Continuing concernClock is ticking on approval of a new Prudhoe Bay plan of development ALAN BAILEY Petroleum News
A disagreement continues between the Alaska Department of Natural Resources and BP, operator of the Prudhoe Bay oil field, over the inclusion of gas marketing information in the field’s plan of development. BP filed its most recent plan on Sept. 1 and DNR had given the company until Nov. 1 to correct what the state agency characterizes as a deficiency in the plan.
BP has declined to provide the marketing information, arguing that a disclosure of this type would breach business confidentiality agreements and violate anti-trust laws.
At a Sept. 8 meeting of the Alaska Support Industry Alliance addressing the plan of development question Cathy Foerster, chair of the Alaska Oil and Gas Conservation Commission, talked in general about the AOGCC’s position on the export of gas from the field, while Sen. Cathy Giessel reviewed what is known publicly about the disagreement between the oil company and the state. AOGCC, a state agency completely separate from DNR, is responsible, among other things, for ensuring that the state’s hydrocarbon resources are not wasted and that companies develop fields in a manner that maximizes hydrocarbon recovery.
Maximize oil recovery Foerster said that, although there is a lot of known gas on the North Slope, primarily in the Prudhoe Bay and Point Thomson fields, the gas has not been truly stranded on the Slope because it has a highly valuable use in maximizing the extraction of oil from the oil fields. In fact, Foerster said, to date the AOGCC would not have permitted the export of any gas from the Slope because of the need for that gas in oil production.
There are 2.5 billion barrels of oil remaining in the Prudhoe Bay field and about 200 million barrels of condensate in the Point Thomson field, Foerster said, adding that the remaining oil at Prudhoe Bay is roughly equivalent to the production to date from the Kuparuk River field, the second largest oil field in North America. Despite the fact that producing gas from an oil field before all of the oil is gone reduces the ultimate oil production, the use of gas for producing oil does not seem to have the same resonance with the citizenry as exporting the gas to market, Foerster remarked.
“It just doesn’t soak in as nicely as ‘we want our gas, it’s our gas’,” Foerster said.
Gas after 2025 On the other hand, at some point the British thermal unit hydrocarbon gain from producing gas will overtake that of producing oil. It appears that, for Prudhoe Bay, that point will arrive at around the year 2025, a timeframe that emerged from an application from the working interest owners to AOGCC for an increased allowable gas offtake from the field to accommodate future major gas sales.
“About a year ago, the Prudhoe Bay and Point Thomson owners came before us in hearings and provided us with technical information that supported that conclusion,” Foerster said, adding that the AOGCC had hired world class consultants to validate that perspective.
Importance of oil Were the sales of Prudhoe Bay gas to have started at the time when the idea of a North Slope gas pipeline first emerged, the Prudhoe Bay field would have become depleted of oil production at about 9 billion barrels and business leaders might now be meeting to discuss an industry such as fishing rather than oil, Foerster said.
“When Prudhoe Bay died, everything else would have died too, because Prudhoe Bay provided the infrastructure that allowed Nikaitchuq and Oooguruk and Alpine, and all those things to happen,” Foerster said, referencing some North Slope oil fields that have been brought on line over the years.
Although the recent low oil prices have slowed down oil development activities at Prudhoe Bay, the AOGCC continues to encourage the acceleration of oil production as much as possible, because the more oil that is left in the ground when gas offtake starts, the more oil loss there will be. And, were there to be a move to start up a gas line in the immediate future, AOGCC would have to respond by reducing the allowable gas offtake from Prudhoe Bay to zero, Foerster said.
In fact, from AOGCC’s perspective when it comes to a North Slope gas line, the later the better and the less the better, Foerster said, commenting that if the international gas sales window never opens Alaskans would end up with the benefit of a 27 trillion-cubic-feet gas resource for potential in-state use.
Plan requirements Giessel said that Bill Barron, the then director of the Division of Oil and Gas, had said in a presentation to Senate Resources in 2012 that a unit plan of development must contain a long-range development plan for the unit; a plan for the exploration or delineation of land in the unit; details of the proposed operation of the unit for at least one year ahead; and the surface location of any proposed field facilities.
The field operator submits a plan annually, with DNR conducting a technical review of the plan, developing questions about the plan and then going back to the operator for discussions. DNR will either approve the plan or, if the agency deems the plan to be deficient, discuss with the operator how to cure the plan deficiencies.
The predicament that has now arisen is that DNR has deemed the latest Prudhoe Bay plan of development inadequate because BP has not included within it gas marketing plans for the Prudhoe Bay unit. However, gas marketing plans were not among the list of plan contents that Barron had previously described, Giessel said. BP has told the state that there are federal and state laws that prohibit BP from sharing marketing information from the field working interest owners and that, because of anti-trust and competition considerations, BP cannot accept proprietary marketing information from any Prudhoe Bay working interest owner. Moreover, BP has argued that the state itself is party to the confidentiality agreements for the Alaska LNG project, Giessel said.
Heading for court? Now, with an apparent impasse, what happens if on Nov. 1 the state rejects the Prudhoe Bay plan of development? Corri Feige, the director of the Division of Oil and Gas, has told legislators that without resolution of the plan disagreement, the case would go to the Alaska Superior Court, Giessel said. But why the urgency about information about marketing the Prudhoe Bay gas when the project for exporting the gas is at least nine years away from the point at which the gas needs to be marketed, Giessel asked. At the same time, Prudhoe Bay gas has played a vital role in maximizing North Slope oil production.
“So this is something we’re watching, we’re very concerned about,” Giessel said, referring to the members of the state Legislature. “We don’t really have any authority here. That’s been given to the Department of Natural Resources under statute.”
Giessel said that she worries that the state may have ambitions of take over the operation of the Prudhoe Bay unit, an activity which is more appropriate to the private sector.
Gas line connection? The Legislature is also trying to figure out what connection, if any, there may be between the plan of development dispute and the state administration’s plan to lead the North Slope gas pipeline project, Giessel said. Despite a report from consultancy Wood MacKenzie that the pipeline project is not commercially viable, Gov. Walker is insistent on moving forward with the project, she said. A concern for the legislators is that the plan of development issue, while a small piece of the overall picture, could be an integral part of the large gas line project, Giessel said.
Giessel also questioned the potential cost of any court case involving the plan of development.
“Concerns are arising in my mind,” Giessel said. “I don’t want to spend a lot of money on legal fees and court time, because we’re in a financial pickle right now.”
According to state unitization regulations, if the DNR commissioner finds a unit to be in default, DNR must give the unit operator at least 90 days to cure the default. Then, if the default has not been cured by the deadline set by DNR and the unit contains a well capable of producing oil or gas in paying quantities, the commissioner can seek to terminate the unit agreement “by judicial proceedings.” A standard state lease agreement incorporates these termination provisions.
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