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Vol. 12, No. 25 Week of June 24, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

State wants gas say-so

BP objects to Prudhoe amendments; Heinze wants 1.25 bcf a day for AGIA bid

Kristen Nelson

Petroleum News

The Alaska Oil and Gas Conservation Commission got a frosty response from Prudhoe Bay owners to a proposal to amend the field’s oil pool rules. What the commission wants is the final say-so on a depletion plan before the owners take any significant amount of natural gas from Prudhoe, which is what would happen if a gas pipeline from the North Slope gets built.

Prudhoe Bay operator BP, speaking for the working interest owners, said it operates the field under commission pool rules and development plans approved by the Alaska Department of Natural Resources and does not see a need for an amendment to the existing rule before a significant gas offtake occurs.

The commission is considering requiring a depletion plan and near-term strategies to prepare for gas offtake — including methods to increase the capture of oil prior to gas offtake and to ensure that facility and well downtime are minimized. The commission also said that as part of a rule 9 amendment it would require detailed, periodic updates on the progress of depletion planning efforts.

What’s in a depletion plan?

In response to a question from commission Chair John Norman, commission reservoir engineer Dave Roby said elements in a depletion plan would include a description of the process to be used to transition from “the field being an oil field to a gas field.” Another element would be the steps to maximize oil recovery prior to a gas sale, reducing the liquids at risk in a gas sale, along with a description of facility modifications for the change from an oil field to a gas field.

Commission consultant Frank Blaskovich said the commission would need to know how much gas is going to be extracted and when; how potential risks would be mitigated, possibly including changes to the way the field is operated; plans to accelerate oil production if that is the way to reduce any potential loses; and how to mitigate “any problems that might come up once the gas sale starts.”

Norman said the commission would put forward a specific proposal for any amendment and allow 30 days for public comments.

BP worried about uncertainty

BP reservoir engineer David Lenig, speaking for BP as Prudhoe Bay operator and the other working interest owners, read a long statement objecting to the proposed amendment. He began by noting that the term depletion plan does not appear in the commission’s regulations. “We are concerned that the proposed order would have uncertain meaning.”

Unless there is a clear definition of the term, it “could create disparate expectations among various persons and agencies,” he said.

Lenig said Prudhoe Bay has been operated under approved plans of development and pool rules for 30 years and said the annual plan of development for the field — approved by DNR — is provided to the commission. The commission is also invited to the annual field review.

He said the Prudhoe Bay owners believe it is most efficient for state agencies and owners “to continue to meet collectively and review updated plans for field operation and development.” Near-term changes in operations are not necessary, Lenig said: “The potential for major gas sales has been part of planning since field start-up.”

Proposal grew out of reservoir study

The amendment proposal grew out of work done by Blaskovich and commission staff with the Prudhoe Bay owners last year on the impact of a major gas sale on total energy recovery, using the owners’ reservoir simulation model and data. (See story in March 4, 2007, issue of Petroleum News.)

Blaskovich said the owners have modeled many ways to reduce energy loss due to a gas sale, and got the most encouraging results when oil production was accelerated prior to gas sales. “This seemed to improve model results regardless of the gas sale target rate or startup time.”

He described a major gas sale as the largest North Slope energy recovery project since the original Prudhoe Bay development in the 1970s and he said the project “might be irreversible, and as such is much riskier than the typical energy recovery project.”

With delivery contracts signed and a gas pipeline in place, “it will be extremely difficult to reduce or shut in a gas sale at Prudhoe if energy recovery problems occur unless other gas reserves are developed quickly.”

And other gas reserves, Blaskovich said, “are not well defined at this time.”

What commission might do

Commissioner Cathy Foerster said when gas sales start and how much gas is sold are “variables that are not set necessarily by this commission, but would be coming to us from the company or companies that put the project forward.” The commission’s control over that would be limited to how much gas comes from Prudhoe Bay and how much from other fields, she said.

Blaskovich said he envisioned the commission would review whatever plan for gas sales is developed, but said any plan should have all four components: volume, date, acceleration of oil production before gas sales and mitigation measures.

Foerster said things the commission can address “might be what is being done to accelerate oil production and what is being planned to mitigate a gas sale.” While BP is doing a lot right now to accelerate oil production, Foerster said the risk she sees is competition from the satellites: “Prudhoe’s not the only game on the slope and there’s a limited resource of infrastructure … rigs and people to do those projects.” She suggested the commission could work with BP to optimize the amount of work done at Prudhoe vs. other places.

ANGDA, Port Authority, ask for minimum offtake

The Alaska Natural Gas Development Authority and the Alaska Gasline Port Authority wanted something else entirely from the commission: approval of a minimum gas offtake rate.

Harold Heinze, chief executive officer of the Alaska Natural Gas Development Authority, asked for approval of a 1.25 billion cubic-feet-a-day rate by the beginning of October in time for a submission under the Alaska Gasline Inducement Act. Heinze said ANGDA’s contacts with major financial institutions, potential investors and pipeline companies indicates that regulatory authority for gas offtake is a requirement for financial commitment to a project.

Bill Walker, general counsel and project manager for the Alaska Gasline Port Authority, said 2 bcf a day would be the minimum for that project and noted that the port authority request was well within the 2.7 bcf a day in the existing offtake rule.

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