BP proposes to drop Badami tariff by 70%

The powers-that-be at BP are obviously willing to bet Savant Alaska is going to be successful at keeping BP’s Badami unit in continuous production because BP Transportation (Alaska) has filed a tariff revision for the unit’s pipeline with the Regulatory Commission of Alaska that drops the rate from $26.09 to $7.26 per barrel of oil.

Still, $7.26 per barrel is more than the combined cost of shipping oil from Endicott, where the Badami line terminates, to Pump Station One and then down the 800-mile trans-Alaska pipeline to Valdez, where it’s loaded on tankers for delivery to the U.S. West Coast. According to Greg Vigil, executive vice president of Savant Alaska, BP’s Badami tariff needs “to be at a level that provides the pipeline owners with enough revenue to cover their expenses, amortize their investment and make a profit.”

But the reduced rate is still good news for oil companies interested in tapping the undeveloped eastern North Slope, which in October will have an operating pipeline to connect the region to the trans-Alaska pipeline, which starts in the central North Slope’s giant Prudhoe Bay oil field. (Badami is 35 miles east of Prudhoe.) “The lower tariff on the Badami line should help justify the development of other projects on the eastern North Slope,” Vigil said.

If Exxon carries through with its plans for a 10,000-barrel-a-day development at Point Thomson, including a 22-mile pipeline to Badami, the Badami tariff would presumably drop even more — and open up even more of the eastern North Slope. (Point Thomson is 60 miles east of Prudhoe.)

BP placed the Badami unit online in 1998. Initial production, anticipated at 30,000 barrels per day, came in closer to 18,000 barrels and dropped to less than 3,000 barrels by early 1999. BP subsequently shut the field in for a few months. More starts and restarts followed.

In 2008, when the field was in yet another shutdown, Savant and Arctic Slope Regional Corp. did a deal with BP in which Savant would drill an exploration well at Savant’s Red Wolf prospect in the Badami unit and a sidetrack to an existing vertical well to test the potential for horizontal drilling and possible hydraulic fracturing to help sustain production in the field.

Savant anticipates bringing six more wells into production. Combined production is projected at more than 4,000 barrels per day.

Savant does not have firm plans for development drilling in 2011, but also has not ruled it out. Petroleum News sources said the Denver-based independent is talking to potential drilling partners for the eastern North Slope, but company executives would not confirm the information.

—Kay Cashman