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Vol. 18, No. 30 Week of July 28, 2013
Providing coverage of Alaska and northern Canada's oil and gas industry

Revisiting 1995 decision

Triggered by issues in propane hearing, commission looking at Prudhoe MI rates

Kristen Nelson

Petroleum News

Under a 1995 order from the Alaska Oil and Gas Conservation Commission, Prudhoe Bay field operator BP Exploration (Alaska) is maximizing production of blendable natural gas liquids from the field.

But does that promote maximum ultimate recovery or should BP be focused on production of miscible injectant which is used for enhanced oil recovery projects, resulting in more crude oil production?

AOGCC is revisiting its 1995 decision following a 2012 hearing on potential waste of propane at Prudhoe.

After that hearing the commission determined that the best use of propane was for reinjection, not for sale. However, the commission is now asking Prudhoe operator BP if it could be producing more miscible injectant, MI, which is used in enhanced oil production.

In 1995, when Prudhoe Bay had two operators, BP and ARCO Alaska, and the owners held different interests in the oil rim and the gas cap at the field, the commission held a hearing and ordered maximization of natural gas liquids, NGL, over MI. NGL can be shipped through the trans-Alaska oil pipeline for sale; MI is used in enhanced oil recovery, EOR projects, to get more crude oil from the field.

In 1995 ARCO argued for maximizing NGL production; BP argued for maximizing MI production. The field owners had divergent views because they owned different proportions of the field’s oil and gas: ARCO (and non-operator ExxonMobil) owned more of the gas cap and benefitted more from selling NGL; BP owned more of the oil rim and benefitted more from use of MI in EOR which resulted in more crude oil production.

Divergent ownership interests changed in 2000 as part of the Prudhoe reorganization following BP’s purchase of ARCO and Phillips Petroleum’s purchase of ARCO Alaska. Interests in the Prudhoe Bay field — oil and gas — were aligned, so each working interest owner held the same proportion of each.

Changed circumstances?

In its notice of a Sept. 19 public hearing the commission said it was “considering whether changes in circumstances” since Conservation Order 360, CO 360, was issued warrant revision of the conservation order. The commission said that issues it would consider include whether the findings and conclusions in CO 360 remain viable and the effect, “if any,” of an annual average MI volume of less than 600 million cubic feet per day “on ultimate recovery from the Prudhoe Oil Pool.”

In its August 2012 findings on the propane issue the commission said that selling propane “would reduce the amount of MI that could be produced and in turn would reduce the ultimate recovery” from the Prudhoe Bay oil pool.

The commission said the Prudhoe Bay field processing facilities have the capacity to compress 600 million cubic feet per day of MI, but only an average of 131 million cubic feet per day is currently being created.

“If the separation system was changed to allow for increased gas liquids production the majority of these gas liquids would be used to generate MI,” the commission said.

However, the commission said, the Central Gas Facility at Prudhoe Bay “within operational and safety constraints, produces as much gas liquids as it is physically capable of doing.” The gas liquids stream from the CGF is further processed into NGL and MI.

New separation equipment would be required to increase the volume of gas liquids extracted. “The estimated cost of such equipment would be substantial. Installation of such equipment would require a six to eight month shutdown,” the commission said.

Following issuance of the 2012 order on the propane issue, AOGCC Chair Cathy Foerster asked BP Exploration (Alaska) Resources Vice President Janet Weiss (now president of BP’s Alaska operations) whether “ultimate recovery at Prudhoe Bay could be harmed by prospective compliance with CO360’s requirement of maximum NGL production,” and said BP’s testimony at the propane hearing “suggested maximum amounts of NGL are being produced at the expense of miscible injectant (MI) and that as a consequence, less oil is being produced than would be produced if more NGL were available as MI.” Forester asked BP to document whether maximizing NGL sales — as required by CO360 — “at the apparent expense of MI will or will not result in lower ultimate recovery from the (Prudhoe Bay unit).”

In an October reply Weiss said the Prudhoe Bay working interest owners “are in agreement that the maximum manufacture of blendable NGL should continue.” She said BP and the other owners “believe that the current development and production operations of the Prudhoe Oil Pool, including those related to the use and disposition of NGL, prevent waste, represent good oilfield engineering practices, and ensure a greater ultimate recovery of oil and gas.”

In an October response Foerster asked Weiss to “provide an estimate of how the volumes of MI and blendable NGL would change if the facilities were operated to maximize MI production instead of blendable NGL.”

Weiss responded in November: “The maximum MI volume under this operating scenario is limited by the stabilizer bottoms temperature. Changing operations of the CGF to maximize manufacture of MI instead of blendable NGL” would produce an additional 55 million cubic feet per day of MI at the expense of 13,000 barrels per day of NGL.

Inconsistency?

In a January letter Foerster asked for further clarification, telling Weiss that BP’s propane hearing testimony indicated “that the use rather than sale of MI results in greater ultimate recovery,” while Weiss’ October and November letters indicated “the use of MI results in lower recovery than sales.”

In a March response Weiss, by then president of BP Exploration (Alaska), said BP disagreed that there was inconsistency between the company’s testimony in the propane hearing and its response in subsequent correspondence.

She said “BP has consistently maintained that the sale of one barrel of propane or one barrel of blendable natural gas liquids ... would result in a reduction of roughly the same amount of available miscible injectant ... and therefore a loss of the potential opportunity for future incremental recovery of the enhanced oil recovery ... volume (0.6-0.8 barrels) that could accrue from multiple cycles of injection of recovered MI constituents.”

But, Weiss said, while sales of propane and NGL “would have a similar impact on future EOR oil production volumes, the economic results would be quite different. Given the uncertainties, and costs, BPXA has consistently maintained that it is not currently economic to sell propane, but it is economic to sell blendable NGL, and that therefore current practices are fully consistent with good oil field engineering practices.”

She said while BP believes propane manufacture and sale is uneconomic “based on the values proposed by potential buyers,” it believes “maximizing blendable NGL sales creates greater value for the State of Alaska and the PBU working interest owners. Propane and blendable NGLs are compositionally different and have different economic values. ... Additionally, the economics of selling blendable NGLs versus propane are impacted by facility costs,” because “costly facility modifications would be necessary to sell propane, whereas the facilities to extract and transport blendable NGLs are already in place.”

Without project economics

In an April response, Foerster asked BP: “Without regard to project economics, perceived benefits to the State of Alaska or working interest owners, and previous agreements, decisions, and/or orders by the AOGCC or other state agencies, would ultimate recovery increase if the Central Gas Facility was operated to maximize the production of miscible injectant instead of maximizing blendable natural gas liquids?”

In a May response Weiss said: “the short answer is no” based “on a purely volumetric basis” and without consideration of those factors Foerster asked BP to disregard.



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