|
State requires approval of Prudhoe Bay development plans Companies have not submitted plan for initial participating area for state approval since 1977; DNR wants it as part of change to single operator Kristen Nelson PNA News Editor
The Department of Natural Resources has responded to a June 1 request that BP Exploration (Alaska) Inc. be approved to replace Phillips Alaska Inc. as operator of the Prudhoe Bay unit eastern operating area — effectively creating a single operator — by requiring that annual operating plans for the initial oil rim and gas cap participating areas at Prudhoe be submitted to the commissioner of DNR for “review and approval” on or before Sept. 15 of each year, something the operators have refused to do in the past.
The state said it approves plans for all other participating areas at Prudhoe, and expressed concern that with changes in ownership alignment and voting requirements to fund work at Prudhoe, development work which might benefit the state could be vetoed by any of the three major owners.
The state’s decision, a conditional approval of the application, was signed June 27 by Ken Boyd, director of the DNR Division of Oil and Gas. The decision also requires submittal of annual reservoir development objectives and field development plans compiled by the Prudhoe Bay owners as part of the Prudhoe Bay unit operating agreement — and plans approved by the Prudhoe Bay producers from 1995 through 1999.
The first annual plan of development for the Prudhoe Bay unit oil rim and gas cap participating areas — collectively the Permo-Triassic reservoir — is due Sept. 15. Furthermore, the state said: “From and after Jan. 1, 2001, the Prudhoe Bay Unit operator shall not develop or produce from the Permo-Triassic Reservoir except in accordance with a current plan of development approved by the Commissioner.” Unless otherwise approved by the commissioner, such plans will be submitted annually. Have development plans changed? BP has told the state that reservoir development objectives have not changed since the original agreements were made in 1977.
The operators have submitted annual progress reports since 1978, summarizing the prior year’s activities and including a forecast of future activities and have told the state that since the progress reports are not modifying the original reservoir development plan, state approval is not required.
The state argues that the 1977 plan of development for the initial participating areas is no longer current because it does not address significant events in the life of the field, such as construction of the central gas facility in 1984-86, the first and second gas handling expansions in the early 1990s, the large-scale manufacture and blending of natural gas liquids since 1987, the large-scale manufacture of miscible injectant and its use in enhanced oil recovery since 1987, transfer of miscible injectant to the Kuparuk River unit since 1995 and production from light oil columns less than 100 feet thick.
“Certainly,” the state said, “the producers have plans for other future exploration, development and production — plans that have not been disclosed to or approved by DNR. Moreover, the request to change from two operators to one operator is in and of itself a significant event.” Why require the plan now? The state said that the lack of a current approved plan of development for the initial participating areas, “together with the producers spotty briefing on future proposed development activities, weigh heavily against approval of BP as the single unit operator, which can only be mitigated by the submission of current, periodic plans of development that are subject to DNR approval…”
The state currently approves annual or biannual plans of development for all the other participating areas at Prudhoe: Point McIntyre, Lisburne, Niakuk, West Niakuk, West Beach, Midnight Sun and North Prudhoe Bay.
The state has an economic concern about the new arrangement because in the past, approval of expenditures for ongoing operations and many facility expansions required only the consent of BP and either Exxon or ARCO (now Phillips) and when the field operators, BP and ARCO, voted to spend money to advance development and production the other companies were compelled to contribute.
With the changes in voting requirements in the new alignment agreement between the companies, however, the consent of all three major owners, BP, Exxon and Phillips, is required, “meaning any one of the three companies — including two companies who do not operate the field and do not have large in-field presences — could veto important expenditures.”
With approval of plans, the state could insist that the owners undertake such expenditures. While the state concedes that economic benefits are the likely result of a single Prudhoe Bay operator, it holds that a current plan of development subject to DNR approval “is necessary to assure that the change in voting requirements accompanying the change in unit operator does not thwart the state’s best interests and the economic benefits of a single unit operator.” BP can go ahead in the interim BP told the state June 30 that it needed to sit down with its partners and DNR, but couldn’t do so immediately because of the Fourth of July holiday, and said it would “proceed with current plans on an interim basis,” a proposal to which Boyd agreed.
BP Exploration (Alaska) spokeswoman Carla Beam said July 5: “We are acting as the main operator, In a transition period. We still do need to sit down with the state and clarify some of these conditions and with the holiday it’s been difficult to get all of the right people together…”
The state issued a finding with errata changes July 11. On July 12, the state agreed that it would accept assignments filed by July 31 and on July 14, BP met one of the state’s requirements when it delivered confidential field development plans for the Prudhoe Bay initial participating areas for 1995-1999.
| 