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Cook Inlet Energy, Tesoro work deal Companies sign agreement as refiner takes lead on effort to install subsea pipeline to move crude oil from west side of inlet to east Wesley Loy For Petroleum News
A small oil producer and Tesoro have worked out a deal underpinning a planned subsea crude oil pipeline across Alaska’s Cook Inlet.
Cook Inlet Energy LLC, which has oil-producing properties on the inlet’s remote west side, originated the idea of a pipeline link to the east side, where Tesoro operates a refinery at Nikiski.
Such a pipeline could negate the need for tankers to transport westside oil, as is the current practice.
Tesoro is now taking the lead on the project, known as the Trans-Foreland Pipeline, and has indicated construction could start soon.
Cook Inlet Energy has entered into a pipeline development agreement with Tesoro, said a Feb. 12 announcement from Miller Energy Resources Inc., the Tennessee-based parent of Cook Inlet Energy.
Terms of deal Cook Inlet Energy, based in Anchorage, brought the subsea pipeline concept to Tesoro.
“After completing a feasibility study in 2011, we entered into an agreement with Tesoro where Tesoro would agree to fund all the development work for the line plus pay project management fees in exchange for an option to build the pipeline,” David Hall, chief executive of Cook Inlet Energy, said during an investor conference call in December.
Tesoro Alaska Co. has exercised its option to pursue the project, the Feb. 12 announcement from Miller said.
A new company has been formed, Trans-Foreland Pipeline Co. State records list Tesoro as the 100 percent owner.
Under terms of the development agreement, Tesoro will have the sole right to pursue the project until Dec. 31, 2015.
After that, Cook Inlet Energy will have the option to reacquire all interests in the project for $817,490 plus “the cost of tangible equipment and property purchased.”
The Feb. 12 announcement went on to say that if Tesoro “elects to pursue construction” of the Trans-Foreland Pipeline, the agreement contemplates Tesoro acquiring a short Cook Inlet Energy pipeline on the west side.
Pipeline specifications Cook Inlet Energy and Tesoro believe a subsea pipeline across the inlet would offer advantages to the current oil transportation arrangement.
Using tankers is risky, especially in Cook Inlet with its extreme tides and drifting ice.
Westside oil currently flows to Hilcorp’s Drift River Terminal for loading onto ships. The terminal is near Redoubt volcano, which erupted in 2009 and forced an extended shutdown of the facility.
The Trans-Foreland Pipelines, Hall said in the Feb. 12 announcement, “will eliminate the need to move oil by ship near the active Redoubt volcano and across the Cook Inlet, and give us — for the first time — a direct and continuous connection to the Tesoro refinery.”
Hall added: “This should have a number of advantages over the current system, not the least of which should be a reduction in transportation delays, transport costs and business interruption risks. This is a win-win project and we are glad to have Tesoro taking the lead in it.”
Tesoro is seeking a right of way from the Alaska Department of Natural Resources to lay the pipe across state submerged lands.
The steel pipe, 8 inches in diameter, would stretch a total of 29 miles, with the underwater segment running 22 miles.
It wouldn’t cut straight across the inlet. Rather, beginning on the west side at Cook Inlet Energy’s Kustatan oil production facility, the line would loop south and then north again, coming ashore below Nikiski on the east side. From there the line would run, buried, along the Kenai Spur Highway to the Tesoro refinery tank farm.
The U-shaped configuration will “minimize tidal stresses on the pipeline and avoid water depths greater than 200 feet, the maximum depth for safe operation by marine divers,” a project description said.
Tesoro has told regulators the cost of the pipeline, including materials and installation, is $50 million.
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