The Point Thomson Unit - The Next Step in the Process.

In September 2005 the Director of the Division of Oil and Gas, Department of Natural Resources disapproved the Point Thomson Unit (PTU) owners’ 22nd Plan of Development (POD) because “it did not set out a plan to bring the PTU into commercial production within a reasonable time frame.”

The Director believed that the pace of prospecting and development for the PTU should be more aggressive than what the PTU owners proposed; so he rejected the POD. Ultimately the Superior Court upheld his decision rejecting the 22nd POD.

After several years of appeals, and after the current appeal to the Alaska Supreme Court, the next step in the process will be for the Director to explain what he considers necessary to diligently develop the PTU. As a part of that explanation the Director can state that if his determination is not accepted by the PTU owners, the unit will be terminated. This explanation would normally take the form of a proposed POD that would be agreed to by the PTU owners. Once the Director explains what he believes is necessary to diligently produce the PTU, the Director will give the PTU owners at least 30 days notice for an opportunity to comment on the proposed POD.

After the hearing the Director will make a final determination regarding the rate of prospecting and development for the PTU. If the PTU owners disagree with the Director’s decision, they can once again appeal that decision to the Commissioner and to the Superior Court.

The PTU owners’ obligation will be to convince the court that what the Director proposed is “in excess of that required under good and diligent oil and gas engineering and production practices.” Because the decision involves substantial agency expertise and not merely an application of the law, the court will apply the reasonable basis test and give deference to the department in its review of the Director’s decision.

To quote the court “Under the reasonable basis standard of review for administrative decisions involving complex issues involving agency expertise, the court is to give deference to the agency’s determination so long as it is reasonable, supported by evidence in the record as a whole, and there is no abuse of discretion.”

This means that unless the Director grossly oversteps his authority, the Superior Court will uphold his determination. The PTU owners understand this and will not risk losing the PTU over an appeal unless the PTU owners believe the Director clearly overstepped his authority in what he required of the PTU owners.

Once this step in the process is completed the PTU will be back on track moving toward development.