By Kristen Nelson
PNA News Editor

What if the reservoir under the North Slope Sourdough prospect extends onto the 1002 coastal plain of the Arctic National Wildlife Refuge? What if owners BP Exploration (Alaska) Inc. and Chevron USA elect to develop Sourdough? What if ANWR oil is subsequently drained from Sourdough wells? What if the federal government does not open its side of the reservoir in ANWR for drilling -- or does not, at least, hold a "paper lease sale" that offers subsurface access to its side of the reservoir?

(Modern drilling techniques make it possible to drill several miles into ANWR from drill pads across the Staines River border.)

If all of this happens, will the federal government be able to claim correlative rights -- and get taxes and royalties - for any ANWR oil pumped from Sourdough wells?

The answer is no, says David Johnston, chairman of the Alaska Oil and Gas Conservation Commission. Correlative rights, which the commission enforces, would not protect federal interests.

"Correlative rights does not protect against drainage," he said. "Rule of capture still exists." Johnston told PNA in a late April interview. What correlative rights does, Johnston said, is to ensure adjacent landowners "the opportunity to extract their fair share of the resource. And it for example, a landowner does not wish to implement his right of opportunity (drill on his side of the property line), that's his choice. The federal government does not have to lease this land. Nobody is compelling them to lease it. But if that's the case, then rule of capture applies." Rule of capture is the same law that applies to the ownership of a wild horse that roams across several property lines -- whoever captures it, owns it.

ANWR lagoons may raise similar questions, says Johnston

Where correlative rights operates would be if, for example, 160 acres were split into two parcels with different owners, and the state allowed only one oil well per 160 acres, "and property owner A drilled a well, then that would preclude the ability of property owner B to drill a well, Johnston said. "The rules then say... property owner B has a right to extract that resource, therefore, in order to make property owner B whole, we will integrate the interest of property A with property B and so they'll both jointly share in the benefits of the well drilled in that spacing unit."

Compulsory unitization of ANWR

The other issue that could arise, Johnston said, would be in relation to the commission's mandate to prevent waste by ensuring that the field is developed efficiently.

"I think the most interesting situation would be...if we determined that it was necessary to place an injector on federal property in ANWR, whether we could then force unitize that federal acreage to allow the siting of that well.

"Say that in order to prevent waste and protect and ensure greater ultimate recovery of oil and gas it is necessary to site an injection well on the ANWR acreage, then would this commission have that authority to order the compulsory unitization of the unleased federal land? And I think in that case you would begin to get into the area of federal versus state jurisdiction." Johnston said.

He pointed out that such an injection well would not necessarily have to be on federal surface land, but said he thought the landowner opposite state land would at least want to lease the subsurface and then come to the table as a royalty owner/lease owner that would want to integrate their interests with the state property."

The situation he was describing, Johnston said, was one where the commission acted to compel unitization to protect correlative rights, prevent waste and realize maximum recovery. Nothing would prevent voluntary agreements -- in which the commission would not play a part.

Johnston said he interprets state statutes as giving the commission "jurisdiction over federal land in the state."

"Conversely," he said, "1 would not be surprised if somebody on the federal side of things questioned that and took steps to prevent any sort of action by the commission to order compulsory unitization of federal acreage. I suspect you would see some sort of litigation come out of it." Johnston said he thought a voluntary agreement would be the best way to handle the potential drainage and other related reservoir-management problems. but said he had not read the provisions of law under the Alaska National Interest Lands Conservation Act. and didn't know whether, given the restraints of ANILCA, the federal government could even enter into such a voluntary agreement.

"The other way of possibly handling something like this ... (would be to) set up a line of injectors right along the border with ANWR and then waterflood east and west. That, to me, is not an ideal solution because that may not be the ideal way to develop the reservoir. But it may be a useful tool to make sure that the rightful share of the resource is recovered by the rightful owner."