State rejects 2016 Prudhoe plan

  • By ELWOOD BREHMER
  • Monday, July 4, 2016 8:47pm
  • News

The state Division of Oil and Gas has officially rejected BP’s 2016 operational plan for Prudhoe Bay, but is extending last year’s plan until Nov. 1 in hopes the company will provide information on its efforts to market natural gas from the oilfield.

Oil and Gas Director Corri Feige wrote a 15-page letter to BP Alaska Reservoir Manager Scott Digert June 30 rebutting several arguments BP and the fields primary working interest owners, ConocoPhillips and ExxonMobil, have made over the past few months as to why they cannot give the state what it wants.

In the letter Feige contends the state needs to be able to plan for “major gas sales” — a natural gas pipeline and export project — and doing so requires BP and the working interest owner companies sharing specific work they’ve done to market the gas worldwide.

“Major gas sales, in the relatively near future, are necessary to realize the benefit of the enormous gas resource within the (Prudhoe Bay Unit) to the people of Alaska, and planning for (major gas sales) must be done now,” the letter states.

Prudhoe holds roughly three-quarters of the natural gas planned for export in the now-tenuous Alaska LNG Project.

The 2015 Prudhoe Bay Plan of Development was set to expire June 30. The renewal dates of the annual operational plans for oil and gas units vary because they are based on when the original plan was approved and thus often do not follow a calendar year.

BP has until Sept. 1 to submit a modified plan of development for review by the division, according to the letter. Subsequently, the 2015 plan has been extended until Nov. 1 “to allow continued operations at (the Prudhoe Bay Unit),” the letter states.

BP Alaska spokeswoman Dawn Patience wrote in an email that the company is reviewing the letter but couldn’t provide further comment at this time.

In January, now-retired DNR Commissioner Mark Myers sent letters to all the unit operating companies across the state informing them the department, through the Division of Oil and Gas, would be requesting additional information in future unit development plans about natural gas production and sales. The information would be used to better understand how the state can maximize those resources, either through instate uses or export sales, Feige explained in a previous interview with the Journal.

BP’s submitted its Prudhoe plan just before the submittal deadline in late March. The plan document contained a few short and general paragraphs that indicated BP has significant interest in selling its gas from the North Slope field, but lacked any further detail.

Feige responded in a letter dated April 11, stating the plan needs to contain “a detailed discussion of the efforts to market gas from the unit during the preceding year, and a detailed plan for marketing efforts the (working interest owners) or unit operator will undertake under the proposed (plan of development).”

More specifically, the division has demanded information about which, if any, potential gas buyers the companies have talked to as well as potential pricing terms that would make gas sales viable.

Gov. Bill Walker has declined to comment on the division’s push for the gas marketing information because it is a regulatory matter, according to a statement from his office.

The company held firm that the original plan document is complete in a back-and-forth of letters with the division since, stating much of the information the state wants does not exist, and if it did sharing it with the state could violate antitrust laws because the state is a potential competitor with the companies whenever the gas from the field is sold.

ConocoPhillips and ExxonMobil have stood behind BP in their own correspondence with the division, saying they also believe the plan is complete.

The companies also contend the new demands are a significant departure from the precedent that has been set over the nearly 40 years that the state has been approving development plans for Prudhoe. The first one was approved in 1977.

On the other hand, the state argues it needs the marketing information to being preparing for major gas sales in about 2025, since that’s when the producers sought and got approval from the Alaska Oil and Gas Conservation Commission last October to start taking gas from the Prudhoe and Point Thomson fields.

Further, the state has cited the companies’ “duty to produce” the gas resources repeatedly since the disagreement arose.

While each side’s argument has largely remained the same in multiple letters, Feige, in her June 30 letter, referenced lines in the original 1977 Prudhoe Bay Plan of Development that states BP planned “to commence gas pipeline deliveries of 2 (billion cubic feet per day) as soon as a pipeline and plant to condition the gas to specification can be completed. This is currently estimated to be about five years after the start of oil production,” for the first time.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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