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Cook Inlet tariff settlement reached Small oil producer, pipeline operator strike a deal after months of talks; matter now pending before Regulatory Commission of Alaska Wesley Loy For Petroleum News
A pipeline tariff dispute in Alaska’s Cook Inlet basin is close to a final resolution.
On Oct. 19, small oil producer Cook Inlet Energy LLC and the Cook Inlet Pipe Line Co. filed a proposed settlement with the Regulatory Commission of Alaska.
The agreement caps several months of talks between the two companies. Cook Inlet Energy had protested a steep hike in CIPL’s rates.
In their joint filing with the RCA, the companies said agency approval of the agreement would “fully resolve all issues.” The deal would cover the years 2010 through 2014.
The RCA had not yet acted on the matter as Petroleum News went to press.
Apparent savings The settlement looks to have potential for saving Cook Inlet Energy considerable money on oil transportation costs. The Anchorage-based company has wells on the west side of Cook Inlet, with production feeding into Texas-based CIPL’s 42-mile pipeline between Granite Point and the Drift River Oil Terminal where tankers load.
Cook Inlet Energy had complained that CIPL’s 259 percent rate increase, from $4.06 per barrel of oil to $14.57, was excessive. The RCA allowed the rate hike to take effect at the outset of 2010, but only temporarily and subject to possible refunds.
The proposed settlement sets out a methodology for determining Cook Inlet Energy’s pipeline transportation rates through the year 2014.
For the remainder of 2010, the company would pay CIPL a rate of $8 per barrel shipped.
“The rates to be paid by CIE to CIPL during the calendar years 2011 through 2014 shall be determined by dividing an agreed annual CIPL revenue requirement of $17.28 million for each such year of the term of the Settlement Agreement by the forecasted total annual CIPL throughput,” the Oct. 19 commission filing says.
At the end of each year, including 2010, a “true up” adjustment would be made by dividing the $17.28 million revenue requirement by the actual number of barrels put through the line.
Fledgling producer Cook Inlet Energy is a relatively new player in Cook Inlet. In late 2009 it purchased an assortment of oil and gas assets on the west side of Cook Inlet from Pacific Energy Resources Ltd., a California independent that was undergoing bankruptcy liquidation. The assets include the West McArthur River oil field.
Miller Energy Resources of Tennessee is Cook Inlet Energy’s parent company.
After CIPL came out with its rate increase — which it blamed largely on damage from a series of eruptions at Redoubt volcano in 2009 — an attorney for Cook Inlet Energy filed a protest saying the hike “could not have come at a worse time” for the fledgling producer.
CIPL, partly owned by Chevron subsidiary Unocal, said it was operating a small pipeline “on nearly a non-profit basis, with very limited throughput, and a short expected remaining life.” Further, the firm told the RCA its rate increase was “entirely reasonable,” allowing for recovery of actual costs plus a reasonable return, and that CIPL had “no responsibility to subsidize” Cook Inlet Energy’s investment.
Shipping commitment The pending settlement agreement seems to signal the two sides have found a happy medium.
As part of the deal, Cook Inlet Energy commits to pay for transportation of at least 260,063 barrels of production in 2010 and 346,750 barrels in each of the years 2011 through 2014, “whether or not it actually ships the volumes.”
According to the joint motion filed with the RCA, all other shippers will pay the increased rates CIPL posted for 2010.
The settlement also specifies that Cook Inlet Energy’s rates cannot exceed those of any other shipper on CIPL’s pipeline.
Daniel K. Donkel and Donkel Oil & Gas LLC also challenged CIPL’s rate hike. They have reviewed the proposed settlement and support it, the RCA filing says.
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