development and Export Authority (AIDEA) used to have on a lease they owned. AIDEA tried to give the state a road, in lieu of their dividend, located on the long troubled Mustang development. Many legislators were bewildered by AIDEA’s attempt and questioned its legality at the time. AIDEA was also attempting to extract money from Santos for use of the road.

AIDEA has since sold their interest in the Mustang project. The president and CEO of the new owner, Finnex, sent a letter to Natural Resources Commissioner John Boyle informing him that AIDEA’s shakedown attempt would not be continuing under their ownership.

Here is what the state said about ConocoPhillips’ Mustang road argument:

CPAI’s brief was overlength due to red herrings; chief among them, its post-decisional arguments regarding HB 39. HB 39, as an appropriation bill, cannot make substantive law changes. The “confinement clause” of Alaska’s Constitution requires bills for appropriations only contain—be confined—to appropriations. The purpose of the clause is to “prevent[] the legislature from enacting substantive policy outside the public eye.” Yet, this is exactly the purpose that CPAI wildly extrapolates into this case with its arguments from HB 39. Ignoring the confinement clause, CPAI infers that the few sentences of HB 39 describing a calculation related to an AIDEA appropriation has, in some form or another: modified statute and regulation, reinterpreted longstanding oil and gas leases, walked back agency action, removed Constitutional requirements for concurrent use, and set natural resource development policy for the State. None of these can flow from a few sentences of text of a single-year appropriations bill.

ConocoPhillips now has the opportunity to respond to the state’s brief. The next phase will be oral arguments before the judge makes a ruling. Regardless of the ruling, the losing party will likely appeal to the Supreme Court. ConocoPhillips and Santos do not seem anywhere close to coming to an agreement outside of the court.