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Vol. 21, No. 37 Week of September 11, 2016
Providing coverage of Alaska and northern Canada's oil and gas industry

No marketing info

BP won’t comply with governor’s request for Prudhoe unit gas sales information

TIM BRADNER

For Petroleum News

BP is giving short shrift to Gov. Bill Walker’s demand for confidential information about marketing of natural gas from the Prudhoe Bay field, where BP is operator.

In a refiling of the Plan of Development for Prudhoe’s Initial Producing Area filed Sept. 1 with the state Division of Oil and Gas, BP said confidentiality agreements it has signed with the state and other companies for the Alaska LNG Project, as well as the Prudhoe Bay Unit Agreement, prohibit the company from sharing marketing information with other parties, including state officials who have not signed confidentiality agreements.

Anti-trust laws also prohibit BP from discussing marketing activities with other Prudhoe Bay owners, BP said in its Sept. 1 letter.

Although the document was filed Sept. 1 the letters were not made available to the public until Sept. 6.

In a statement BP spokeswoman Dawn Patience said, “BP and the other PBU working interest owners believe the POD submittal is complete and the POD should be approved. The level of information provided is consistent with the previous PODs that DNR has approved each year since 2000. This POD satisfies all of the Prudhoe Bay Unit Agreement’s and POD regulations’ requirements.”

Beyond unit operator role

BP said in its response that the state’s requests for marketing information go beyond BP’s role as the unit operator.

“BP Exploration (Alaska) Inc., as Prudhoe Bay operator, is not involved in marketing of hydrocarbons produced from the unit. Such action is outside the scope of operations conducted by the PBU operator and is prohibited by the Prudhoe Bay Unit Agreements executed by the state of Alaska and the PBU working interest owners,” which include ConocoPhillips and ExxonMobil.

The Sept. 1 responses are consistent with BP’s responses in earlier letters written this year in response to the requests for marketing information.

Requests from division

The requests were made by the Division of Oil and Gas in response to BP’s filing earlier this year of its proposed development plan, a document filed annually for all state oil and gas units. The plans describe the unit operator’s plans for the year, describing well activity and major maintenance, for example.

Information on marketing of oil and gas resources in the units was not previously requested until this year, and there have been no changes in state regulations to require additional marketing information.

Other unit operators have complied with the requests by including a paragraph or a few sentences saying that marketing activities are ongoing or, in some cases, that no information is available, and the division has approved those plans.

Prudhoe treated differently

Prudhoe is being treated differently, however. BP’s proposed plan was rejected and the information on marketing was asked for again, with a deadline of Sept. 1 for the submission of the information. Meanwhile, Prudhoe’s current plan, from 2015, was extended until Nov. 1, which is the final deadline for resolving the issue.

In a separate letter filed Sept. 1, ExxonMobil, a major Prudhoe lease owner, said it agrees with BP that the 2016 plan of development filed by BP on March 31, “satisfies the requirements of the Prudhoe Bay Unit Agreements and applicable Department of Natural Resources regulations.”

“The Prudhoe Bay initial participating area is fully developed to efficiently and economically maximize hydrocarbon recovery. As the (submitted) Plan of Development indicates, the current focus is to use Prudhoe Bay natural gas to increase oil recovery through reservoir pressure maintenance or to use as fuel, NGL (natural gas liquid) extraction, and miscible injection,” in enhanced oil recovery, ExxonMobil said in its letter.

Initiated by Law

The request for confidential marketing information has been puzzling to Alaska industry officials, as well as state legislators. It is known that the marketing information request was initiated by the state Department of Law when Craig Richards was state Attorney General.

Many in industry see it as a preliminary step in a possible “duty to produce and market” action against the Prudhoe leaseholders.

Richards as well as Gov. Bill Walker have long argued that litigation and other procedures under the “duty to produce and market” language in state oil and gas leases could force producers to develop and sell undeveloped gas, or oil.

With Prudhoe Bay, the argument would be that by failing to adequately undertake marketing for Prudhoe’s undeveloped gas, the leaseholders are reneging on their obligations under the lease. If that could be established the state could issue a default notice and move to reclaim the leases and the oil and gas resources.

Default action downplayed

In statements to the press both the governor and new Natural Resources Commissioner Andy Mack have downplayed this, saying they have no intention of pursuing a default action on the leases.

Mack said separately that he believes a compromise will be reached.

Still, the Division of Oil and Gas has not dropped the request.

BP and the other lease owners say they cannot legally comply with the request, so the companies feel the governor is putting them in a “Catch 22” and creating the legal basis for a default action.

While default seems far-fetched, particularly since Prudhoe is a producing oil field with the gas now used to produce more oil, some in industry see Walker’s action as an attempt to gain leverage on the producers to make Prudhoe gas available to a state-led gas pipeline project.

The governor has said he hopes to entice Asian LNG buyers to invest in the project, which is to be led by the Alaska Gasline Development Corp., the state’s gas corporation.

BP and other Prudhoe producers have agreed to sell gas to third-party buyers on mutually agreed and commercially reasonable terms, but the governor has always been suspicious that the producers will really agree to sell their gas, and those sales will be the underpinning for the governor’s pipeline plan.

Having a “duty to produce and market” legal action on the table, and arguing that third party buyers are making reasonable purchase offers, would give Walker leverage in case commercial terms cannot be agreed.

The belief is that the producers might not want to risk having this complex, controversial issue go into the state courts, and would agree to a more favorable settlement on gas sales terms.



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