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Producers team asks state to drop royalty gas sale State's royalty gas sale ‘premature and damaging to the prospects for project sanction,’ producers tell DNR; want sale dropped or delayed to December 2002 Kristen Nelson PNA Editor-in-Chief
Phillips Alaska Inc. and BP Exploration (Alaska) Inc. objected when the Alaska Department of Natural Resources first proposed a royalty gas sale late last year. The state went ahead with plans for a sale despite the objections.
In a Jan. 15 letter, the Alaska Gas Producers Pipeline Team — BP Exploration (Alaska) Inc., ExxonMobil Production Co. and Phillips Alaska Inc. — asked DNR Commissioner Pat Pourchot to reconsider his best interest finding and cancel the sale, or at least delay it until December 2002.
The companies said they have not yet identified an economic project and welcome anything the state could do to make the project successful. They recommend that the state support federal enabling legislation proposed by the companies and work on state fiscal certainty.
“In contrast,” the team said, “we believe the Department of Natural Resources' solicitation for offers to purchase royalty gas as currently structured is both premature and damaging to the prospects for project sanction.”
No 2002 open season The team said the royalty sale is to accommodate potential buyers who would use royalty-in-kind gas to nominate gasline capacity in an open season in early 2002.
“Contrary to this assertion,” the producers team said, “we do not foresee that we will conduct an open season in 2002.”
The producers dispute the state's assertion that a state royalty-in-kind gas sale might stimulate earlier commercialization of North Slope gas.
“We disagree. To the contrary, the proposed sale increases the risks for the parties with proven resources, who will ultimately underpin the costs of the pipeline construction. This increase in risk further burdens a project that has yet to be shown to be economic.”
The producers also disagree with the state's assumption “that the pipeline will be overbuilt on the basis of nominations backstopped by RIK gas. The project is being designed to optimize pipeline construction and field development (albeit with expansion potential in mind). Any overbuilding for RIK volumes would be inherently suboptimal.”
And the producers disagree with the state's assertion that the Federal Energy Regulatory Commission cannot compel a pipeline owner to expand capacity: “we believe that FERC regulatory authority will insure that future expansion of transportation capacity for North Slope gas are based solely on market forces.”
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