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AOGCC tells CIE to upgrade/replace Badami equipment or pay
Kristen Nelson Petroleum News
The Alaska Oil and Gas Conservation Commission has fined Cook Inlet Energy, operator of leaseholder Savant Alaska's Badami unit, $357,905 for flaring produced gas at Badami from October 2024 through March of this year. The commission said the amount is based on its regulations which specify a fine of twice the fair market value for the more than 51 million cubic feet of gas flared and only allow pre-approval of flaring for testing prior to production.
CIE reported the flaring to AOGCC and requested authorization for the flaring based on safety considerations.
The flaring occurred due to a non-functioning vapor recovery unit for which CIE had no backup. The commission said CIE also identified significant inefficiency in the plant's eductor system, resulting in much more gas going to flare when the VRU was down than what was normally captured by the VRU.
Over the winter there was also a two-week turbine outage, requiring use of diesel generators.
The commission said it recognizes that CIE has had repeated issues with the Badami VRU and identified significant inefficiency in the eductor system and said it would give CIE a year from the Aug. 14 date of the order to "complete the upgrade/replacement of both the VRU and eductor system that will prevent future failures, with expenditures within the year being credited against the $357,905 penalty."
CIE cannot credit repair costs for either the VRU or educator against the penalty amount.
CIE and Savant are Glacier Oil and Gas Corp. companies.
Notice of proposed enforcement action The commission issued a notice of proposed enforcement action to CIE on May 27, noting that CIE had reported the flaring as required.
When Badami's VRU experienced what the commission said was "catastrophic damage of its third state compressor due to a discharge valve failure," CIE requested approval to vent or flare gas for more than one hour. The company estimated that 300,000 cubic feet per day of gas would be flared and emphasized that maintaining facility operations was critical to operation of the Nutaaq pipeline carrying production from both Badami and Point Thomson.
The commission noted, however, that when Badami production was shut-in for two weeks in January and February, operations of the Nutaaq pipeline were not impacted.
CIE notified the commission of the loss of the VRU and requested approval to flare gas on Oct. 9. The commission said it replied the same day by email, explaining that its regulations did not allow pre-approval of flaring or venting outside of well testing prior to production, and asking CIE what steps it was taking to reduce the volume of gas flared. The company said repairing the VRU and getting it back online was the only solution.
Those repairs, the commission said, "took multiple weeks and months, due to increasing complexities of repair needs and parts sourcing."
Wells kept online CIE chose to keep all production wells online during the flaring event, the commission said, until Badami's one functional power generating turbine had a catastrophic failure. The company again requested permission to flare, this time just from Badami B1-33, and again, the commission said, it responded that it could not pre-approve flaring or venting outside of testing prior to production.
CIE then shut-in all wells and Badami went on emergency diesel generators for power until one of two power generating turbines was brought back online.
The VRU was still not functioning, but all production wells were brought back online, along with associated flaring.
CIE informed the commission on March 9 that the VRU was back online.
The commission reviewed details of the incident and concluded "that no effort was made to minimize the volume of gas flared that the VRU at Badami would normally capture."
Company response The company requested an informal hearing and submitted a written response on June 17, from CIE Chief Operating Officer David Pascal, after the informal hearing.
Pascal said Badami had to remain operational to ensure transport of oil from both Badami and Point Thomson.
There were extended repair times for the VRU, which "experienced multiple operational failures," he said, citing "vendor delays and post-COVID supply chain issues." Both facility turbines were offline from Jan. 26 to Feb. 18, with one unit undergoing control upgrades and the other "suffering catastrophic failure due to a broken compressor fin."
During that time, and under "extreme Arctic winter conditions," emergency power was from diesel generators, which had to be run continuously, although they were not designed for that and "have since suffered degradation, that will require expensive overhaul," Pascal said.
He said CIE had "complied fully with 20 AAC 25.235," with all gas disposition reported.
Pascal cited 20 AAC 25.235(d)(5) as allowing authorization of flaring beyond one hour "if necessary for facility operations, repairs, or to prevent loss of ultimate recovery."
He listed the events at Badami as:
*Threat to life/property from the emergency loss of both turbines in winter.
*"VRU failure beyond immediate control due to vendor logistics."
*Nutaaq pipeline maintenance critical due to transport of third-party oil.
*"Production of a new well (B1-33A) during initial flowback and ramp-up, where shut-in would cause reservoir damage and loss of recovery."
"These conditions," Pascal said, "clearly fall under authorized exceptions and were unavoidable despite best practices."
Economic issues Pascal also listed economic and public interest considerations, including royalties received by the state from Badami between October 2024 and March 2025 and the volumes of Point Thomson oil transported by the Nutaaq pipeline.
In its Aug. 14 order the commission said it does not take economic factors into account when enforcing its statutes, beyond "considering whether flaring is necessary to prevent loss of ultimate recovery" pursuant to its regulations.
"When Badami experienced the loss of power turbine generating capacity, and all production wells were shut-in, the emergency diesel generators were enough to supply power to keep the Nutaaq Pipeline operating," the commission said. "Also, this argument proposes a false dilemma, as shutting in some production wells was an option that was not pursued, all across 6 months (minus the 2 weeks during the power turbine outage) the same production wells were kept online."
The cost of gas used by the commission to calculate the civil fine is overstated, Pascal said, citing the amount Savant paid for Endicott gas during the period in question.
In its order, the commission said that in determining fair market value of the natural gas at the point of waste it "has consistently utilized the prevailing value of North Slope gas published by the Alaska Department of Revenue" on its website, described by the department as "the weighted average sales price of gas to publicly regulated utilities in the north slope area."
--KRISTEN NELSON
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