May 03, 2001 --- Vol. 7, No. 51May 2001

Two new bills in Senate on gas development

A bill introduced May 1 would give the Legislature its own natural gas pipelines committee and a bill introduced May 2 would create a state pipeline authority to build a pipeline and facilities for liquefied natural gas export.

Senate Concurrent Resolution 14, introduced May 1 by the Senate Rules Committee, would establish a Joint Committee on Natural Gas Pipelines to study issues relating to the proposed gas pipeline. The joint committee would consider what legislation should be adopted in the second session of the Legislature "to enhance the best interests of the state" and report any recommended action within 15 days of the beginning of the second session.

Senate Bill 221, introduced by Sen. Robin Taylor May 2, would establish the Alaska Liquefied Natural Gas Development Authority to bring North Slope natural gas to market as LNG. Asian, West Coast, Mexican and Hawaiian markets are mentioned in the bill, as are Yukon Pacific Corp.'s permits and export authorizations.

The bill would create the Alaska LNG development authority to develop, construct, manage and operate "a gas pipeline from the North Slope of Alaska to Valdez, including liquefaction and marine port terminal authorities." The authority would be a public corporation and "an instrumentality of the state within the Department of Revenue" but with "a legal existence independent of and separate from the state."

A development plan would be required within a year of the first meeting of the board of directors of the authority, including: estimates of construction costs and timelines; gas procurement prices; use of state's royalty gas; estimates of revenue to general fund and Alaska permanent fund; revenue sharing plan with municipal governments; plan for delivery and pricing of natural gas to communities along the pipeline route and to Southcentral Alaska through a spur line; payment schedule to companies providing permits or other valuable assets; marketing plan to approach potential buyers of LNG.

Division of Oil and Gas concerned about reservoir development at Polaris

The Division of Oil and Gas has become concerned that well-by-well development as opposed to participating area development could be harmful to the Schrader Bluff reservoir on the western side of the Prudhoe Bay unit, and has told lease owners that the state may order production from two wells to cease if owners cannot reach agreement on commercial arrangements. A hearing on the confidential data underlying a disagreement on the area which should be included in the participating area is scheduled for May 4.

Development drilling began at the formation in 1997, and two wells have been testing production, one from S pad and one from W pad. BP is the operator and is aligned with ExxonMobil, Forest Oil and Phillips Alaska against Chevron.

The Division of Oil and Gas has been asking for a participating area application for the development, called Polaris, but Chevron, which has ownership interests only at W pad, is not in agreement with the other owners on how to proceed.

BP has requested continuing tract operations for the existing wells, and has proposed four more wells, one from W pad and three from S pad. In February, Division of Oil and Gas Director Mark Myers told BP that the state would allow continued tract operation production from the existing wells only until May 21, and would allow production from the four proposed wells only for three months from the start of production.

Myers told BP that the division requires sustained production be under an approved participating area "and believes continued tract operations may be detrimental to the development of the reservoir."

BP has told the state that the basis for the disagreement rests on the technical data, which BP said establishes that multiple reservoirs underlie the Schrader Bluff/Polaris area.

Both parties will have the opportunity to present their cases to the state and answer questions from state technical experts and the other parties at a hearing scheduled for May 4. Confidential data on the developments would be discussed in two sessions: a shared-data session would include data common to the aligned parties and to Chevron; separate sessions for non-shared data were also scheduled.

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