Alaska regulators propose $914,000 fine against ConocoPhillips for North Slope gas blowout and leak

An Alaska regulatory agency has proposed a $914,000 fine against ConocoPhillips for numerous violations associated with a natural gas leak that occurred at its Alpine field on the North Slope last year.

The Alaska Oil and Gas Conservation Commission found in its investigation that the oil company violated several provisions of state law during a series of missteps that led to the leak, and during the response, according to a 16-page proposed enforcement notice released Wednesday.

After the discovery of the leak on March 4, 2022, about 7.2 million cubic feet of natural gas was released into the atmosphere over several days, surfacing at multiple areas of a drill pad. Days after the leak began, ConocoPhillips rerouted much of the escaping gas to the Alpine gas processing facility, but small amounts continued to leak intermittently for weeks.

There were no reports of injuries during the leak, but it caused the temporary removal of 300 personnel as well as alarmed residents in the nearby village of Nuiqsut, and it halted oil production from the drill site.

The Environmental Protection Agency is also conducting an investigation into the event, according to the state agency’s notice.

ConocoPhillips is reviewing the commission’s notice and its findings from the investigation, said Rebecca Boys, a spokeswoman with the oil company.

“We remain committed to working with the AOGCC and to implementing our learnings into our future projects and operations,” she said in an emailed statement. “We recognize that it’s a privilege to operate on the North Slope and in Alaska.”

Brett Huber, chair of the commission, said the nearly $1 million proposed civil penalty comes after the agency’s investigation into the causes of the incident and a March 23 public hearing in which the agency heard from ConocoPhillips officials.

Huber said Conoco “was at all times cooperative” with the agency during the investigation, participated in the hearing, and voluntarily implemented new policies and procedures to prevent similar incidents in the future.

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Houston, Texas-headquartered ConocoPhillips, the state’s top oil producer, produces about 175,000 barrels of crude oil daily. It earned $2.4 billion in Alaska last year, and invested $1.1 billion in capital projects. The company owns the controversial Willow oil field project, approved earlier this year by the Biden administration, though the project still faces a court challenge brought by conservation groups.

In its notice, the three-member agency said it now describes the leak as a “shallow underground blowout” of a well because gas was released uncontrollably at the surface for days across various locations. The agency had originally referred to the event as a “gas release.”

ConocoPhillips has previously said its operations to pump 170 barrels of diesel fuel into a disposal well to prevent freezing increased pressure in the well and initiated the leak. The well is known as WD-03, and is part of the CD1 drilling pad, a 500-foot-long strip of dozens of wells on the tundra.

The state agency’s notice says the company observed elevated pressure in the well during those operations, but took no action to evaluate the cause. After the freeze-protection operations, the company, in the days before the leak was detected, did not recognize or address pressure increases in the well, a violation of law, the notice says.

The pressure caused fracturing of an underground area near the well, the notice says. A surface casing shoe, a protective feature of the well, was also fractured.

The fracturing of the shoe created a pathway for the underground gas “to migrate upward to a thaw bulb” and eventually into the atmosphere, the notice says. A “thaw bulb” occurs when permafrost near a wellbore melts from the movement of warm fluids associated with oil and gas activity.

“The presence of a thaw bulb at the CD1 Drill Site provided a path of little resistance either horizontally or vertically to the movement of gas that was released from (the well) into the subsurface strata and explains why the first observed gas released at surface was about 450 feet away,” the report says.

The gas was able to “move freely beneath the drill site from higher to lower pressure until it found a route to the atmosphere,” the report says.

The gas also appeared elsewhere on the drill site, but the notice says no natural gas was detected outside the CD1 drill site.

The majority of the proposed fine, $760,000, is associated with ConocoPhillips’ failure to install cement around a portion of the waste disposal well where the blowout occurred.

The company began drilling the well several weeks before the incident. The cement could have confined gas from a shallow underground zone to the wellbore, preventing the widespread release of gas, the enforcement action indicates.

ConocoPhillips had historically understood, based on geologic evaluation, that the underground zone did not contain significant amounts of natural gas or abnormally high pressures. As a result, the oil company did not consider it necessary to place cement in that portion of the wellbore, the enforcement action says.

Nonetheless, there were indications from other nearby wells that the underground zone contained a “shallow gas accumulation,” according to the notice. The zone, called C10/Halo by ConocoPhillips, is located about a half-mile below the ground. The company had planned to drill the disposal two miles deep before the leak occurred.

The agency also set a $100,000 fine because ConocoPhillips did not follow the plan during its freeze-protection operation, the notice says.

The agency set a $34,000 fine for waste, double the market value of the wasted gas, in part because the release was not initially controlled.

ConocoPhillips also faces $20,000 in penalties for its response actions. The company failed to seek approval of an alternate safety valve system and for failing to test the well safety valve systems used in the response.

Lois Epstein, who owns LNE Engineering and Policy and provides consulting services for conservation groups and tribes, said she hopes the oil and gas conservation commission will strengthen the regulations to make sure the improvements by ConocoPhillips to prevent future incidents apply to other oil producers.

The need for proper identification of potentially dangerous gas zones and proper protections with cementing are critical, she said. So is making sure that procedures are properly followed when fluids are pumped into wells and pressure limits are exceeded, she said.

Epstein said the commission’s penalty could have been higher, too, considering that important steps weren’t taken that could have prevented the incident, such as ConocoPhillips’ failure to communicate pressure limits to field personnel, another finding in the report.

Epstein credited the agency for producing a strong summary of events in its notice. She said it’s notable that it provided daily incident reports for the first time last year during the event, helping the public. She said ConocoPhillips also took important steps in quickly releasing a summary of what went wrong.

The agency’s notice was signed by Huber and Commissioner Jessie Chmielowski. Commissioner Greg Wilson, a longtime former ConocoPhillips geologist appointed to the commission last fall, recused himself from the proceedings.

According to the notice, ConocoPhillips will have 15 days to challenge the fine, a standard part of the agency process.

The commission has posted documents and public records gathered during its investigation at a state website.