Prudhoe plan only one ruled incomplete

BP’s plan of development for Prudhoe Bay is the lone plan state regulators have deemed “incomplete” since a January request to all oil and gas operators in the state for natural gas marketing and facility sharing information.

As of Aug. 2, the Division of Oil and Gas had received and approved 21 of 22 oil and gas unit plans of development since Jan. 1, was processing five plans and had eight more development plan deadlines upcoming, according to the division.

Historically, the annual unit plans of development have been primarily technical documents used to relay specific drilling plans and other development activity to state resource managers within the Department of Natural Resources and its regulatory agency, the Division of Oil and Gas.

In January, now-retired DNR Commissioner Mark Myers sent letters to all unit operators in the state requesting information, where available, regarding what the operators have done recently to market potential natural gas reserves and how they share facilities with other operators. The information, according to Myers’ letters, would help determine the viability of developing and monetizing more of Alaska’s oil and gas resources, a portion of the department’s mission.

“In order to achieve this goal, it is important that DNR understand how all hydrocarbons available for offtake are being utilized on the unit, are being sold within the state, or are being prepared and/or marketed for potential future sale,” Myers wrote.

The iconic Prudhoe Bay unit, operated by BP on behalf of the working interest owners ConocoPhillips and ExxonMobil, with its 26 trillion cubic feet of recoverable natural gas, would supply about three-quarters of the gas for the gas export plan that is the $45 billion-plus Alaska LNG Project.

Myers’ original request to BP for Prudhoe was for “the identity of the parties with whom the unit operator has current commercial agreement(s), or with whom the operator intends to have substantive discussions regarding the marketing of unit hydrocarbons including unit gas and heavy/viscous oil resources.”

Additionally, commercial terms of the potential agreements as well as gas volumes to be delivered among other specificities were requested.

The 2016 Prudhoe Bay Unit Plan of Development turned in to the division March 31 was general and brief in its reference to the new request, stating that major gas sales — the Alaska LNG Project or another gas export plan — from Prudhoe “remains dependent upon a number of factors including market demand and the availability of an acceptable offtake project. In the meantime, the (Prudhoe Bay Unit) working interest owners will continue to use gas to enhance and accelerate oil recovery for (natural gas liquids) production for shipment through TAPS or use in enhanced oil recovery operations.”

BP added that the companies will also continue to evaluate plans to optimize resource recovery and “operational changes to position for major gas sales.”

After the Division of Oil and Gas deemed the Prudhoe plan lacking, a back-and-forth of correspondence ensued with BP, with the backing of the other unit owners, repeatedly contending the request broke nearly 40 years of precedent set since Prudhoe’s first plan in 1977 and further could violate federal anti-trust laws.

Ultimately, an agreement was not reached and the original June 30 deadline for an approved plan of development was extended to Nov. 1.

BP has until Sept. 1 to submit a modified plan for review.

Oil and Gas Division Director Corri Feige said July 19 that the original request by the department was overly detailed and has been made more general in later communications with BP.

Plans of development for other units from other operators approved this year appear to be similarly vague to BP’s in regards to marketing information.

Hilcorp Alaska, which operates multiple units in Cook Inlet and on the North Slope sent a two-page letter to Feige March 10 generally outlining its stance on gas marketing and facility sharing for all of its units.

On Cook Inlet gas, Hilcorp Alaska Land Manger Kevin Tabler wrote that the company sells nearly all of its gas to the region’s gas and electric utilities.

Tabler noted that marketing arrangements and facility sharing agreements “often contain confidential information not appropriate for the public record by inclusion and distribution in a document such as the (plan of development).”

He added that Hilcorp representatives would be willing to meet with division officials to discuss the best way to handle potentially sensitive information.

Because long-term gas contracts with utilities are public documents filed with the Regulatory Commission of Alaska, the terms of the associated sales are public.

As for the Slope, Tabler wrote that Hilcorp doesn’t have natural gas available for a major gas sale.

“To the extent gas sales at all are negotiated, they are for the enhancement of those who are fuel gas deficient and thereby supporting the commercialization of royalty bearing hydrocarbons for which the state is the royalty beneficiary,” he wrote.

Ultimately all the information the division needed from Hilcorp was collected during regular plan of development discussions, according to the division’s response to questions from the Journal. No additional meetings were required to meet the January request for more information.

Feige sent letters to Hilcorp July 5 approving the company’s Duck Island, Milne Point and North Start North Slope unit plans of development.

Cook Inlet Energy’s plan of development for the Redoubt Unit submitted Jan. 29 states the independent “currently markets its oil in the (Redoubt Unit) through the Cook Inlet Pipeline and sells it to Tesoro at the Drift River facility. All gas produced from the (Redoubt Unit) is used to power operations at the unit facilities.

“Cook Inlet Energy is always interested in entertaining offers to use its spare production capacity at all of its facilities, and is willing to enter facility sharing agreements as reasonable and appropriate.”

The Redoubt Unit Plan of Development was approved March 22.

Similar to Hilcorp, Cook Inlet Energy’s Redoubt plan document did not warrant any extra discussion with the Division of Oil and Gas beyond what has been normal in the past, according to the division.

Gov. Bill Walker said in a July interview with the Journal that he does not feel there are anti-trust issues and that the producers’ request and approval from the Alaska Oil and Gas Conservation Commission for additional gas offtake from Prudhoe and Point Thomson last fall starting in 2025 officially signals an intent for major gas sales at that time.

And because the state is dependent upon the producers to pull its share of the gas off the fields it is appropriate for the state to know what they are doing to line up customers for Alaska’s gas worldwide, he said.

Walker also said he has had meetings with the Alaska leaders of the major producers about the Prudhoe plan and said he fully expects a solution to be reached.

Elwood Brehmer can be reached at [email protected].

08/03/2016 - 1:28pm