Prudhoe plan approved on day Oil and Gas Division director resigned

  • By Tim Bradner
  • Sunday, September 25, 2016 9:53pm
  • News

Alaska Department of Natural Resources Commissioner Andy Mack approved the 2016 Plan of Development for the Prudhoe Bay oilfield on Sept. 20, but only after amending the original approval signed four days earlier by Division of Oil & Gas Director Corri Feige.

Sept. 20 was also when Feige announced her resignation from the division.

In other departure news, ConocoPhillips Vice President of Commercial Assets Leo Ehrhard, previously the top LNG manager in Alaska for the company, has retired.

In a Sept. 20 email to DNR staff obtained by the Journal of Commerce, Feige acknowledged the change and gave instructions that Mack’s letter be sent to BP as a replacement for her letter signed on Sept. 16 but not yet received by BP.

BP is the unit operator for the Prudhoe Bay unit on behalf of fellow working interest owners ConocoPhillips and ExxonMobil.

According to the email chain obtained by the Journal, Natural Resources Special Projects Assistant Jim Stine sent the new approval letter signed by Mack to Feige on the afternoon of Sept. 20.

“The decision I signed last Friday 9/16/16 after considerable work and approval by the Commissioner’s office staff, Governor’s staff and the Commissioner was thought to the final decision at that time. That decision was not widely distributed,” Feige wrote to several staff including Stine and Division of Oil & Gas Deputy Director Jim Beckham after she received the revised letter. “Subsequent information received by the Commissioner has led to this final decision.”

Stine’s reply to Feige, indicates that division staff were not aware Mack would be changing the approval letter.

“Thanks for your work (and patience) during this POD process,” Stine wrote. “Corri’s email accurately indicates that, as we understand the direction, the commissioner’s signed letter is meant to replace the decision Corri signed last Friday.”

The new information would appear to be a Sept. 19 letter from BP and ConocoPhillips to Gov. Bill Walker throwing their support behind a state-led effort to monetize North Slope gas in the form of the Alaska LNG Project. The letter was sent the day before Mack’s approval and released by the governor’s office on Sept. 22.

The letter states that several steps will be taken in the coming months including the transfer of land and the federal export licenses to the Alaska Gasline Development Corp. as well as supporting the state’s efforts to lower the cost of supply through forms of federal tax exemption.

The Sept. 16 and Sept. 20 letters are nearly identical except for the closing section under “Decision” and reflect a different set of requirements for the next Prudhoe Plan of Development to be submitted in 2017.

In the Sept. 16 letter signed by Feige under “Decision” she wrote: “it is the division’s expectation that the unit operators and WIO’s activities towards MGS including resolving any misalignment between WIOs that currently impedes progress towards a MGS and agreeing on development strategy will be identified in detail and updated in the 2017 POD.”

(WIO refers to working interest owners and MGS stands for “major gas sales.”)

In the Sept. 20 letter signed by Mack, he wrote: “It is the division’s expectation that the unit operators activities in support of a state-led MGS/AKLNG will be described as provided above.”

There is another slight change in the wording in the final paragraph above the “Decision” section.

In Feige’s letter, she wrote regarding future plans of development: “In these future submittals, the unit operator and the WIOs will be required to provide specific, measurable, verifiable actions they will take during the proposed POD period to move towards MGS.”

In Mack’s letter in the same paragraph he wrote that the POD would be approved “with the understanding that the unit operator will be required to describe the specific, measurable, verifiable actions the PBU [Prudhoe Bay Unit] took during the proposed POD period in support of a state-led MGS/AKLNG Project.”

The difference appears to be that Feige requires the companies to document their efforts toward a generic major gas sale, while Mack’s version conditions future plan approval to showing their steps to support a state-led gas project.

The differences may be nuanced or they may be important, and it is not known whether Mack’s changes played any role in Feige’s decision to resign that same day, although it appears an important coincidence.

DNR issued a statement from Mack Sept. 23 in which he said the department is happy to have resolved the longstanding issue. The department recieved additional information from BP and ConocoPhillips after Feige’s Sept. 16 approval letter, leading to Mack’s revised version, accoridng to the statement. Mack also thanked Feige for “her diligent efforts to bring this critical POD process to a conclusion.”

“DNR has been fortunate to have Corri as a key member of our management team,” Mack said. “As this sigificant effort on the POD wrapped to a close, she let us know that she would be leaving her post to pursue a new job opportunity that also will allow her to spend more time with her family. I have spoken with Corri and understand that her decision to resign was not related to the outcome of the POD, and that her decision to leave the Division of Oil and Gas was a difficult one. We wish her well and thank her for her service to Alaska.”

All this occurred while Gov. Bill Walker and other state officials are in Asia meeting with potential LNG buyers and where Walker spoke at an LNG conference in Singapore on Sept. 21 where he announced a Memorandum of Understanding between the state and ConocoPhillips to negotiate for a joint-venture marketing effort to sell North Slope gas.

The Prudhoe Bay Plan of Development approval has been a contentious issue all year between the state administration, BP and the other Prudhoe Bay owners ConocoPhillips and ExxonMobil.

The Plan of Development, or POD, is a kind of operating permit required of each field on state-owned lands. Updated plans and revisions must be approved by the Division of Oil and Gas and without approval the fields cannot legally operate.

In January, the former Department of Natural Resources Commissioner Mark Myers wrote letters to every unit operator in the state demanding detailed gas marketing information including prices, volumes, and discussions with customers.

After BP submitted its 2016 POD on March 31, the Division of Oil and Gas, in a letter signed by Feige in April, said the three paragraphs about major gas sales in the POD were not sufficient to meet Myers’ demand.

BP and the other WIOs subsequently and repeatedly rejected the state demands, maintaining that the information is confidential and that to disclose marketing activities of any company would violate antitrust laws.

The standoff continued through the June 30 expiration of the 2015 POD, when the state gave BP and the WIOs until Sept. 1 to comply with its requests and extended the old plan until Nov. 1. On Sept. 1, BP and the WIOs affirmed their previous position.

In his Sept. 20 letter that approved the plan Mack said BP and the other Prudhoe owners had met with division officials and provided some information under confidentially, and had given assurances that they would continue to support the Alaska LNG Project.

Alaska LNG is a proposed $45 billion project that would build an 800-mile 42-inch pipeline from the North Slope to the Kenai Peninsula, where a large liquefied natural gas, or LNG, plant would be located. A large gas conditioning plant would also be built on the North Slope for the project.

So far work on Alaska LNG is being done by a joint-venture of the three major North Slope producers and the state-owned Alaska Gasline Development Corp., or AGDC. ExxonMobil has been the project lead and is the largest owner of Slope gas, and the state is second-largest at 25 percent.

Earlier this year the company partners informed the state that with LNG at record low prices and huge surplus production capacity the project faces economic challenges. Given that the companies were not all in agreement to initiate detailed engineering, a $1 billion to $2 billion expense, until energy markets start showing recovery.

ExxonMobil has also noted pointedly in testimony to the Legislature and in a letter to Alaska Gasline Development Corp. CEO Keith Meyer that the lack of a fiscal agreement from the state led to the two options being presented in February for either the state taking control or pacing the work within the existing structure to match market conditions.

The governor quickly seized on the option to take control. The transition from a privately-led to state-led project is underway and will be completed by the end of the year.

Meanwhile, the producer company staffing on the Alaska LNG effort is being watched closely because changes often indicate a shift in attitudes of companies, in terms of a willingness to assign experienced executives.

Leo Ehrhard, a seniorConocoPhillips manager who has been on the Alaska LNG management committee, has retired, ConocoPhillips confirmed.

The two other producer company managers on the committee, Dave van Tuyl of BP and Bill McMahon of ExxonMobil, remain.

While industry is usually careful to keep the same managers on a major assignment to add continuity the state has seen frequent turnover of its representatives.

At times the president of AGDC, the state gas corporation, is on the committee. That would be Dan Fauske in the past and now Keith Meyer, current CEO.

But Gov. Bill Walker has at times assigned his special advisors, such as Rigdon Boykin, an attorney and long-time confidante of the governor’s, to be on the committee.

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