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Officials ink charter between BP-Amoco, ARCO and state Revised agreement requires divestiture of 50.01 percent of Kuparuk, 50.01 percent of one NPR-A exploration fairway, changes gas sale provisions Kristen Nelson PNA News Editor
On Dec. 2, officials from the state of Alaska, BP Amoco p.l.c., BP Exploration (Alaska) Inc. and ARCO Alaska Inc. signed a charter for development of the Alaskan North Slope, clearing state objections to BP Amoco’s acquisition of ARCO.
Signing for the state were Gov. Tony Knowles, Commissioner of Revenue Wilson Condon and Commissioner of Natural Resources John Shively.
Signing for the companies were Rodney Chase; BP Amoco deputy chief executive, Richard Campbell, president of BP Exploration (Alaska) and Kevin Meyers, president of ARCO Alaska.
The final charter incorporated a number of changes from the draft, Commissioner of Natural Resources John Shively said before the signing.
Final divestiture provisions require that BP divest at least 50.01 percent of the Kuparuk River unit; the provision in the draft agreement called for a 40 percent divestiture. Qualifications for the purchaser remain the same: either a company which is currently a joint-interest owner in the Kuparuk River unit, or a company primarily in the energy business with assets of not less than $8 billion. Kuparuk owners include: ARCO at 55 percent; BP at 39 percent; Unocal at 5 percent; Chevron, Exxon and Mobil have a combined interest of less than 1 percent. The sale must include at least 125,000 barrels of gross working interest production per day.
Divestiture requirements at the Colville River unit (Alpine field) remain the same in the final as in the draft agreement: divestiture of at least 40 percent to a qualified buyer who is a current owner in the field (ARCO owns 78 percent, Anadarko Petroleum Corp. owns 22 percent) or a company primarily in the energy business with assets of not less than $3 billion. For purposes of the agreement, Colville production is assumed to be 80,000 gross barrels per day.
Total production divestiture remains the same at 175,000 barrels of gross working interest production per day to one or more purchasers; both the Kuparuk River and Colville River units, currently operated by ARCO, will have new operators.
Some flexibility lost Shively said that the divestiture is, to his knowledge, the largest that has ever taken place in the oil industry to meet antitrust concerns. “BP is giving up,” he said, “being operator of the second-largest oil field in North America. They’re giving up daily production of 175,000 barrels a day of oil which is, as far as I know, the largest upstream divestiture ever to take place in the oil industry.”
The draft compact, which said that at least 40 percent of Kuparuk and Colville would be divested, was meant to provide some flexibility in a sale: more than 40 percent could be divested at Kuparuk and Alpine to come up to the total, or portions of other fields could be included.
“The divestitures at Kuparuk and Alpine never added up to 175,000,” Shively said. “They never did. And there was always some confusion about that. We always knew the oil was going to have to come from some other place. We assumed most of it would come from Kuparuk, but also we wanted to leave BP some flexibility because I think a variety of the companies, particularly the large companies, that were looking at Kuparuk may have different ideas of what they would like on the slope… that would allow BP to get to the total.”
Shively said that there are only a handful of companies qualified to purchase the Kuparuk part of the divestiture. At least 11 companies, Shively said, have made contact with BP about the Kuparuk River or Colville River units.
Changes in exploration divestiture BP must now divest at least 50.01 percent of one of the three exploration fairways in the National Petroleum Reserve-Alaska, rather than the 40 percent specified in the draft agreement. At least 100,000 acres within one of the exploration fairways specified must go to the new unit operator at either Kuparuk River or Colville River. The net acreage to be sold in the NPR-A, 220,000 acres, remains the same.
The final agreement also changed the divestiture requirements for undeveloped state lease acreage. Now at least 250,000 acres of undeveloped state leases must be divested to the company or companies that acquire production and the right to operate the Kuparuk River or Colville River units, with a minimum of 75,000 acres to each buyer, ensuring that both new unit operators also have exploration lease acreage positions. The draft agreement required sale of undeveloped lease acreage “to result in two exploration operatorships other than BP or ARCO” in two of six exploration fairways specified.
The total of state undeveloped lease acreage which must be divested, 400,000 acres, remains the same.
Entirely new gas provision “We’ve changed the gas provision, which provided probably the most entertainment for those of us who sat through the public hearings,” Shively said.
The price target provision has been removed and replaced with a commercially reasonable fair market price or transportation charge that is mutually agreeable to BP and ARCO, the third party and the state.
BP is required to negotiate in good faith with qualified gas projects and Shively noted that the state has the ability, through binding arbitration, to ensure both good faith bargaining and a fair market price. There are, he noted, legal standards for negotiating in good faith.
Fair market price, Shively said, is a term often used where you don’t know exact values, but the market dictates the prices. “The problem is, in this kind of situation, different markets can give you different fair market prices,” he said. “So an LNG fair market price could conceivably be different from a gasline to Chicago fair market price.” The actual fair market price, he said, would be determined during negotiations.
“The natural gas section,” Shively said, “has been the most difficult to negotiate.” It was the most difficult thing to negotiate in the draft, and it was the last thing settled on in the final, he said. And while the state wants to see gas developed, the state has leased to BP the right to develop that gas. “We cashed their check and so we can’t just unilaterally make it so,” Shively said.
Environmental requirements strengthened The revised charter makes the $10 million to be spent by BP cleaning up orphan North Slope sites a floor, not a ceiling; makes the $5 million to be spent as requested by the Alaska Department of Environmental Conservation a floor, not a ceiling; requires BP and ARCO to repudiate any trade association effort to weaken Oil Pollution Act of 1990 standards; requires continued support of the ship escort response vessel system in Prince William Sound; requires BP to report annually on environmental issues; and makes environmental funding commitments in the charter enforceable in a court of law.
Other provisions added, changed The final charter provides that proprietary seismic and well data developed before 1975 will be made available to the public at no charge, an item not included in the draft. The amount of crude oil which BP and ARCO would agree to buy from any qualified producer’s ANS leasehold production is raised from 25,000 barrels a day total from all such contracts to 30,000 barrels a day total from all such contracts. The final agreement also defines qualified producers as those with assets of less than $1 billion.
A termination date of 2008 in the draft agreement has been removed.
A new provision has been added clarifying that nothing in the charter relieves BP or ARCO of any obligations under any state or federal laws or regulations.
Some of the changes, Shively noted, were in direct response to public comments at the town meetings which the state held on the draft charter and letters which the state received.
Under the draft charter, Shively said, all of the divestiture provisions were legally enforceable. Under the final charter, the money commitments in the environmental provisions have been made legally enforceable.
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