Providing coverage of Alaska and northern Canada's oil and gas industry
December 2019

Vol. 24, No.52 Week of December 29, 2019

Pipeline transfer issues

Comments contain range of concerns on proposed TAPS transfer from BP to Hilcorp

Kristen Nelson

Petroleum News

The sale by BP of its Alaska assets to Hilcorp is a business deal between private parties, but it’s also a big deal for the state, with state approvals needed. The commissioner of the Department of Natural Resources must approve transfer of oil and gas leases (see story, “State approval needed,” in Dec. 22 issue of Petroleum News).

And the Regulatory Commission of Alaska has applications for the transfer of interests in regulated pipelines from BP to Harvest, the Hilcorp pipeline subsidiary.

RCA public noticed the three joint BP-Harvest applications - transfer of BP’s share of the trans-Alaska oil pipeline, sale of half of the Milne Point Pipeline (Harvest already owns the other half) and BP’s share of the Point Thompson Export Pipeline. An extended comment period closed Dec. 13.

Comments in favor of the sale reflect a view that Hilcorp, which specializes in maximizing production from mature fields, would be a good match for the aging Prudhoe Bay field, where Hilcorp, although it would be a minority lease owner, would take over from BP as operator.

RCA did not receive any formal objections or petitions to intervene, but it did hear a wide range of concerns about the transfer, including: lack of transparency (Hilcorp is privately held so its financials are not publicly disclosed); Hilcorp’s safety and regulatory compliance record; TAPS DR&R (dismantlement, removal and restoration) issues; labor and employment issues; and call for a public hearing on the transfer.

Alaska Public Interest Research Group

Comments from AKPIRG, the Alaska Public Interest Research Group, covered a broad range of issues and also noted points made by other commenters. It called for “robust transparency,” questioned Hilcorp’s “fitness and ability to properly operate TAPS,” raised what it called “enduring questions” about DR&R and listed conditions to ensure the transfer is in the public’s best interest.

As part of their applications to RCA, Hilcorp requested confidentiality for its financial statements, arguing harm if competitors had access to the information.

AKPIRG told RCA Alaskans need access to financial information from private companies in order to make “sound and informed decisions about the development of their public natural resources” and to ensure companies have the assets to clean up potential spills.

On DR&R issues AKPIRG noted that funds collected for such obligations are not required to be escrowed, and cited a recent Texas Supreme Court ruling that Unocal was not responsible for retaining DR&R obligations for its 1.3% ownership of TAPS, which that company has been trying to sell for a number of years.

Since BP is retaining its share of TAPS DR&R obligations, AKPIRG asked if RCA will have authority over companies, like BP, that exit the state while retaining DR&R obligations, and argued that “without a significant reformation of the current system” Alaska may be left with the DR&R responsibility.

AKPIRG said RCA “should utilize its considerable authority” and impose conditions: public financial disclosure by Hilcorp and affiliates on an annual basis; requirement that Hilcorp carry insurance sufficient to cover at least $20 billion in oil spill damage; requirement that Hilcorp have annual “independent worker safety and environmental compliance audits” with the results made public; require that past and future DR&R obligations from all TAPS owners be escrowed; mandate creation of a Trans-Alaska Pipeline System Regional Citizens’ Advisory Council; and hold at least two consumer input hearings on the proposed transfer.

Parties respond

In extensive responses BP and Harvest, parties to the RCA filings, said RCA’s “jurisdiction is limited to the regulation of common carrier oil and gas pipelines like TAPS, the Milne Point Pipelines, and PTEP. Such jurisdiction does not extend to facilities either upstream or downstream from the common carrier pipeline.”

Comments on issue such as acquisition of interests in Prudhoe Bay, labor issues there, oil field or tanker operations, creation of an additional regional citizens’ advisory council and corporate giving policies, “are all beyond the scope of the proceeding and cannot be considered by the Commission in these Dockets,” the parties said.

Referring to Alaska statutes on applicant qualification, they said RCA “considers technical and managerial expertise as well as financial fitness,” which are addressed in the application, including “significant amounts of financial information in the form of financial statements from Harvest Alaska and its guaranty affiliates demonstrating that they have the financial capability to own and operate the TAPS Interest” the 50% of the Milne Pipeline they don’t already own and a 32% nonoperating interest in the PTE Pipeline.

“TAPS is and will continue to be physically operated by Alyeska Pipeline,” the parties said, and Harvest will be limited to management oversight. With TAPS “closely regulated” it would be “extremely difficult, and extremely undesirable, for any TAPS owner or Alyeska Pipeline to make any reductions in the safety standards applicable to TAPS.”

On the DR&R issue, the parties said BP will continue to be liable for ultimate DR&R and Harvest will have responsibility for facilities added after the transaction closes, with BP’s liability insured by two separate guarantees unaffected by the transfer of interests, one provided to the federal government in 1974 and one provided to the state in 2003.

On the issue of confidentiality of financial information, the parties said the harm to Harvest and its affiliates would be “severe and irreparable” should information be released, outweighing the interest in public dissemination of the information and said RCA has come to this conclusion repeatedly in the past with regard to Harvest and its affiliates.

The parties said the Department of Natural Resources told legislators Dec. 16 that Harvest and its affiliates have submitted financial reports to multiple state agencies on a regular basis since 2011, giving RCA and other agencies a full financial picture. The goal is not to prevent disclosure of audited and unaudited financial information to relevant oversight agencies, but to ensure that financial information, not previously required to be made public, “remain confidential in order to protect them from potential competitive hard or disadvantage.”

On the DR&R funding issue, the parties said several commenters suggested RCA “consider establishing an external fund to ensure that all TAPS DR&R obligations are met, including any potential refund obligations for shippers that may result from the alleged overcollection of DR&R costs” in BP Pipeline Alaska’s rate cases.

This issue is outside the scope of these dockets, the parties said, and “the Commission long ago heard and rejected exactly this request.”

“Any evaluation of whether there should be a change in the management of intrastate TAPS DR&R funds already collected is beyond the scope of Docket P-19-017,” the parties said, noting that Docket No. P-97-007, which guarantees BP’s DR&R obligations, “was initiated in 1997 but it was not decided on appeal by the Superior Court (it was not appealed to the Supreme Court) until 2010, thirteen years later. Holding this proposed transfer hostage to efforts to relitigate past decisions of the Commission that are outside the scope of the instant Dockets should not be allowed.”

The parties said there was no requirement for RCA to hold a hearing. They also noted that no protests were filed, nor were there any petitions to intervene prior to expiration of the public comment period.

Because no hearing is required to transfer a certificate of public convenience and necessity or a controlling interest in a pipeline carrier, and no protests were filed, “there is no reason for the Commission to hold a hearing in these Dockets.”

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