August 10, 2006 --- Vol. 12, No. 46August 2006

RCA issues order on Marathon refusal to produce LNG data

The Regulatory Commission of Alaska has issued an order in response to Marathon Oil Co.’s refusal to comply with a commission ruling requiring it to provide information about LNG conversion and shipping costs for the Nikiski LNG plant on Alaska’s Kenai Peninsula. Tesoro Corp. had made a discovery request for the data in connection with an RCA hearing on a new gas supply contract between Marathon and Enstar Natural Gas Co. — Tesoro and others are challenging the gas pricing in the new contract.

On July 13 Administrative Judge T.W. Patch adjourned a public hearing in the case, so that the commission could decide on its response to Marathon’s refusal to comply with the commission’s ruling. Marathon had said that the data at the core of the dispute are especially confidential and subject to a non-disclosure agreement with ConocoPhillips, the operator of the Nikiski LNG plant.

“Complying with the order will put Marathon in the position of either breaching … agreements with ConocoPhillips or violating a commission order, neither of which is a very appealing place to be,” Mark Lewis, counsel for Marathon, said during the adjourned hearing.

The commission has now ruled that portions of the testimony of Bruce Henning, one of Marathon’s witnesses, be struck from the record. The commission has also ordered Marathon not to challenge estimates of LNG conversion and shipping costs presented by Benjamin Schlesinger, a witness for Tesoro.

In its new order RCA commented that “Marathon’s flagrant refusal to obey our order compelling responses to Tesoro’s discovery requests is unprecedented in the history of this agency.” But, although the commission says that it could dismiss Marathon from the case or seek a superior court action enforcing its ruling about the disputed data, the commission has decided on the course of action set out in the new order “balancing our desire to defend our authority to compel discovery and to deter future discovery violations with the public interest in a record that is as complete as possible under these circumstance.” The commission also commented that the time limits for completing the Enstar/Marathon contract case precluded the possibility of court enforcement of the commission’s ruling.

ANS July production down 14% from June

Even before BP Exploration (Alaska) began shutting down the Prudhoe Bay field, Alaska North Slope crude oil production took a dip. July’s average production, driven by a scheduled maintenance shutdown of the trans-Alaska oil pipeline, was down 13.8 percent from June, averaging 683,417 barrels per day, down from a June average of 792,592 bpd.

BP’s Milne Point field had the largest drop, due to a long maintenance shutdown, averaging 24,112 bpd in July, down 37.9 percent from a June average of 38,800 bpd.

Production at the BP-operated Prudhoe Bay field averaged 305,427 bpd in July, down 17.2 percent from a June average of 369,005 bpd. Alpine, operated by ConocoPhillips Alaska, averaged 97,118 bpd in July, down 16.3 percent from a June average of 116,077 bpd. The BP-operated Endicott field averaged 18,573 bpd in July, down 8.96 percent from a June average of 20,402 bpd. BP’s Northstar averaged 51,339 bpd in July, down 8.6 percent from a June average of 56,142 bpd.

The ConocoPhillips-operated Kuparuk field averaged 170,828 bpd in July, down 3.4 percent from a June average of 176,858 bpd. Lisburne, operated by BP, was the only field on the North Slope where production increased from June to July. The field averaged 16,020 bpd in July, up 4.7 percent from a June average of 15,308 bpd.

Cook Inlet production averaged 16,922 bpd in July, down 2.6 percent from a June average of 17,370 bpd.

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