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December 2010

Vol. 15, No. 51 Week of December 19, 2010

Settlement possible on Kuparuk Pipeline

Kuparuk Transportation, Alaska and Anadarko expect to agree to terms for shipping rates on North Slope pipeline by late January

Eric Lidji

For Petroleum News

Alaska regulators have agreed to suspend a rate case on the Kuparuk Pipeline while the owner of the pipeline and two third parties come to terms on a settlement agreement.

The Kuparuk Transportation Co., the State of Alaska and Anadarko Petroleum told the Regulatory Commission of Alaska on Dec. 2 that they had reached a “nonbinding agreement in principle” on the major issues at play in the case, and expected to have a formal settlement finalized and ready for RCA approval by Jan. 31, 2011.

The RCA approved the request on Dec. 6.

In early November, the RCA moved to keep the temporary shipping rates on the Kuparuk Pipeline in place for another year while the parties worked out a hearing schedule.

By suspending the case, the parties can now work on the settlement without having to concurrently put together a hearing schedule that might never be put to use.

The parties said that if they didn’t have a final settlement ready by Jan. 31, they would file a status report updating the RCA on the progress of the negotiations.

Higher rates already in place

The case began in 2008, after the state terminated a two-decade settlement agreement with the Kuparuk Transportation Co. and asked the RCA to begin formal ratemaking procedures. The original settlement set a fixed shipping rate adjusted every three years for inflation. The state instead wanted rates to be based directly on operating costs.

Anadarko Petroleum soon joined the case. The state and Anadarko both have an incentive to keep shipping rates low: the state calculates royalties on the value of oil after transportation and Anadarko doesn’t earn a profit until after it pays shipping fees.

The RCA approved a temporary 35 percent rate increase on the Kuparuk Pipeline in May, giving the parties six months to set a hearing schedule. When the deadline passed without a schedule in place, the RCA gave Kuparuk Transportation Co. another year to collect the higher rates (on a refundable basis, if the case determined the increase to be unjustified).

Kuparuk Transportation Co. said it needs higher rates to pay for $75 million in upgrades needed to accommodate smart pigging technology to monitor pipeline integrity. It noted that these costs must be spread over fewer barrels because of declining throughput.

Kuparuk Transportation Co. is a partnership between subsidiaries of ConocoPhillips, BP and Chevron. The Kuparuk Pipeline moved more than 102 million barrels of oil in 2009.






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