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Energy Law

: The Energy Law Blog

OCS Lease Expiration: MMS Denial of Suspension of Operations Upheld

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By Jana Grauberger:

A recent Interior Board of Land Appeals (“IBLA”) ruling, ATP Oil & Gas Corp., 173 IBLA 250 (2008), affirms an MMS denial of a Suspension of Operations (“SOO”) where the lessee submitted an revised exploration plan (“EP”) and permit to drill (“APD”) just days before the lease’s 10-year primary term expired, but was unable to conduct lease activities before the expiration date. The lessee, ATP, acquired its interest in the lease located in the Mississippi Canyon Area, Offshore Louisiana a little more than two months before expiration of its primary term, which the IBLA described as a “risky venture.” Due to weather conditions and the limitations of ATP’s contracted drilling rig, ATP was unable to get a well drilled prior to the lease expiration date.

In denying ATP’s request for an SOO, the MMS relied upon its Notice to Lessees No. 2006-G02, which requires a lessee “to show that a drilling rig was scheduled to commence operations prior to lease expiration and to have an approved plan (in this case , the EP) and APD.” The MMS found that, even in the absence of weather conditions, ATP would have been unable to commence drilling operations prior to expiration of the lease because of its failure to meet the regulatory requirements of an approved EP and APD. The IBLA affirmed determining that ATP waited too long to submit its revised EP: “The rules required an approved revised EP before lease activities could occur, and anticipated 30 days, at a minimum, for MMS to approve an EP.” The IBLA further concluded that ATP’s APD, submitted on the same date as its request for an SOO, was not submitted so that drilling operations could begin before the lease expiration date, but rather for the purpose of obtaining an SOO. The IBLA also rejected ATP’s argument email communications between ATP and an MMS employee constituted approval or a de facto suspension stating that “[a] set of email communications cannot supplant the approved lease activity that MMS’ detailed regulations require.”

In a footnote, the IBLA clarified statements made in relation to 30 C.F.R. § 250.175(a) concerning the ability of lessees to perform little to no operations on an OCS lease for up to 180 days for any or no reason made in Kerr-McGee Oil & Gas Corp., 172 IBLA 195 (2007): The IBLA stated that it was not its intention in Kerr-McGee “to hold that a lessee that has never engaged in any lease activities is entitled to an additional 180 days after the primary lease term before it must seek an SOO or SOP.”

Full post as published by The Energy Law Blog on January 30, 2008 (boomark / email).

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