A Dec. 5 approval by Alaska’s Division of Oil and Gas of a single, combined Niakuk participating area in the Prudhoe Bay unit on Alaska’s North Slope resolves an issue that dates back to 1997. And the approval will result in more royalty income for the state.
The history of the Niakuk field itself dates back essentially to the 1980s, when central North Slope exploration revealed the Niakuk oil accumulation in Kuparuk field-equivalent strata, to the north of the Prudhoe Bay field. Niakuk production started in April 1994 from the Niakuk participating area, or NPA, with BP as 100 percent working interest owner and operator.
Interim WNPA decisionIn November 1997 the division issued an interim decision approving the formation of the West Niakuk participating area (or WNPA), within another section of the field where ARCO (the forerunner of current-day ConocoPhillips) and Exxon were working interest owners. ARCO became operator of WNPA.
Both NPA and WNPA were included with the Prudhoe Bay Unit and became subject to the 1980 Prudhoe Bay Unit Royalty Settlement Agreement, under which the operators can subtract field expenses from Prudhoe Bay royalties paid to the state.
The division’s interim Niakuk decision was temporary in nature and subject to a provision that by March 31, 1998, the working interest owners submit a “final combined (WPNA and NPA) application.” But the need for additional appraisal drilling and the need to complete negotiations between working interest owners, and between the working interest owners and the state, delayed that application.
Ownership realignmentMeanwhile, dramatic changes were happening in the ownership of the North Slope oil fields.
As a consequence of BP’s takeover of ARCO in 2000, Phillips Petroleum took over ARCO’s Alaska assets and the North Slope producers completely realigned their ownership interests in the North Slope oil fields. As part of that re-alignment BP, Exxon, Forest Oil, Mobil and Phillips all became working interest owners in both NPA and WPNA, with BP as the operator. Each company’s working interest in one of the participating areas was the same as its interest in the other participating area, thus eliminating any ownership difference between the two parts of the field.
Phillips later merged with Conoco to become ConocoPhillips and Forest sold its interests to the other working interest owners.
In May 2005 BP, on behalf of the Niakuk working interest owners, submitted the application to combine the participating areas that the division has now approved. The specification of the new combined participating area involves some re-alignment of the boundary of the Prudhoe Bay unit. And the owners have submitted a plan of operation for continued Niakuk development and production.
Field cost adjustmentBut, in combining the participating areas, the owners have conceded that part of the new participating area is not subject to the field expense provision of the Prudhoe Bay royalty settlement, because that part was outside the limits of the original Prudhoe Bay unit.
That means that oil production from 7.474 percent of what used to be NPA and from 5.584 percent of WNPA will pay royalties without field costs being subtracted. Not only that, the working interest owners will refund to the state the field costs assigned to those portions of the field retroactively — retroactive refunds will apply from Nov. 1, 1996, for Exxon, and 2000 for ConocoPhillips and BP.