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TAPS owners elaborate on pending exits In filings with the Regulatory Commission of Alaska, Koch and Unocal seek temporary service suspensions, lay out sale plans Wesley Loy For Petroleum News
Two minor owners in the trans-Alaska pipeline system have filed papers with the Regulatory Commission of Alaska shedding new light on their recent decisions to withdraw from the TAPS ownership group.
Koch Alaska Pipeline Company LLC, a unit of Koch Industries Inc. of Wichita, Kan., and Unocal Pipeline Co., part of Houston-based Chevron Corp., each filed requests for authorization to temporarily suspend service on their shares of pipeline capacity.
The temporary suspensions would cover the period from July 31 until the companies can complete a sale or transfer of their pipeline ownership interests.
Withdrawal window July 31 is when the Koch and Unocal withdrawals take effect.
Unocal’s June 28 RCA filing explained that when TAPS was commissioned on July 31, 1977, the initial owners agreement ran for a 30-year term expiring on July 31, 2007. Unocal was one of the original owners.
In 2007, the owners renewed the agreement for an additional five-year term, which expires this July 31.
Anticipating the expiration date, Unocal and Koch signaled they would discontinue operations, while the three top TAPS owners — BP, ConocoPhillips and ExxonMobil — elected to continue for another five years.
BP Pipelines (Alaska) Inc. holds a 46.9263 percent stake in TAPS; ConocoPhillips Transportation Co., 28.2953 percent; ExxonMobil Pipeline Co., 20.3378 percent; Koch, 3.0845 percent; and Unocal, 1.3561 percent.
‘Strategic’ rationale “Each owner holds an undivided joint interest in TAPS and operates pursuant to a separate certificate of public convenience and necessity and a separate tariff for its share of the TAPS capacity,” Unocal’s RCA filing said. “Although each owner has a separate tariff, the TAPS Owners do not physically operate their respective shares of the pipeline. Instead, TAPS is operated by a third party, Alyeska Pipeline Service Company, which is owned by the TAPS Owners, pursuant to the TAPS System Agreement. Under this arrangement, Alyeska handles the day-to-day operations of the pipeline while the owners contractually accept tenders for shipments on their respective shares of capacity.”
By withdrawing, Unocal and Koch must stop accepting tenders as of July 31.
The owners share responsibility for the costs of TAPS operations, but that obligation ends with withdrawal.
“Unocal has decided not to continue TAPS operations for an additional renewal term because its interest in TAPS no longer meets the company’s core strategic needs,” Unocal’s RCA filing said.
Koch said something similar in its June 29 RCA petition, saying it wishes to exit the Alaska transportation market for “strategic reasons.”
Ample capacity RCA approval is needed before a pipeline carrier can transfer its operating authority to another entity.
Koch and Unocal emphasized that a temporary suspension of service on their shares of the pipeline wouldn’t cause a problem for shippers, as TAPS has lots of excess capacity.
Unocal noted that its ownership stake of 1.3561 percent gives it capacity of 14,917 barrels per day, which is “insignificant compared to the amount of capacity available to any interested shipper.”
Unocal’s RCA filing said an owner electing not to continue with TAPS must sell its interest to either a third party or another TAPS owner for an agreed upon price, subject to the remaining TAPS owners’ right of first refusal.
In the event a withdrawing owner is unable to consummate a sale within six months, Unocal said, the TAPS System Agreement “requires the remaining owners to acquire the interest for net salvage value on a pro rata basis in proportion to their ownership percentage, unless otherwise agreed.”
“Unocal is actively engaged in negotiations with the other TAPS Owners concerning the transfer of its ownership interest,” Unocal’s RCA filing said. “To date, Unocal has not yet reached an agreement with a third party, one of the individual remaining TAPS Owners, or all of the remaining TAPS Owners regarding a sale or transfer of Unocal’s ownership interest. Accordingly, Unocal cannot yet submit to the Commission an application for approval of the transfer of its ownership interest. Based on its election not to continue with operations, however, Unocal is contractually obligated to cease operations of its TAPS ownership interest and to stop accepting tenders as of July 31, 2012. Accordingly, Unocal is requesting Commission authorization to suspend service temporarily starting on July 31, 2012, in accordance with the System Agreement and pending the sale of its interest.”
Koch said a joint application would be filed soon seeking RCA approval to transfer its TAPS operating authority to BP, ConocoPhillips and ExxonMobil.
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