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Western North Slope production on the block as part of state, BP deal BP will give up operatorship of Alpine, Kuparuk, make geologic play fairways available in NPR-A, on state, federal lease holdings across the Slope Kristen Nelson PNA News Editor
Under terms of a draft agreement made public Nov. 5, the state of Alaska and BP Amoco have put western North Slope production in play.
In a move to satisfy the state’s concerns that BP Amoco’s proposed acquisition of ARCO would significantly reduce competition in the Alaska’s oil and gas industry, the state asked other oil and gas companies what would be required to make the North Slope an attractive investment.
The answer was operatorship, production and significant exploration prospects.
Production prospects that will be made available under the agreement are at Alpine and Kuparuk on Alaska’s western North Slope. Exploration prospects to be made available range from the National Petroleum Reserve-Alaska in the west to Genesse between Endicott and Badami in the east.
The draft agreement, „Charter for Development of the Alaskan North Slope,— requires BP and ARCO to sell producing interests in North Slope properties of at least 175,000 barrels of oil per day. They would also have to sell interests in one of three NPR-A exploration areas and in two of six exploration areas on state lease acreage.
A two-week comment period concludes Nov. 22 and state officials will then take a week to consider public comments before presenting a final agreement to the Federal Trade Commission in early December. Two town hall meetings and four teleconferences are scheduled across the state Nov. 15-17. The state said that comments would be recorded and summarized and analyzed for the governor and public in a report to be completed Thanksgiving week.
The state, BP Exploration (Alaska) Inc., ARCO Alaska Inc. and BP Amoco p.l.c. will all be signatories to the agreement.
Satisfies state’s antitrust laws Alaska Gov. Tony Knowles characterized the agreement as “important and historic” and noted that is has been seven months in the making.
“This agreement,” he said, “achieves the terms and conditions which I said last August that Alaskans need in order to support the acquisition. Most notably, this agreement assures that there will be competition on the North Slope of Alaska, competition that Alaskans believe is crucial to our economy and that satisfies our state antitrust laws.” BP Amoco’s acquisition of ARCO was announced April 1 and the governor established a cabinet-level team to evaluate how the acquisition would affect the state. In an August speech the governor listed the state’s criteria for approval, including substantial divestiture to meet concerns about a lack of competition resulting from having just one major producer on the North Slope.
State Attorney General Bruce Botelho, who headed the cabinet-level team, said that as state attorney general he has the responsibility of examining mergers to determine if they poise a state antitrust problem. He said that in his judgment, and in the judgment of antitrust experts with whom the state consulted, the agreement is “a pro-competitive agreement and one that satisfies the antitrust laws of the state of Alaska.” Because Alaska’s antitrust laws parallel federal antitrust laws, Botelho said, “resolution from Alaska should largely satisfy the FTC concerns with respect to the upstream.” The state has not, he said, participated in downstream issues because they are not relevant in Alaska.
BP Amoco anxious to get back to work Rodney Chase, deputy group chief executive, BP Amoco, said Nov. 5 that BP Amoco is pleased to have reached an agreement with the state.
“The purpose of all this from the standpoint of those of us in business,” Chase said, “is to get to the situation where we can get back to focusing on business, the creation of growth, of wealth, of the provision of energy and doing what we do bigger and better in the future.”
BP Amoco’s goal, he said, “is to create a new company which is capable of working with the leadership of the state of Alaska to grow this economy in the most competitive way that we know how. And that’s the undertaking that we are giving in signaling our agreement to the terms” of the draft agreement.
“It’s not the end of the process, we know that,” he said. “The governor’s made a lot of comment on what lies ahead. But we move to this next step with a great deal of optimism and confidence.”
At least 40 percent of Kuparuk, Alpine to be sold The bulk of the required sale of production will come from the Kuparuk River unit. The agreement requires the sale of at least 125,000 barrels of working interest oil per day in the Kuparuk River unit — at least 40 percent of the total interest in the unit — to “a single qualified company,” defined in the agreement as “a company which is currently a joint interest owner in the Kuparuk River Unit, or a company primarily in the energy business with assets of not less than $8 billion.” Figures from the Department of Revenue Oil and Gas Audit Division show production from the Kuparuk River unit averaged 261,563 barrels a day in October.
ARCO (55 percent and unit operator) and BP (39 percent) are presently the largest working interest holders at Kuparuk, followed by Unocal (5 percent) and Mobil, Exxon and Chevron (combined total of less than 1 percent).
The agreement also specifies that all “reasonable available steps” be taken to enable the company which buys at least 40 percent of Kuparuk to become the unit operator. But, the agreement continues: “In no event will BP or ARCO continue as operator of that unit after sale of the working interest oil.”
The remainder of production to be sold will come from the Colville River unit, where the Alpine field is currently under development. As at Kuparuk, the requirement is that a single qualified buyer will hold at least 40 percent of the total Colville River unit interest. As with Kuparuk, a qualified company is defined as a company currently a joint interest owner in the Colville River unit, “or a company primarily in the energy business with assets of not less than $3 billion.” ARCO (78 percent and unit operator) and Anadarko Petroleum Corp. (22 percent) are the current working interest owners.
Contracts are to be signed for these sales within six months of the completion of the acquisition of ARCO by BP Amoco and the transactions are to be closed within 12 months after the acquisition is completed.
BP has also agreed to buy production not to exceed 5,000 barrels per day from small North Slope producers at Pump Station No. 1 at terms specified in a form purchase contract which accompanies the agreement. BP has the option to limit the total of such contracts to 25,000 barrels per day.
Exploration plays to be sold The agreement requires the sale of not less than 220,000 net acres of the National Petroleum Reserve-Alaska oil and gas exploration lease acreage now held by ARCO and BP “to one or more purchasers.” A minimum of 100,000 NPR-A acres will be sold to either the Kuparuk or Colville River unit purchaser, including at least 40 percent of the net interests in one of the sections of the NPR-A designated in exhibit A of the agreement with the intent that the purchaser become exploration operator in that section. The three potential northeast NPR-A operating areas are designated as NPR-A northwest, NPR-A central and NPR-A southeast. The northwest area consists of tracts bordering the Ikpikpuk River on the western side of the sale area, tracts which were designated as lower potential in the NPR-A lease sale. The central and southeast areas are primarily tracts which were designated higher potential. BP won more central acreage at the sale and ARCO won more of the eastern acreage. The southeast area is at the eastern edge of the sale area, closest to Alpine.
State exploration acreage across the Slope On state lands, at least 400,000 net acres of undeveloped state leases will be sold or relinquished, with the sale of acreage to be managed so that it will “result in two exploration operatorships other than BP or ARCO in material and significant geologic play fairways on the North Slope…”
The six potential new North Slope operating areas stretch across the North Slope.
Genesee is offshore on the eastern side of the Slope, north and northwest of BP’s Liberty prospect in Foggy Island Bay between Endicott and Badami. McCovey is offshore north of Prudhoe Bay and includes the Reindeer Island and No Name Island areas.
Prudhoe Southeast stretches diagonally from just south of Deadhorse southeast to Kavik. Prudhoe South is west and south of Deadhorse along the Kuparuk and Saganavirktok rivers.
Kuukpik, between Fiord and the Kuparuk River unit on the western side of the Slope, is an onshore-offshore area somewhat larger than the existing Kuukpik exploration unit. Greater Meltwater, south of Tarn, lies between the Colville and Kuparuk rivers. The Kuukpik area is entirely leased; all of the other areas contain both leased and unleased tracts. The Genesee and McCovey areas both include some federal outer continental shelf leases.
Some of the leases are held 100 percent by either ARCO or BP; most are held jointly with a variety of partners.
The agreement provides for consultation with representatives of the Alaska Department of Natural Resources beginning within 10 days after the acquisition is completed and continuing for as long as “reasonably necessary to review the number, status, prospectivity and possible transfer options for all such holdings, as well as intended marketing or relinquishment plans.”
The agreement also provides that these lease interests will not be reacquired by ARCO or BP without advance approval by the state and that any interest retained in exploration leases must be “subject to non-consent provisions permitting investment by other interest owners without BP or ARCO’s consent.”
Seismic, well data to be available for purchase The companies are required to make proprietary North Slope seismic and well data publicly available for purchase where they have the legal right to do so and where they do not currently have that legal right, “they will diligently and in good faith seek permission from the other joint interest owners to make the data available.”
Unless the state approves otherwise, the sale will be through a third party company which will market the data. Data will be made available as soon as possible but not longer than three months after the acquisition is completed.
Access to facilities, divestiture of pipelines also included The state contends in the agreement that the commissioner of the Department of Natural Resources “possesses the statutory, regulatory and contractual authority to require working interest owners in DNR-approved units to provide others access to existing production and other lease facilities, on terms that are non-discriminatory, just and reasonable.” The state says in the agreement that the commissioner may protect the state’s interests by requiring access to maximize the economic and physical recovery of the state’s oil or gas resources or to maximize competition among parties in exploring and developing the resources.
The agreement says that, while BP and ARCO take no position on the state’s view, they commit as facility owners not to withhold voting support for access on reasonable commercial terms, and agree that if an impasse is reached with a nearby satellite owner on terms and BP or ARCO are among the facility owners, that resolution of the impasse will be submitted for binding arbitration.
Companies buying production will also be sold a sufficient interest in the trans-Alaska pipeline to carry that production and additional interests in the trans-Alaska pipeline will be offered to any interested party up to an aggregate of 22.3547 percent of the total ownership. The additional transfers will be in minimum increments of 2 percent of total trans-Alaska pipeline ownership, “valued at not more than the ad valorem tax value as of the time of the offer, less 5 percent.”
Separate shares of the Oliktok pipeline and each of intermediate crude oil common carrier pipelines serving the units where production is sold will also be sold in proportion to the production being sold.
If one or more ships in BP’s or ARCO’s combined long-term ANS Jones Act fleet becomes surplus, BP or ARCO “will offer to sell the surplus ship or ships to other ANS producers on reasonable commercial terms.”
Natural gas committed for sale BP Amoco and ARCO have agreed, during the period through Dec. 31, 2001, to commit up to 1.2 billion cubic feet per day of working interest gas to a project to commercialize Alaska North Slope gas if the project meets criteria listed in the agreement: project has sufficient financial backing; project has demonstrated ability to acquire government and partner approvals; project commits to a full ramp-up no later than 2010; project meets netback or tariff minimums.
An LNG project must have a minimum netback price for the gas of P = $1.00 X (WTI/$17.50), where P is the price per million Btu and WTI is the final settlement price for NYMEX West Texas intermediate crude. A pipeline to the Lower 48 must have a total volumetric tariff to Chicago of $1.60 per thousand cubic feet transported or less. The netbacks will be after payment of taxes, including severance, fees or assessments.
The companies may also put forward their own project to take advantage of this commitment.
If there are competing projects which meet the criteria, then the highest wellhead netback price times sales volume during the first five years will receive the gas commitment.
Environmental commitments also included There are a number of environmental commitments in the agreement, including $10 million to assess and clean up North Slope orphan sites in consultation with the Alaska Department of Environmental Conservation. The companies will also require contractors doing seismic or exploration work to collect abandoned empty barrels and inventory and map locations of barrels and report any signs of visible ground contamination associated with the barrels. There is also a commitment to clean up of existing ARCO and BP sites and a commitment to clean up inactive reserve pits.
BP and ARCO agree to support an independent professional North Slope spill response organization such as Alaska Clean Seas or a substantially equivalent organization, and in addition to support an average annual Arctic spill response research and development program averaging not less than $200,000 during the 10 years following completion of the acquisition.
In consultation with the Department of Environmental Conservation, BP and ARCO will develop a performance management program for corrosion monitoring and related practices for non-common carrier North Slope pipelines and spend up to $500,000, combined, a year for the 10 years following completion of the acquisition on any combination of the following as requested by the commissioner of DEC: additional orphan site assessment or clean up; additional Arctic spill response research and development; and/or an expert or expects chosen by DEC to provide expert advice to DEC on pipeline corrosion issues.
Commitment to Millennium class tankers, Alaska hire BP and ARCO “renew their commitment that neither of them will seek to be relieved of the vessel retirement or replacement requirements of the federal Oil Pollution Act of 1990” or lobby for reduction in current requirements or take any other action to extend retirement date of non-double-hulled tankers.
BP and ARCO will complete the purchase and delivery of the three ARCO Millennium class tankers on current order and will replace additional tankers to meet fleet requirements on average one year earlier than required by OPA 90, “with the expected result that the combined fleets will be entirely double-hulled by mid-year 2007.”
BP and ARCO agree that after the acquisition is complete they will continue and extend their commitment to a voluntary program to hire residents of Alaska and use Alaska businesses.
Within three months after completion of the merger of the two companies, they will establish a charitable entity to fund organizations and causes within Alaska, funded at a rate of 0.2 percent of their net liquids production after royalty times the price for West Texas Intermediate. Thirty percent of this funding will go to the University of Alaska Foundation and the remainder to general community needs.
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