ConocoPhillips Alaska and Santos disagree about how much it should cost for Santos to use the Kuparuk River Unit (KRU) road system. KRU is North America’s second largest oil field, and ConocoPhillips Alaska built and maintains roads within the unit and to satellite fields to support production of approximately 70,000 barrels of oil equivalent per day, all of which is processed through the Kuparuk production facilities.

As noted in “How to Share Infrastructure on the North Slope,” ConocoPhillips Alaska did not object to Santos accessing the KRU road system during the pre-development phase of Santos’ Pikka project, which is located west of the KRU. The two companies signed an ad hoc road use agreement that allowed Santos access the road system.

However, after Santos applied for a permit for a seawater processing plant, the two companies could not come to terms on how Santos would compensate ConocoPhillips Alaska for access to the KRU roads.

ConocoPhillips Alaska reports that the road system costs between $10 million and $20 million per year for maintenance, and the cost to build a comparable road system today would exceed $1 billion. Santos said it offered approximately $60 million for operations, maintenance, and future capital expenses; ConocoPhillips Alaska asserted the actual offer was for less than $60 million, and its own counteroffer was “substantially equivalent to the road use fees that Santos previously proposed for long-term use of its own Pikka Unit roads.”

The two were at a standstill.

The Alaska Department of Natural Resources (DNR) stepped in, issuing Santos a permit to use the KRU road system. ConocoPhillips Alaska appealed the permit; its request for a hearing was denied in December 2022. Regarding his decision to deny a hearing, then-Acting DNR Commissioner Akis Gialopsos said, “At its very core, the permit authorizes ‘access… until a commercial road use agreement is executed between OSA [Santos] and CPAI [ConocoPhillips Alaska] to provide for reasonable concurrent use.’” He continued: “Oil and gas leases incentivize and promote the development of the State’s resources by granting the exclusive right to the leasing party to the State’s subsurface oil and gas resources. These exclusive subsurface rights are accompanied by limited, non-exclusive surface rights for the purpose of facilitating development within the leased tract.”

Believing that DNR’s decision to issue the permit created legal uncertainty in the oil and gas sector, ConocoPhillips Alaska exercised its right for the Anchorage Superior Court to review Gialopsos’ decision; Superior Court Judge Andrew Guidi issued his written order in December 2024, vacating the commissioner’s decision and the issued permit, stating, “DNR has no legal basis or authority to grant a third party the right to use CPAI’s leasehold improvements, by permit or any other means, even though they are built on state land.”

Guidi laid out his thought process for his decision to revoke the permit, saying that for the permit to stand the court would need to find in DNR’s favor on five questions: 1) That ConocoPhillips and the State “jointly intended” that DNR could allow third parties to enter and use the land and improvements on it; 2) that issuing Santos a miscellaneous use land permit is authorized by law; 3) that 11 AAC 96.010(3) can be applied to grant Santos access to the KRU roads, although it hasn’t been done before; 4) that the enabling statutes on which 11 AAC96.010 are based grant DNR authority over leasehold improvements; and 5) that DNR’s permit is not a per se taking in violation of the Alaska and US Constitutions.

Addressing questions 1 and 2, in paragraph 29(e) of the KRU leases, it says the state has the right to “enter upon and use said land.” ConocoPhillips Alaska argued that this language is limited to the land itself and does not include the road system. DNR said its interpretation of the paragraph allows the state to grant others the right to enter and use the roads in addition to the land. Guidi agreed with ConocoPhillips Alaska, noting that “there is no ambiguity as to what ‘said land’ means,” since “said land” is defined in paragraph 1 of the KRU leases and means only the actual land, so “DNR did not reserve the right to exercise dominion over the KRU roads (or any other improvements).”

Questions 3 and 4 both relate to Alaska Administrative Code Title 11, Chapter 96, Section 10(3), which says: “On state land, a permit or other written authorization is required for an activity on land subject to a mineral or land estate property interest by a person other than the holder of a property interest, or the holder’s authorized representative, if the parties cannot agree on what constitutes reasonable concurrent use.” DNR’s argument was that, in this instance, because ConocoPhillips Alaska and Santos could not agree on how to concurrently use the roads, DNR had the authority to issue a permit to ensure both parties have access as they continue to negotiate. Guidi disagreed with this interpretation, stating, “Of the six enabling statutes cited as a basis for promulgating 11 AAC 96.010, the Court concludes that none provide DNR authority to grant a third-party use of private leasehold improvements; nor do any of the statutes treat ‘land’ and ‘improvements’ as one and the same.”

Guidi posits DNR’s interpretation of the statute would allow any third party to offer uneconomic terms for using a private improvement and then apply to DNR to use the improvement anyway—and for free—if the terms are rejected. He notes that during oral arguments for this case, ConocoPhillips asserted DNR’s interpretation of this statute would allow DNR to grant a third-party use of a lessee’s pipeline or even a building if it’s on state land. Guidi summarizes, “This interpretation would frustrate both the regulation’s purpose and the Constitutional maxim of ‘maximum use’ that DNR claims to advance.”

For question 5, relating to the constitutional issue, Guidi says, “If… the parties are unable to reach agreement, and the State determines that it is in the public’s best interest that OSA have free use of the KRU Road System, the State is not without a remedy.” Eminent domain, Guidi says, would allow the state to take the KRU roads and issue permits at its discretion for their use.

Guidi concludes, “DNR cannot expropriate the roads for the benefit of OSA, without any authority, or due process, or any regard for the property procedure or fair compensation, all under the guise of a miscellaneous land use permit.”

For its part, ConocoPhillips Alaska is unsurprisingly receptive to Guidi’s decision, stating, “ConocoPhillips Alaska welcomes Judge Andrew Guidi’s decision, which follows legal precedent and recognizes the long-standing custom and practice on the North Slope for operators to enter into commercial agreements governing third-party use of private improvements and facilities, including the KRU road system. ConocoPhillips Alaska is supportive of Santos’ Pikka Project, which is moving forward, and has never sought to ‘block’ the use of the KRU roads for their project, other operators, or other developments. This is a longstanding practice of ConocoPhillips Alaska, and we have allowed Santos to use the KRU roads at no cost. With the judge’s decision finalized, we look forward to reaching a long-term access agreement with Santos.”

While Guidi’s order is now in effect, the question of DNR’s authority still isn’t settled, as DNR has appealed the decision to the Alaska Supreme Court, which has issued a scheduling order setting a due date for the State and Santos to submit their brief: March 5, if they file jointly, or March 17, if separately. DNR Commissioner John Boyle said in a press release, “The State of Alaska has a constitutional obligation to maximize the development of our resources… 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.”

In January, the Alaska Senate Resources Committee held a hearing to gather information from DNR, via Deputy Commissioner John Crowther, and the Alaska Department of Law, via Chief Assistant Attorney General Mary Gramling, about the KRU roads and the situation.

The committee asked if there’s language in any lease or permit documents that granted ConocoPhillips exclusive use of the KRU roads. Gramling clarified that the road system was built out over time with a “mish-mash of authorizations” and said there is at least one permit from the construction period of one portion of the road that says it is a non-exclusive permit. She continued, “To your question of exclusivity, the State’s position is that the only exclusive use of the KRU leases that Conoco[Phillips Alaska] has is to extract that particular oil and gas, not other purposes.” The question remains if the “mish-mash” of permitting and lease documents support that position.

Crowther explained DNR issued the permit in order meet its “constitutional obligation to maximize development.” He continued, “We’re obligated to protect the state. And… that’s not to be in favor of one company or another. It’s not for one particular commercial agreement or another to be the preferred of the department. But it’s to look at what we are doing to support investment, to ensure that the state’s rights and reservations are protected, and to maximize value going forward.”

DNR’s concern is that, if one company has the authority to deny use of a road system or other such infrastructure to new explorers or operators on the North Slope, it will deter interest in developing the state’s resources. As Crowther says, “The state’s position continues to be that the unrestrained or reserved right to exclude that leads to an uncapped authority to set the terms of access, including commercial terms, is not consistent with the reservations and the leases, and is not consistent with the state’s interest.”

ConocoPhillips Alaska has communicated to the State that its preference is to continue commercial negotiations with Santos and has provided Santos with an executable copy of a fully negotiated road use agreement. ConocoPhillips Alaska maintains its goal is to reach an agreement with Santos, and, looking forward, would be willing to use the fee structure in this case as a template for future developers, which it says would eliminate much of the uncertainty for new entrants onto the North Slope. The company states, “More oil in the pipeline is good for competition, tariffs, employment, and Alaska in general.”

Until now, exactly which party has what rights when it comes to certain infrastructure in the oil field has been untested, as operators and explorers on the North Slope have successfully negotiated amongst themselves, negating the need for the State to fill a role of moderation or oversight. That era has passed, and now current and prospective North Slope operators who need certainty on their rights and the scope of the state’s authority will need to wait for the Supreme Court to weigh in.