Judge rules in favor of ConocoPhillips in North Slope road access dispute

An Alaska Superior Court judge on Tuesday ruled in favor of ConocoPhillips in a fight with the state and another oil company over the use of roads needed to access a huge oil field on the North Slope.

In the 15-page ruling, Judge Andrew Guidi revoked the state’s permit that allowed Oil Search (Alaska) to access and develop the remote Pikka field by using roads owned by ConocoPhillip in its Kuparuk River field to the east.

But Guidi, on Wednesday, also issued a stay in the case, maintaining the status quo as the state appeals the decision to the Alaska Supreme Court.

“The state requested a stay, which has been granted during the period we have to prepare our appeal, so that the permit will remain in place while we seek Supreme Court review of this decision,” said Patty Sullivan, a spokeswoman with the Alaska Department of Law.

The state will also seek a decision for a stay from the Alaska Supreme Court as the higher court considers the case, Sullivan said.

The Pikka oil field is expected to begin producing oil next year. Oil production in the initial phase is expected to peak at 80,000 barrels daily, helping boost long-sagging production in Alaska.

The field is expected to produce hundreds of millions of barrels of oil over its life, and could generate billions of dollars in revenue for the state and local entities.

ConocoPhillips, in a statement on Wednesday, said that Guidi’s decision follows legal precedent and recognizes the longstanding practice of North Slope oil producers reaching commercial agreements with other operators to use their roads and other facilities.

ConocoPhillips also said it supports development of the oil field. It hopes to reach a long-term agreement with Santos, Oil Search’s parent company, for the use of the roads, ConocoPhillips said.

The Alaska Department of Law last month issued a pre-emptive statement last month saying in light of comments made by Guidi during the case, it expected a decision that was not in its favor. It said it would appeal such a decision to protect Alaska’s constitutional rights over resource development.

“The state of Alaska has a constitutional obligation to maximize the development of our resources,” said Natural Resources Commissioner John Boyle in the statement last month. “We have to confirm with the Supreme Court that we have the authority to permit access for all developers to ensure we can meet this obligation.”

Oil Search, which also sought a stay in the case, declined to comment on Wednesday, said Steve Wackowski, senior communications manager for the company.

The two oil companies reached an ad hoc agreement in 2018 that has allowed Oil Search to use the 75 miles of roads in the Kuparuk field at no cost, Guidi wrote in the decision.

But the two sides have not reached an agreement compensating ConocoPhillips for the roads’ use.

At the request of Oil Search, the state in 2022 issued a miscellaneous land use permit allowing Oil Search “free use” of the roads, Guidi wrote. It was the first time in state history that such a permit had been issued, allowing one entity to use the private facilities developed by another party on state leases, Guidi wrote.

The Alaska Department of Natural Resources did not have the constitutional, legislative or contractual right to issue the permit, Guidi wrote.

“DNR has no legal basis or authority to grant a third party the right to use (ConocoPhillips) leasehold improvements, by permit or other means, even though they are built on state land,” Guidi wrote.

“Doing so constitutes an “impermissible taking” under the U.S. and Alaska constitutions, he wrote.

Guidi wrote that the state has other options to provide Oil Search with access to the Pikka field, including eminent domain if ConocoPhillips and Oil Search can’t reach a commercial agreement for the use of the roads.

Guidi said the state permit has been a “disincentive” for Oil Search to negotiate a commercial agreement with ConocoPhillips.

ConocoPhillips challenged the permit by appealing to the Superior Court in 2022.

The gravel roads in the Kuparuk River field were first built in the 1980s. They cost $10 million and $20 million annually to maintain, ConocoPhillips has said in court documents. They are eight-feet high and up to 40 feet wide, and cost more than $1 billion to build, the company said.

Oil Search has argued that ConocoPhillips has sought excessive amounts for the road’s use that could jeopardize the development of the Pikka field, court documents show. Oil Search says it has offered to pay ConocoPhillips large sums for the use of the road, including up to $90 million in capital and upgrade costs, as well as an annual maintenance fee starting at $1 million.

ConocoPhillips said in court documents it is not seeking excessive payment and is now requesting $7 million annually, about twice the amount Santos has said it is paying daily to develop the Pikka field.

ConocoPhillips said in its statement on Wednesday that it has never sought to block the roads’ use.

“With the judge’s decision finalized, we look forward to reaching a long-term access agreement with Santos,” ConocoPhillips said.