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BP asset sale might promote North Slope facility access, says Myers State Division of Oil and Gas studies situation, awaits commercial before negotiations stepping in with ‘sticks’ or ‘carrots’ Steve Sutherlin PNA Managing Editor
The state is very hopeful that the effort on the part of BP Exploration (Alaska) Inc. to market its exploration acreage on the North Slope of Alaska might result in significantly more attractive terms for access to facilities, Mark Myers, director of the Alaska Division of Oil and Gas told PNA Dec. 3. (See story on page 1 of PNA’s Dec. 1 edition.)
The sale creates a desire to offer reasonable facility access because the promise of reasonable access makes the offered properties more desirable, Myers said.
The state wants to see a dialogue between new producers and facility owners and it wants to facilitate that dialogue, but not apply a heavy hand in the hopes that a commercial agreement will emerge: “The state has a role to facilitate access, in my opinion, but no policy has been adopted as yet,” he said. “I think the state’s role at this point is to provide information for reasonable methods for facility access.”
The state is studying a palette of carrots and sticks in its arsenal that might affect the debate, or make the North Slope more attractive for newcomers, but the long-term costs and benefits of each must be carefully considered, Myers said. Government action might not be the best answer to what is essentially an economic question — “How do you maximize production and provide a reasonable rate of return for the operator, while providing a reasonable cost to the small producer?”
One big stick the state has is its right to expand units unilaterally to include satellites if the satellites can’t get workable terms of access from nearby unit facility owners.
“We would like to see a commercial agreement, but we wouldn’t hesitate to use that power when appropriate,” Myers said.
Lower transportation costs would help make the North Slope more attractive to new producers, and a recent decision by the Regulatory Commission of Alaska raises hope for relief in that area, Myers said. The RCA report said the price for intrastate shipping in the trans-Alaska oil pipeline is too high, by approximately $1.50 per barrel. (See related story on page 1.)
“A $1.50 reduction in transportation would remove a huge barrier to exploration,” Myers told PNA. “It would probably have the same impact as reducing royalties to zero. It would be a colossal impact.”
RCA action would only affect intrastate shippers such as Williams and Tesoro, he said. To achieve a similar reduction for interstate shippers would require some party to request adjudication on the TAPS tariff by the Federal Energy Regulatory Commission.
Dropping royalties in general, however, doesn’t pass the state’s cost-benefit analysis.
Division studies indicate that further reduction in royalties would not result in a dramatic increase in exploration, Myers said, adding that Alaska royalties are lower than those in some other states.
“Reduced royalties are appropriate in some conditions, but it requires analysis on a case by case basis,” Myers said. “It could have significant affect on state revenues and is only appropriate if it stimulates production that otherwise would not occur.”
Lowering the liability bar A major concern of the large companies is liability for smaller companies that share facilities, Myers said. In an atmosphere of rising insurance costs, private industry might not provide a viable, cost effective solution.
“The state perhaps should play a role — look at a common bond pool, like you do in mining,” Myers said. “The state needs to find a way to allow more people to have access.”
Another idea to reduce costs for smaller explorers is to consider alternatives to backup rigs, such as well capping and in situ burning, Myers said. Currently explorers have to allow time at the end of the drilling season to mobilize a relief rig, and that dictates an early stoppage for the exploration rig.
But in situ burning is controversial; it involves burning down the rig and burning up the oil rather than cleaning up the oil, Myers said. “There is a very low probability it would happen, only in a catastrophic situation in a remote scenario.”
On the other hand, well capping is simply a matter of getting the equipment there and getting Department of Environmental Conservation acceptance, Myers said. Both options would extend the drilling season.
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