California Fellow John McArthur Successfully Defends the State of Alaska Against Oil Producer
On June 6, 2013, LCA Fellow and IINREEL Co-Founder John McArthur received a welcome decision from a 2012 administrative trial that involved over $600 million dollars of oil and the Final Unit Tract Allocation for Alaska’s NorthStar field. The field is an offshore field adjacent to the North Slope of Alaska. McArthur served as lead trial counsel defending the State of Alaska in the 2012 trial. The decision by Alaska’s Commissioner of Natural Resources rejects all of the arguments advanced by a producer who sued to force a reallocation of more than six million barrels of oil from the State to various other parties. McArthur presented all of the State’s evidence in the week-long trial in March 2012. He was assisted by co-counsel in the Alaska Attorney General’s office, Senior Assistant Attorney General Richard Todd and Assistant Attorney General Rebecca Kruse.
The lawsuit concerned the proper final allocation of oil in an Alaska North Slope unit whose ownership is divided between the State of Alaska and the federal Bureau of Ocean Energy Management. The allocation depends upon reservoir modeling procedures. Each side used complex mathematical models that take the porosity, permeability, water saturation, pressures, and other information measured from well logs and core samples. The models use these values to estimate the underground location of the oil in place. The models also trace the oil as it flows from the initial locations to the wellheads of the several dozen producing wells in the NorthStar field.
The producer claimed that the State’s outside reservoir expert, one of the world’s leading reservoir engineers, made dozens of errors in his modeling. In addition, it claimed that this expert, his company, and the State employees who worked with them had been biased, acted in bad faith, and fudged their numbers to maximize the State’s oil. The trial focused on details of how engineers estimate oil reserves, the mechanics of a technique known as Sequential Gaussian Simulation, the model the State’s expert created by applying that technique, the State’s rejection of a competing model prepared by field Operator BP, and the geological and engineering characteristics of the NorthStar field.
The Commissioner of Natural Resources rejected the producer’s many attacks on the State’s model and held that the State’s modeling falls well within the range of reasonable professional estimation. He rejected as well the producer’s claims of bias, bad faith, and lack of best efforts, and its multiple contract arguments that the State had breached various terms of the governing contract.
The decision is the most important step to date toward resolving a dispute that has lingered since early 2008. The producer has appealed to the Alaska Superior Court, which will sit as an appellate court when reviewing the Commissioner’s decision. Any further proceedings will occur in Cause No. 3AN-13-08105 CJ, Murphy Exploration (Alaska), Inc., v. State of Alaska, Department of Natural Resources (Sup. Ct. Alaska, 3rd Judicial District).
John McArthur established the Law Office of John Burritt McArthur in 2008 in order to combine his active trial docket with a growing practice as an arbitrator. Mr. McArthur has been involved in some of the largest commercial disputes of the last 30 years. Mr. McArthur represented one of Alaska’s native corporations in a large dispute with the Department of the Interior, advised major oil companies on Alaskan matters, and handled other energy cases while in a mid-career program at Harvard’s Kennedy School of Government and then a Ph.D. program in public policy at the University of California at Berkeley. From 1999 to 2008, while working for the law firm that ultimately became San Francisco’s Hosie McArthur LLP, Mr. McArthur devoted the bulk of his time to a gasoline price-fixing case and to a series of oil posted-price and natural gas royalty cases, including cases for the States of Alaska and Louisiana. Since 2008, he has continued to serve as lead trial counsel in complex commercial cases. He provides trial representation for plaintiffs and defendants in high-dollar commercial cases, including for states and other clients in royalty and tax litigation. In addition, Mr. McArthur increasingly serves as an arbitrator in large commercial disputes. Mr. McArthur has been a trial lawyer in some of the largest trials of the last few decades. Early in his career, he was one of the lawyers who, with LCA Fellow Mark Wawro, tried the first take-or-pay case to go to trial on a repudiation theory. The jury awarded a $563 million verdict against El Paso Natural Gas Company in one of the top 10 jury verdicts in 1988. Soon after counsel, including Mr. McArthur, argued the appeal in a Houston court of appeals, El Paso settled by paying $302 in cash and returning mineral interests later appraised at $135 million. Mr. McArthur has been a Fellow of the Litigation Counsel of America since 2007. He is a co-founder of the LCA’s International Institute of Natural Resources, Energy, and Environmental Law (IINREEL).
