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Conditional approval
RCA rules on Harvest Alaska acquisition of BP Pipelines (Alaska) Kristen Nelson Petroleum News
The Regulatory Commission of Alaska has given conditional approval to the sale of BP’s midstream assets to Harvest Alaska, a process which began after BP announced in August in 2019 that it was selling its Alaska assets to Hilcorp (Harvest is Hilcorp’s midstream affiliate). The companies filed with RCA for transfer of midstream assets in September 2019.
Transfer of upstream assets in the sale, with the state’s analysis headed up by the Alaska Department of Natural Resources, was approved this September.
In its Dec. 14 order, the company said it received both public and confidential information. Usually, it said, its evaluation of applications “is usually based on publicly disclosed information.”
“The fact that we must base the decisions on these applications in large part on confidential information has complicated and lengthened our review and slowed preparation of this order. Though we have relied on confidential information, we needed to proceed carefully to avoid inadvertently revealing information we are required to treat as confidential,” the commission said.
Conditional approval The commission’s Dec. 14 order conditionally grants approval of applications for acquisition by Harvest Alaska of BP Pipelines (Alaska)’s share of the Milne Point and Point Thomson pipelines and BP’s Certificate of Public Convenience and Necessity No. 311, representing BP’s interest in the trans-Alaska oil pipeline and the Valdez Marine Terminal.
Some of the conditions for approval require additional filings by Dec. 28.
BPPA’s interest in PTE Pipeline, the Point Thomson line, is a minority interest in a line operated by ExxonMobil. At Milne Point, where Harvest already held a 50% interest and is the operator, it is acquiring the other 50%.
Harvest Alaska will hold just under 50% interest in the trans-Alaska oil pipeline, with ConocoPhillips and ExxonMobil combined holding just over 50%. The commission said agreement by three of the owners is required for decisions and since there are now only three owners - minor owners having sold their interests over the years - agreement must be unanimous.
Alyeska Pipeline Service Co., owned collectively by the pipeline owners, will continue to operate.
Filings required The commission is requiring modification of some earlier filings - by Dec. 28 - to reflect that Harvest Alaska is an affiliate and no longer a wholly owned subsidiary of Hilcorp Alaska, and that Harvest Alaska is now a wholly owned subsidiary of Harvest Midstream, the midstream affiliate of Hilcorp Energy, Hilcorp Alaska’s parent company.
The lengthiest conditions imposed by the commission are related to TAPS, Certificate No. 311, including a requirement for a written declaration from a corporate officer “authorized to enter into contractual obligations on behalf of BPPA, that it remains bound as a lessee under all right-of-way leases for which BPPA is obligated to perform DR&R.”
RCA is also requiring BP to file “a confirmation that it accepts initial responsibility to be directly cash called or invoiced by Alyeska Pipeline Service Company for the full BP Pipeline (Alaska) Inc. and Harvest Alaska, LLC share of Trans Alaska Pipeline System dismantlement, removal, and restoration costs at all times,” and requiring that BPPA “shall timely pay those cash calls or invoices” in accordance with terms of a 1994 agreement, as amended, or as otherwise agreed to by the owners.
Harvest and BP are required to file concurrently with RCA, all documents filed with the Alaska Department of Natural Resources in compliance with DNR’s decision on the transfer of upstream assets, approved in September.
DNR required a dismantlement, removal and restoration report and RCA listed items it would require on DR&R if they are not included in the report to DNR.
For the PTE and Milne Point lines, closure is when additional submittals (reflecting changed status of Harvest Alaska as described above) are received “and the Midstream Transaction has closed.”
For the TAPS application, approval is when the initial conditions the commission listed are met and the transaction is closed. Other requirements are for concurrent submittal of documents filed with DNR, additional DR&R information and annual financials from BPPA - filings which will occur in the future.
Harvest’s Alaska experience The commission discussed its view of Harvest’s experience as an Alaska pipeline owner and operator, basing that discussion on statutory requirements for maintaining “adequate, efficient, and safe service and facilities” with service that is “reasonably continuous and without unreasonable interruption or delay,” and a requirement that a pipeline common carrier not discriminate between shippers in service or cost of service.
BPPA and Harvest said Harvest Alaska directly or indirectly owns 320 miles of Alaska common carrier pipelines.
“We have reviewed our records and found no complaints about the quality of common carrier service provided by Harvest Alaska, or its subsidiaries,” and “no complaints about discrimination in the common carrier service provided or rates charged for that service filed against Harvest Alaska or its subsidiaries.”
DNR’s State Pipeline Coordinator’s Section reports it regularly monitors the state pipeline leases Harvest Alaska holds, and found no unsatisfactory or non-compliant conditions related to pipeline integrity, maintenance, operations, safety and environmental programs, and “further reports that in some cases Harvest Alaska has proactively taken action to maintain pipeline integrity beyond the minimum standards established by state leases,” RCA said.
Financial issues RCA said many of those opposed to approval of Harvest’s acquisition of BP’s share of TAPS “were specifically concerned about the financial capacity of Harvest Alaska to undertake the financial obligations that come with being a TAPS owner,” which include the ability to financially support TAPS operations and the liabilities associated with those operations, along with the ability to pay for DR&R that is done during TAPS operations and for all DR&R after operations cease.
“BPPA has retained the obligation to pay for most of what would otherwise become, after closing of the Midstream Transaction, Harvest Alaska’s share of TAPS DR&R,” RCA said.
BPPA and Harvest Alaska will split the cost of DR&R, with BPPA responsible for DR&R as that liability exists at the close of the transaction and Harvest Alaska responsible for DR&R liability which develops after close of the sale.
But BPPA will pay cash calls or invoices from Alyeska and then seek reimbursement from Harvest for that company’s share, ensuring, RCA said, “that TAPS DR&R projects are promptly paid for and that any dispute as to which company (BPPA or Harvest Alaska) is ultimately responsible for payment for any specific item of DR&R expense is decided after the initial payment is made to Alyeska.”
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