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August 2018

Vol. 23, No.32 Week of August 12, 2018

PTE files for tariff increase for line from Point Thomson to Badami

Kristen Nelson

Petroleum News

PTE Pipeline LLC has filed a revenue requirement study and a proposed new tariff, $20.84 per barrel, for transportation from Point Thomson to Badami. Point Thomson condensate production began in the spring of 2016; the Regulatory Commission of Alaska accepted a settlement rate of $12.09 per barrel effective April 1, 2017, based on expected volumes through the line. That rate was to end when PTE Pipeline placed new rates into effect, no later than July 1, 2019.

The $12.09 per barrel rate replaced a rate of $17.56 per barrel, which replaced the original proposed rate of $20.39.

The Point Thomson Export Pipeline transports condensate from Point Thomson in a 22-mile, 12-inch liquids line from the Point Thomson unit Central Production Facility to a connection with the Badami Pipeline.

PTE is owned 68 percent by ExxonMobil Pipeline Co. and 32 percent by BP Transportation (Alaska) Inc. The pipeline submitted the proposed initial rate of $20.39 per barrel in September of 2015; the state protested in October and ConocoPhillips protested in November.

The original tariff filings put the cost of the line at some $165.8 million, with projected first-year throughput of some 5,800 barrels per day. In its protest to the original proposed rate the state said the rates were so high because they were based on estimated first-year throughput, while second-year throughput was expected to be some 8,000 bpd.

The line has a capacity of 70,000 bpd with initial Point Thomson production projected to peak at 10,000 bpd.

When ConocoPhillips intervened it said that as a part owner at Point Thomson it would be a future shipper. In 2017 ConocoPhillips said it was dropping its working interest ownership in the Point Thomson unit, about 5 percent, and said its share would be relinquished to other working interest owners at the field.

Production averages

Production began in April 2016 and for the nine months of that year averaged 1,706 bpd (based on production data from the Alaska Oil and Gas Conservation Commission), rising to just 4,748 bpd in 2017 and dropping to just over 3,600 bpd for the first six months of 2018 for which data is available from AOGCC.

David Walsh, president of PTE Pipeline LLC, cited the 4,748 bpd figure in prepared testimony presented to RCA as part of the new tariff filing, and said total throughput for 2017 was 1,746,301 barrels.

He said the 2017 throughput is higher than what is expected for the foreseeable future, citing a 3,608 bpd average for the first six months of 2018, “due to producer operational problems” at Point Thomson, reducing both production from the unit and throughput on the pipeline.

“In fact, the producer has experienced operational issues and has been unable to maintain consistent production since the pipeline went into service in April 2016,” Walsh said. “Throughput dropped below 100 barrels per day on June 11, 2018, and has averaged less than 100 barrels per day since then,” he said, with producer nominations through August only 75 bpd, “and when they will increase is unknown.”

He said that based on those facts, he believes the pipeline’s throughput for the 12 months ending in June 2018, “which equates to an average of approximately 4,500 barrels per day, is a more representative throughput for setting prospective rates than the actual throughput for calendar year 2017.”

Costs

Erik Wetmore, principal in the consulting firm Turner Wetmore Collins LLC, in testimony prepared for PTE as part of its RCA filing, listed elements of total revenue requirement for the line of $34.456 million, including: operating expenses, $4.48 million; DR&R (dismantling, removal and restoration) allowance, $1.015 million; depreciation expense, $5.217 million; amortization of AFUDC (allowance for funds used during construction), $1.252 million; return on rate base, $16.956 million; and income tax allowance, $5.535 million.

Bruce Fairchild, a principal in Financial Concepts and Applications Inc., in discussing his return on equity analysis in testimony filed with RCA for the pipeline, said the risks faced by the Point Thomson Export line “are considerably greater” than pipelines considered in a proxy group, presenting greater risks to investors.

He noted that the commission added a special risk premium to the trans-Alaska oil pipeline tariff, “intended to reflect the extraordinary risks faced by investors during the planning, construction, and initial operating phases of TAPS, averaged over the first 25 years (1977 to mid-2002) of TAPS operations.”

Fairchild said that, in addition to many of the risks faced by the trans-Alaska oil pipeline, the Point Thomson Export Pipeline “is also exposed to additional uncertainties related to the development of the PTU (Point Thomson unit) that were not faced by TAPS. PTEP was constructed for the purpose of transporting condensate in anticipation of the full gas resource at PTU being developed, with the PTU Settlement Agreement outlining several development scenarios of varying scope depending on regulatory, environmental, and environmental factors. Before the full gas resource at PTU can be developed, there must be a way to get the natural gas to market, which does not currently exist,” he said.

He noted the cost of the proposed Alaska LNG Project, an estimated $45-$65 billion, and its scheduled completion date of 2025.

“Because PTEP is being depreciated over 28.7 years for rate purposes, the uncertainties surrounding the development of the PTU create considerable risk as to the full recovery of the owners’ original investment in PTEP. Additionally, since PTEP was placed in service, the PTU has encountered operational problems with its specialized compressors, which has significantly reduced throughput over PTEP.”

RCA is taking comments on the proposed new tariff rate through Aug. 22.

- KRISTEN NELSON






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