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Providing coverage of Alaska and northern Canada's oil and gas industry
April 2013

Vol. 18, No. 17 Week of April 28, 2013

A connection agreement for Prudhoe Bay?

Field has never had a formal agreement with the trans-Alaska pipeline, but the replacement of transit lines may change that

Alan Bailey

Petroleum News

In perhaps one of the more obscure outcomes of the replacement of corroded oil pipelines following a 2006 oil spill at the Prudhoe Bay oil field, the owners of the field may have to sign for the first time a formal connection agreement between the field and the trans-Alaska oil pipeline system, or TAPS. Apparently, with TAPS originally built to export oil from the Prudhoe Bay field before any other North Slope fields were developed, there has never previously been a formal agreement for the terms and conditions under which the field is connected to the pipeline.

But following major replacements of transit lines carrying oil to pump station 1 at the northern end of TAPS, in 2010 Alyeska Pipeline Service Co., the TAPS operator, applied to the Regulatory Commission of Alaska, or RCA, for a permit to connect Prudhoe Bay to the pipeline system; Alyeska also asked the commission to approve a proposed connection agreement between the field and TAPS — an approved connection agreement is a prerequisite for a connection permit.

Lost in history

Although the connection between the field and TAPS has been in existence for the entire life of TAPS, “for reasons not clear to (Alyeska), and lost in history, the TAPS owners and PBU (the Prudhoe Bay unit) have not previously entered into a connection agreement,” Alyeska told RCA.

But the owners of the Prudhoe Bay field have objected to a clause relating to indemnification for economic losses in Alyeska’s proposed connection agreement for the field. Consequently, the owners have argued that the connection agreement is not in fact needed, since the upgrades at the field only involved the replacement of pipelines upstream of the connection to TAPS, with the pre-existing TAPS connection remaining unaltered. The new transit lines do not come under RCA jurisdiction, did not require a construction permit and therefore do not require a connection agreement, the owners said.

However, John Wood, RCA administrative law judge, has proposed to the RCA commissioners that the commission should require an approved connection agreement for Prudhoe Bay, but that the connection agreement should not include the provision for the indemnification of economic losses.

Other agreements

Apparently all fields that have connected to TAPS since the startup of Prudhoe Bay have formal connection agreements. But, although a model connection agreement approved by RCA in 2003 for future use contains an indemnification clause, some North Slope field connection agreements contain a clause of this type while others do not.

Excluding the indemnification clause for economic losses from the agreement “is reasonable and does not grant an unreasonable preference or advantage, nor subject any person to an unreasonable prejudice or discrimination,” Wood wrote.

And the proposed new connection agreement for Prudhoe Bay appears reasonable, closely following the model agreement approved in 2003, even although the field has a previously existing connection with the pipeline system, he wrote.






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