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May 2010

Vol. 15, No. 18 Week of May 02, 2010

No misconduct, Conoco says about CRU

Company says electric generation created confusion about gas sales at Colville River, didn’t exceed AOGCC offtake allowances

Eric Lidji

For Petroleum News

The perception that ConocoPhillips made early and excessive natural gas sales from the Colville River field comes from confusion in how sales volumes were reported at the North Slope field, the company told the Alaska Oil and Gas Conservation Commission.

“(ConocoPhillips) maintains that it has not exceeded the allowable field offtake rate for the sales of gas to Nuiqsut and that there may be confusion arising from how ‘sales’ are reported to the AOGCC,” Paul Dubuisson, North Slope operations manager for ConocoPhillips, wrote in an April 26 letter to AOGCC Chairman Dan Seamount.

In 2007 the AOGCC gave ConocoPhillips permission to ship 1 million cubic feet of natural gas per day from the Colville River unit to the nearby village of Nuiqsut to meet a contractual obligation. In March 2010, the AOGCC began investigating ConocoPhillips, saying records suggested the company made early and excessive gas sales.

According to Dubuisson, that suggestion comes from a reporting quirk, not misconduct.

In reports to the AOGCC, ConocoPhillips included both the gas it used to make electricity to power field operations and the gas it sent to Nuiqsut. The company did this because the definition of “gas sales” in the August 2006 agreement that manages Colville River gas — signed by the field owners, the state and Nuiqsut — includes gas used to make electricity, as well as gas or any gas-powered energy delivered to a third party.

ConocoPhillips uses Colville River gas to make electricity to power the shipping pumps on the Alpine pipeline. “Without the use of those shipping pumps, no oil production from the Colville River field could be transported from the field to be sold,” Dubuisson wrote.

Itemization requested

On March 16, 2010, the AOGCC asked ConocoPhillips to itemize the two sales volumes — electricity and deliveries to Nuiqsut — in future reports, according to Dubuisson.

“If the AOGCC wishes to handle the reporting of those gas volumes differently in the future, (ConocoPhillips) requests that the AOGCC inform and discuss with (ConocoPhillips) any new reporting format,” Dubuisson wrote.

The electricity issue also explains why the reports make it seem like ConocoPhillips began shipping gas to Nuiqsut before getting authorization from the AOGCC, according to Dubuisson. ConocoPhillips began using Colville River gas to make electricity when the field came online in November 2000. Once the August 2006 agreement went into effect, though, ConocoPhillips began reporting gas volumes used to make electricity, even though it would not actually begin making shipments to Nuiqsut until June 2008.

Metering might be moot

The investigation is also looking into an apparent discrepancy between the sale volumes ConocoPhillips reported to the AOGCC and the production volumes the company reported to the Department of Natural Resources for the purpose of royalty calculations.

Dubuisson sent the AOGCC a chart breaking out the volumes of gas used to make electricity at Colville River and the volumes sent to Nuiqsut between January 2006 and February 2010, saying that the figures match the volumes reported to DNR.

In his March 31 letter opening the investigation, Seamount referred to volumes listed on a DNR website. Dubuisson wrote that the website “is intended to show monthly royalty production volumes. That website may show initial volumes reported but may not be updated to reflect any corrections or adjustments. (ConocoPhillips) cannot otherwise explain the discrepancies but can provide the actual volumes reported to DNR.”

The initial AOGCC letter also questioned ConocoPhillips’ metering practices. Those questions would likely become moot if the AOGCC accepts ConocoPhillips’ explanation.

However, Dubuisson noted that ConocoPhillips measures gas shipped to Nuiqsut differently than the gas used locally for electricity. Because the locally used gas is still owned by ConocoPhillips, the company does not measure those volumes according to the “custody transfer standards” used when gas is transferred from one company to another.

For the gas used to make electricity, ConocoPhillips measures volumes by calculating how much electricity it produces and how much gas is needed to make electricity.

Gas sales rare on Slope

The producing fields on the North Slope are listed as oil fields for the time being, where natural gas is mostly used on site as fuel or pumped back into reservoirs to increase oil production. The Nuiqsut contract is a rare example of natural gas going to a third party.

The AOGCC monitors natural gas use on the North Slope as part of a broader goal to optimize ultimate recovery of oil today and for natural gas, should that market open.

The AOGCC previously declined to discuss this matter while its investigation is ongoing.






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