The Arctic National Wildlife Refuge, Correlative Rights, and Sourdough: Not Just for Bread Anymore

• Citation: Vol. 19
• Publication year: 2002

§ 19 Alaska L. Rev. 393. THE ARCTIC NATIONAL WILDLIFE REFUGE, CORRELATIVE RIGHTS, AND SOURDOUGH: NOT JUST FOR BREAD ANYMORE

Alaska Law Review
Volume 19
Cited: 19 Alaska L. Rev. 393

THE ARCTIC NATIONAL WILDLIFE REFUGE, CORRELATIVE RIGHTS, AND SOURDOUGH: NOT JUST FOR BREAD ANYMORE

ROBERT W. CORBISIER ^[*]

I. INTRODUCTIONII. OIL DYNAMICS, ALASKA'S LAND HISTORY, AND THE ECONOMIC IMPACTS OF OILA. Oil Development and ProductionB. History of Alaska's LandsC. History of Oil Development in AlaskaD. Oil's Impact on AlaskaE. History of the Arctic National Wildlife RefugeIII. SOURDOUGH'S DEVELOPMENT WARRANTS OPENING ANWR TO OIL PRODUCTIONA. The "Rule of Capture" Still AppliesB. Alaska's Right to Drain Versus Congressional Intent to ProtectC. Efficient Development Requires Unitized Oil FieldsD. Executive Authority, Drainage, and ReservesIV. THE CASE FOR DEVELOPING ANWRV. CONCLUSION

FOOTNOTES

This Article highlights the legal questions presented by oil drilling operations conducted in the Sourdough oil field, which is directly adjacent to the Arctic National Wildlife Refuge (ANWR). The author provides background information on the nature of oil deposits and the impact oil has on the State of Alaska in general, discusses the Alaska National Interest Lands Conservation Act as it applies to oil drainage and oil field unitization, and articulates the financial and legal interests of the federal government and the State of Alaska implicated by a decision not to commence drilling operations in ANWR. The Article concludes that there are four possible courses of legal action that could potentially resolve the issues presented by Sourdough drainage: (1) the federal government could sue the State of Alaska to prove drainage and claim federal royalties; (2) the State of Alaska could sue the federal government, claiming the need to unitize the Sourdough field; (3) the State of Alaska could seek a declaratory judgment to secure its rights to the drained oil; or (4) the Secretary of the Interior could lease land in ANWR to preserve the United States' interest in the undeveloped oil.

[*pg 394]

I. INTRODUCTION

On the morning of March 13, 1997, BP Exploration, Alaska, Inc. (BP), announced to the world the birth of the Sourdough oil field (Sourdough). ^[1] BP estimated the field contained approximately 100 million barrels of oil, ^[2] a discovery Alaska Governor Tony Knowles hailed as "significant." ^[3] Some geologists believed the Sourdough field could contain as many as 300 million barrels of oil. ^[4]

Sourdough is unique among the oil fields in Alaska's North Slope region because it lies adjacent to the Arctic National Wildlife Refuge (ANWR). ^[5] ANWR is owned by the federal government and is currently closed to oil and gas exploration. ^[6] BP has stated that the Sourdough field, located on land owned by the State of Alaska, extends to the ANWR border. ^[7] Environmentalists have stated that the exploration site is less than one kilometer from ANWR. ^[8] Normally, an oil field occurring near a border does not create any issues, but this single oil reservoir may extend across the border into the neighboring closed federal lands. ^[9] Therefore, oil [*pg 395] could potentially flow from beneath ANWR to the state land. Although the owner of land overlying an oil field may lease the right to drill for the oil, the owner typically retains a royalty interest in the oil produced. ^[10] If the Sourdough field does in fact extend into ANWR, oil produced on the state side could pull oil from the federal land -- meaning that royalties otherwise belonging to the federal government may go to the State of Alaska.

The Sourdough field thus presents an interesting problem: How can the federal government determine if wells located on state leases drain oil from the adjacent federal land, which is closed to drilling? ^[11] More importantly, once the government makes such a determination, what legal steps can both the State of Alaska and the federal government take to protect their respective rights in the oil itself, or the royalties derived therefrom? Should Sourdough be developed for the underlying purpose of opening ANWR? At least one Alaskan authority believes that the federal government must drill a well to determine how much oil can be produced from the federal side. ^[12] Drilling a well would require an act of Congress because a provision in the Alaska National Interest Lands Conservation Act (ANILCA) closed the coastal plain of ANWR to further oil exploration and development. ^[13] However, notwithstanding the statutory prohibition, former U.S. Secretary of Interior Bruce Babbitt has stated that the Interior Department has the responsibility of ensuring that federal taxpayers are compensated for any federally owned oil that drains to state lands, regardless of the surface development of ANWR. ^[14]

It remains uncertain whether the Sourdough oil accumulation extends into ANWR, but if it does, production from the state land [*pg 396] is likely to draw oil from the federal side. ^[15] In November 2001, the State of Alaska reached an agreement ^[16] with the lease owners of the Point Thomson Unit (Unit), the oil development area that includes Sourdough. ^[17] The agreement requires the companies to achieve sustained commercial production from certain areas of the Unit by June 15, 2008, ^[18] and for Sourdough specifically by June 15, 2010. ^[19] If Congress does not allow leasing in ANWR for oil and gas production prior to June 15, 2010, thereby allowing the federal government to drill wells of its own, Sourdough is likely to become a factor in the debate that rages over whether ANWR should be opened for oil and gas exploration. If the State develops Sourdough, the issue of oil drainage from federal to state land provides another reason why ANWR should be opened to exploration -- to prevent further loss of federal oil and ensuing royalties.

Part II of this Article provides a background into the physical nature of oil, how the ownership of the lands above and adjacent to Sourdough developed, and the impact that oil has on the State of Alaska. The physical properties of oil and the political boundaries near Sourdough are important to understanding the application of modern property law doctrines and why Alaska has a strong interest in seeing Sourdough developed. Part III begins by discussing [*pg 397] the application of the "rule of capture," the intent of ANILCA as it applies to oil drainage, and oil field unitization. Part III also discusses the implied executive authority to allow leasing when there is oil drainage from federal land, what is needed to show the existence of oil, and the proof required to show drainage. Part IV explains why ANWR will actually contribute to a reduction of the United States' dependency on foreign oil and how ANWR can be developed with environmental sensitivity. Part V concludes by outlining four possible legal remedies for Sourdough drainage: (1) the federal government could sue the State of Alaska to prove drainage and claim federal royalties; (2) the State of Alaska could sue the federal government, claiming the need to unitize the Sourdough field; (3) the State of Alaska could seek a declaratory judgment to secure its rights to the drained oil; or (4) the Secretary of the Interior could lease land in ANWR to preserve the United States' interest in the undeveloped oil.

II. OIL DYNAMICS, ALASKA'S LAND HISTORY, AND THE ECONOMIC IMPACTS OF OIL

To understand the legal implications underlying Sourdough's development, it is essential to have a basic understanding of the dynamics of oil development and production, the history of the ANWR and the other lands surrounding the Sourdough oil field, and the historical impact of oil development on the State of Alaska.

A. Oil Development and Production

The State of Alaska and the federal government both have an interest in Sourdough: they are the owners of the overlying land. "Correlative rights" is a common law property doctrine that concerns multiple parties' interests in a common source, such as subsurface mineral rights. ^[20] Typically, the correlative rights doctrine [*pg 398] refers to those rights and duties that exist when landowners have an interest in a common source, which in the context of Sourdough is an oil field. ^[21] The doctrine of correlative rights includes (1) the right against waste of an extracted substance; (2) the right against spoiling the common source; (3) the right against malicious depletion of the source; (4) the right to a fair opportunity to extract the source; and (5) the right to conduct operations to enhance recovery from the source. ^[22] Courts have characterized oil and gas in their natural state as fugitive, ^[23] a term similarly used to describe wildlife and water. ^[24] This analogy has led courts to erroneous conclusions; oil and gas, at least under natural conditions underground, are essentially static, moving on a geologic scale of time imperceptible to humans. ^[25]

It is generally accepted that oil develops from the decomposition of animals, mostly marine, that die in concentrated areas, the remains of which are chemically altered over time. ^[26] Oil and gas deposits are found in sedimentary beds of sandstone, shale, and limestone and are "capped" by a more impervious rock strata. ^[27] The oil and gas molecules are not pooled in large cavernous enclosures as many people believe; instead, they occupy the interstitial spaces of the...