Alaska, Dept. of Natural Resources v. Alaskan Crude CorporationAnnotate this Case
An oil and gas lessee conducted drilling activity on the last day of the lease term; the lease provided that such activity would extend the term. Two days later, however, the Department of Natural Resources (DNR) sent the lessee a notice that his lease had expired. The lessee suspended drilling activities and asked DNR to reconsider its decision and reinstate the lease. DNR reinstated the lease several weeks later. The lessee contended that the reinstatement letter added new and unacceptable conditions to the lease, and pursued administrative appeals. Six months later DNR terminated the lease on grounds that the lessee had failed to diligently pursue drilling following the lease’s reinstatement. The superior court reversed DNR’s termination decision, finding DNR had materially breached the lease by reinstating it with new conditions. Both DNR and the lessee appealed to the Alaska Supreme Court. The Supreme Court concluded that although DNR breached the lease in its notice of expiration, it cured the breach through reinstatement. And DNR’s subsequent decision to terminate the lease was supported by substantial evidence that the lessee failed to diligently pursue drilling activities following reinstatement. Further, the Court concluded neither DNR nor the superior court erred in failing to address the lessee’s damages claim. The Supreme Court reversed the superior court’s decision reinstating the lease and affirmed DNR’s termination decision.