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Affordable access to facilities key
to attracting new oil companies Oil and gas division director thinks North Slope producers should get a ‘reasonable return’ on their investments but if they charge too much for facilities it will make for an ‘uneven playing field’ for new explorers By Kay Cashman PNA Publisher
If the state does only one thing to help new players on Alaska’s North Slope, Division of Oil and Gas Director Mark Myers says it should be to make sure they have “fair access” to pipelines and processing facilities, which are largely owned by the slope’s big three producers, BP Exploration (Alaska) Inc., Exxon Mobil Corp. and Phillips Alaska Inc.
Myers, who testified before the House finance and oil and gas committees on Jan. 15 and Jan. 17, told legislators if they want to maintain or increase oil production from the North Slope, it’s important Alaska continue to attract new oil and gas companies to replace the exploration dollars the state’s largest oil company, BP, has stripped from its Alaska budget.
The roster of recent new — or returning — independents and majors to the North Slope includes Shell Exploration and Production Inc., Alberta Energy Co., Petro-Canada, AVCG LLC, Armstrong Oil & Gas, Winstar Petroleum LLC, Burlington Resources, Andex Resources LLC, Forest Oil Corp., Unocal and Arctic Falcon Exploration. Anadarko, a non-operating partner of BP and Phillips, is drilling its first exploration well on the North Slope this winter as an operator.
“One of our biggest ... problems in trying to bring in new companies is their access to existing facilities. Smaller companies exploring near infrastructure need to have some assurance that they can get into TAPS at a reasonable rate or that they can use an underutilized processing facility in Kuparuk or in Prudhoe Bay. As we see exploration move out from core areas, infrastructure access is a huge issue and is going to be a huge issue with the gasline. A lot of our exploration today, especially in the foothills, is being driven by the belief there is going to be a gasline, a way to commercialize North Slope gas,” Myers said. “Access becomes really crucial.”
Because the trans-Alaska oil pipeline is a common carrier, access to it is not as serious a problem as access to other facilities on the North Slope where the producers “have very high expectations of return because facilities are not regulated in the same way that a common carrier is,” Myers boss, Alaska Department of Natural Resources Commissioner Pat Pourchot, told committee members.
Myers said he would like to see state government take a “proactive role” in working out the issues involved in negotiating facility-sharing agreements between facility owners and non-owners who want to use facilities and pipelines to process and ship their oil and gas.
He’d like to see North Slope facilities utilized to their maximum and user charges reasonable.
“It is a concern that new companies are treated fairly and the playing field is level,” he said. ... “We need to be aggressive to ensure there is a fair and even playing field for new entrants.” State has limited authority But Myers acknowledged the state has “limited authority” to impact commercial agreements in the private sector.
The three big North Slope producers built the facilities and should get a “reasonable return on their investments,” he said. But if the charges are too high it will make for an “uneven playing field” for new players. “Facilities can be made into profit centers in the extreme.”
It is in the best interest of BP, ExxonMobil and Phillips to “take the most aggressive position” in facilities negotiations and get as much money as they can from non-owner users, he said. What the state can do There are some things the state can do to ensure fair facilities access to non-owners, Myers said.
“When it is appropriate we can expand units to include discovery satellites (that belong to non-owner companies) ... when it makes sense,” he said.
DNR has been “fairly aggressive in trying to protect the correlative rights of other parties. ... We have held hearings et cetera. ... The state has been willing to take a proactive role. That is a personnel issue more than anything else,” Myers said, explaining that it takes the right people and enough people to handle the hearings. Enough people are important when “you have 54 participating areas that you have to worry about and you’re expanding them at a fairly rapid number.”
DNR personnel “walk on a sharp edge” to also protect the producers rights, “their right to reasonable profit.” The producers who built those facilities “shouldn’t be penalized. ... But it certainly gives them an edge, an economic advantage” as exploration moves away from infrastructure,” he said. New legislation a consideration When Pourchot was asked if legislative action was needed to ensure access, Pourchot said he didn’t have any recommendations for legislation “at this time.”
Myers promised to further explore the issue with North Slope explorers and other industry representatives.
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