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State wants more info included in PODs Prudhoe Bay operator BP calls request for marketing info in POD ‘impermissible rulemaking’; says it ‘would contravene the PBUA’ KRISTEN NELSON Petroleum News
Shortly before retiring early this year, then-Alaska Department of Natural Resources Commissioner Mark Myers told Prudhoe Bay operator BP Exploration (Alaska) that the department wanted information added to the annual update for the field’s plan of development.
He said the department “is working proactively to ensure maximum development and monetization of Alaska’s energy resources,” and to achieve that goal it is important that the department “understand how all hydrocarbons available for offtake” are being used in the unit, sold within the state or “are being prepared and/or marketed for potential future sale.”
The department, Myers said, wants information on efforts to market oil and natural gas from the Prudhoe Bay unit, including the names of those with whom the unit operator has current commercial agreements “or with whom the operator intends to have substantive discussions regarding the marketing of unit hydrocarbons including unit gas and heavy/viscous oil resources. The commercial terms under which the unit operator is offering to make resources available for long-term sale, including the estimated volumes to be delivered, the pricing terms, the location at which title to the gas and associated risks of loss will change, and the condition of the gas at the time of delivery.”
Myers also said the department wanted information on facility access and sharing - including “each request for facility sharing and access to facilities received and the facility owner’s response to each request.”
More detail In an April 11 letter, DNR Division of Oil and Gas Director Corri Feige asked for more detailed information. Feige cited information which BP had provided on major gas sales and said it was “not sufficient” to allow the division to understand how the Prudhoe working interest owners planned to achieve a major gas sale.
Feige said BP had responded, indicating “the WIOs prefer the marketing of gas from the unit be performed by the working interest owners individually. Rather than submitting a plan for joint marketing of gas from the Unit, the Unit Operator may direct each WIO to provide its own separate responses to those issues.”
Operator says POD meets requirements The requests got pushback from BP.
A May response from Scott Digert, manager of reservoir management for BP Exploration (Alaska), writing for BP as the Prudhoe Bay operator, said the POD submitted for the Prudhoe Bay initial participating areas satisfies all of the requirements of the Prudhoe Bay Unit Agreement and POD regulations. He said the division was seeking “extraordinary additional information” on activities to prepare for a major gas sale.
“These new requirements asserted by the Division are contrary to the terms of the PBUA as well as the Division’s regulations and the Division’s own interpretation of its regulations over many decades,” Digert said, and asserted that the POD for the Prudhoe initial participating areas is consistent with contractual terms in the PBUA and POD regulations.
Long-range information not available Digert also said the Prudhoe operator does not possess the long-range information the state is requesting, and said its long-range discussion reflects the information available to it as operator.
“A requirement for submission of long-range (major gas sales) related information set forth in the Division’s Letter, including strategies, timing and activities related to marketing and commercial arrangements, is outside the scope of the POD terms of the PBUA and the POD regulations,” he said, adding that the division has never required the operator to submit “such long-range hypothetical plans that extend well beyond the one-year term of the POD or information regarding marketing or commercial arrangements.”
He said the description from the division of a new “POD requirement moving forward commencing in 2016 ... is outside the scope of current regulations and constitutes impermissible rulemaking.” New regulations, Digert said, require that the division comply with the Alaska Administrative Procedures Act, which requires public notice, supporting material and an opportunity to be heard, along with a prospective effect.
“Even if properly promulgated as a regulation, the new ‘POD requirement’ asserted in the January Letter, and expanded in the Division’s Letter, would contravene the PBUA,” Digert said.
And, it is incorrect that the Prudhoe operator would prefer that the WIOs individually market gas from the unit, he said. “What we stated in the letter was that ‘marketing of unit production is subject to U.S. antitrust laws and is performed by the WIOs individually,’” Digert said.
As to directing the working interest owners to provide separate responses to the division, which was requested, he said the operator “neither possesses the right, nor the ability, to direct the PBU WIOs to market gas, and certainly cannot ‘direct’ them to provide gas marketing information to the Division.”
Trade secret issues Dave Van Tuyl, BP regional manager, in a separate May letter, also called the requirement for marketing information from working interest owners “impermissible rulemaking” and said “significant antitrust concerns under both federal and state law” are raised by the division’s requirement that WIO provide marketing information.
Marketing information, he said “constitutes a trade secret under Alaska law.”
Van Tuyl also said the division cannot require marketing information “because there is no duty to market gas beyond the local ANS market. A lessee has no duty to market gas if no market for the gas exists at the well,” he said.
He also cited agreements the state is a party to under the Alaska LNG project, and said the requirements for marketing information “violates DNR’s obligations under the Gas Availability Agreement” to negotiate in good faith with BP on the availability of natural gas if BP withdraws from AKLNG. He said DNR’s effort to gain information through the POD process “is an attempt to gain information no other commercial actor would otherwise be able to obtain in a good faith commercial negotiation to buy and sell gas.”
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