|
Amendment to Enstar contract with Hilcorp extends agreement 10 years
Kristen Nelson Petroleum News
Enstar Natural Gas Co. has applied to the Regulatory Commission of Alaska for approval of an amendment to a gas sale and purchase agreement between Alaska Pipeline Co. and Hilcorp Alaska LLC which would extend the existing agreement by 10 years and, the company says, reduce the cost of gas to consumers.
While the agreement is between Alaska Pipeline Co. and Hilcorp, Enstar said RCA regulates Enstar and Alaska Pipeline Co. as a single entity, and its use of Enstar includes both APC and Enstar.
The existing agreement, approved by RCA in 2016, covers supply of natural gas between April 1, 2018, and March 31, 2023.
Enstar said it is not seeking to modify its tariff and asks for commission approval by June 1. The company said that would allow it “to begin delivering substantial savings to customers” when the amended agreement goes into effect July 1, and “ensure gas supply certainty for the coming winter and beyond.”
Benefits to customers Enstar said savings to customers would be approximately 7% or $53.6 million through the end of March 2023, when the current agreement is scheduled to expire.
The amendment will also benefit customers through assurance of supply, Enstar said, noting that Cook Inlet natural gas production “has declined significantly in the last 15 years, as had the available deliverability from Cook Inlet producers.”
Enstar said that under the amended termination date of March 31, 2033, “Hilcorp is committing to continue its development of gas reserves in order to supply firm gas” for the next 13 years.
“This gas supply certainty is vital in a time of growing scarcity,” Enstar told the commission.
Hilcorp has delivered 82% of Enstar’s gas requirements in 2019 and is expected to delivery 80% in 2020, Enstar said, noting that “Hilcorp has proven to be a secure and reliable supplier with multiple gas production fields, as well as producer-owned gas storage fields.”
Optionality Enstar said it negotiated for “extensive gas purchase flexibility” in the amendment, “including call option provisions that, if exercised, will impose a firm obligation on Hilcorp to deliver additional gas on a daily and annual basis.”
Enstar said that under the amended agreement it may purchase up to 97% or 32.5 billion cubic feet of gas supply requirements, but may also purchase as little as 64% or 21.7 bcf, providing it flexibility in managing its gas supply requirements, allowing it to “decrease purchases to secure gas from reliable third-party producers, to the extent such additional supply is available or economical,” and “may adjust its purchases and timely respond to changes in customer demand due to changing weather patterns and economic factors.”
Sales price Gas under the amendment will be $7.55 per thousand cubic feet in the first contract year, subject to adjustment in each subsequent year depending on performance of three defined price indexes, all published monthly by the U.S. Bureau of Labor Statistics. The sales price cannot increase by more than 1.5% nor can it decrease by more than 1%.
During the term of the amendment the price has a floor of $7.55 per mcf and a ceiling of $8.89 per mcf.
Enstar said that in previous contracts with Hilcorp it had agreed to fixed inflation rates, 2% in the existing agreement. Enstar said it “does not believe that an inflexible, always-positive inflation factor appropriately reflects how production costs increase and decrease over time.”
In the proposed amendment the companies agreed to index the sale price to both consumer-driven and producer-driven inflation indexes, Enstar said, ensuring the producer is compensated when prices rise, but allowing customers to benefit from downward price pressures in the market.
- KRISTEN NELSON
| 