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Armstrong gets access to some North Slope infrastructure via Kuparuk River unit ballot agreement
Kay Cashman, PNA publisher
Ballot agreements between the owners of unitized oil fields on the North Slope are not new. Up until now they have been mainly used to give developers of satellite fields, which have the same operator as a unit but often a different mix of ownership percentages (including some non-unit owners), access to some of a unit’s equipment, services and facilities at agreed upon prices and conditions.
But ballot agreements have begun to do something unexpected — and positive — for oil and gas companies who do not own a piece of the producing units but want to drill their own nearby North Slope prospects and access unit infrastructure and shared services.
One such ballot, Greater Kuparuk Area Ballot No. 260A, put together in 1997 by unit owners and updated periodically since then, has been offered by unit operator Phillips Alaska Inc. to Armstrong Resources LLC. Armstrong, a Denver-based independent that picked up 10 leases in October between the Kuparuk River unit and Thetis Island, wants to drill three wells on those leases this winter. (See story on page 1.)
GKA Ballot No. 260A gives Armstrong access to Kuparuk’s roads, mobile and non-mobile equipment, emergency and spill response services, waste management infrastructure and camp services.
No access to production facilities The ballot does not give Armstrong access to production facilities and pipelines, but it is a step in the right direction if your goal is to operate on the North Slope and your company name doesn’t begin with BP, Exxon or Phillips.
“I think Phillips and the other owners — BP, Chevron, ExxonMobil and Unocal — should be commended for what they’ve done with Ballot 260A. It shortens the permitting process and reduces our environmental footprint,” Stu Gustafson, vice president of operations for Armstrong Resources, told PNA July 19.
“The state also wins. The ballot reduces its administrative work load, avoids duplicative environmental process and facilitates and promotes the open for business strategy established by this administration. All of this enhances the evaluation process of the state’s resources, maximizes potential revenues while minimizing impacts on the environment and subsistence activities,” he said.
On July 19, the day after getting the signed ballot, Armstrong filed permit applications for three exploration wells between the Kuparuk unit and Thetis Island.
“We preferred to have the ballot in hand before we filed the permit applications,” Gustafson said.
Armstrong expects to find enough oil to justify standalone production facilities and a pipeline to the trans-Alaska oil pipeline system’s pump station No. 1, so it does not expect to require additional access to Kuparuk infrastructure.
How much? The ballot says participants in No. 260A “enjoy the advantages of the efficiencies and cost savings that may be obtained from the sharing of certain equipment and facilities.” (The ballot does not mandate Armstrong use Kuparuk’s infrastructure.)
In turn, the ballot allows the Kuparuk unit owners to capture additional return on their investment in the unit’s roads, equipment and other infrastructure.
Profit for the unit owners is also factored in “where appropriate” to “recover costs above expenses and receive a nominal rate of return” for the owners.
Fees are reviewed annually by Phillips and adjusted as necessary.
The ballot also says if there is a conflict between Kuparuk area operations and third party users, Kuparuk takes precedence.
Everything owned, leased, rented Included in the ballot is the use of the Kuparuk unit’s equipment fleet, which encompasses everything owned, leased and rented, such as “pickup trucks, buses, heavy trucks, loaders, dozers, forklifts, light plants, heaters, downhole pumps, vac trucks and other equipment” which is used to “support all aspects of unit operations in the field.”
All heavy equipment includes an operator, the ballot says.
Routine maintenance and repair of equipment is provided by Phillips. Damage or excessive repairs are billed at Phillips’ discretion.
During the initial phase of any emergency, including oil spills, the ballot says the emergency will always have “priority use” of the equipment fleet.
No hazardous waste The ballot makes waste handling facilities available to third party users, although waste management is limited to solid wastes such as completion fluids and drilling muds only. It excludes hazardous waste and the use of Kuparuk waste handling facilities for the disposal of gray water, solid oily waste and cuttings.
Phillips must make approved generator training available on a regular basis, and offer minor administrative assistance on local, state and federal regulatory issues concerning waste management.
Under camp services, room and board, water treatment services to handle and dispose of wastewater, and warehouse, office and conference room space are included.
Shop services, specifically machine shops, valve shops and the rotor-balancing machine are also part of the agreement, as is one mechanic.
Airstrip ground support, minor electrical power (limited to less than an average of 500 kilowatts or the equivalent), and telecommunications systems are also provided for in the agreement.
On an “as available basis,” Phillips will sell the materials and bulk chemicals it carries in its unit warehouse, as well as provide material specialist/purchasing services and temporary material holding for up to seven days.
In several places Ballot 260A requires that third party users must follow all government laws and regulations, including those that apply to environmental permitting and safeguards, the possession of firearms, and the hunting and molesting of wildlife.
The ballot also demands that users comply with the owners’ rules governing the use of Kuparuk unit and facilities.
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