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Commissioner receives notice from Knowles
Kristen Nelson
Alaska Oil and Gas Conservation Commissioner David Johnston, the last pre-Knowles appointee on that three-member panel, was notified Nov. 19 by the Knowles administration that he will not be re-appointed to the seat he has held for almost 11 years.
Johnston was named by Gov. Steve Cowper in January 1989 to fill a seat which had been vacant for several months following a retirement. He was chairman of the commission from 1990 to 1998. His current six-year term expired at the end of last year; since January he has served at the pleasure of the governor.
Johnston reviewed highlights of his years on the commission in a Nov. 29 interview with PNA. He said he had been told it was likely the governor would name a new commissioner within two weeks. As of PNA’s deadline, a new commissioner had not yet been named.
First years on commission were reaction Johnston, a geologist, started with the state at the Division of Oil and Gas in 1981 and worked with Commissioner of Natural Resources Judy Brady and Gov. Cowper on Interstate Oil and Gas Compact Commission issues when Cowper was chairman of the IOGCC. Cowper appointed Johnston to the commission.
His first two or three years at the commission, Johnston said, the agency was in reactive mode: “We had some real difficult times in ‘89 and ‘90. We had the ombudsman’s investigation and the legislative audit.”
There was no opportunity to develop new programs in the first two or three years, Johnston said: “We were always reacting to something.”
In 1989 the commission had fallen on hard times — even the sign out in front of its Mountain View building had rotted at the bottom and was leaning over.
The commission had gone from 27 employees and an annual budget of $2.7 million in the early 1980s to an annual budget of $1.5 million to $1.6 million and 22 employees by 1989. Across the board reductions had cut the number of inspectors from five to three. The ombudsman and legislative audit investigations were based on the reduction in inspectors.
In 1989 commission needed to be modernized In addition to staffing problems, Johnston said, “ the commission was still doing things that the rest of the world gave up doing a number of years ago, in terms of office automation.” Commissioners and staff still hand wrote memos and correspondence to be typed by a central typing pool.
Johnston, used to doing his own work on a computer at his desk, got himself a surplus display writer.
“You should have seen the commotion that caused among the old guys around here — this young buck coming in doing his own typing!”
But a worse problem than lack of office automation was that the commission’s computer system could no longer read the computer tapes of well information it received from the companies operating Alaska’s oil and gas fields — technology had outdistanced its equipment.
“One of the things that we needed to do,” he said, “was to get some modern office automation and reservoir surveillance type equipment into this commission.” There was also a need, he said, to work more closely with DNR and the Department of Revenue on decline curve analysis for state revenue projections.
Working more closely with DNR, Revenue The equipment which the commission uses today has been expanded, but automation and modernization started in 1989, Johnston said. The governor supported a request by the commission for equipment, and when the ombudsman’s report hit the street about a year later the commission was able to convince the Legislature to increase the commission’s budget so it could hire two additional inspectors.
Through the 1990s, the problem was gradual erosion of the commission’s budget with across-the-board budget cuts, Johnston said, but the inspection program continued to be a focus.
“That’s where the rubber meets the road is out there in the oil patch and that’s where you want to have some good men looking at activity up there and want to make sure they’re fully supported so when they go out they’re reasonably safe. They have survival gear. They have good vehicles, etc.,” Johnston said.
To keep up with computer technology the commission used the “trickle-down effect,” buying new computers for those doing reservoir surveillance work, and rotating older computers down through the commission.
Middle years marked with Prudhoe Bay issues While the inspector issue put the commission in the limelight in the late 1980s and early 1990s, in the mid-1990s it was the commission’s involvement in a dispute which arose among the Prudhoe Bay field’s major owners.
ARCO Alaska Inc., BP Exploration (Alaska) Inc. and Exxon couldn’t agree over the use of natural gas at Prudhoe. Gas owners (ARCO and Exxon) favored natural gas liquids which are blended with crude oil and shipped down the trans-Alaska pipeline for sale. Oil owners (BP) favored miscible injectant which is used to increase oil recovery.
The commission got involved at the end of 1994 and held hearings in the spring and summer of 1995. The dispute drew the commission’s attention to the ownership structure at Prudhoe Bay, where companies own different portions of the oil and the gas in the field.
After the first hearings, Johnston said, the commission felt that the miscible injectant, natural gas liquids issues had arisen because there were two equities at Prudhoe Bay — the gas cap equity and the oil rim equity. “In my mind,” Johnston said, “we did not have a complete unitization or a complete integration of interests. Multiple properties had been combined into — guess what — multiple properties! There’s fewer. There’s two. …And that was what was causing the tug of war between NGLs and MI.
“And we drew a few conclusions coming out of the NGL thing that we felt maybe there was something wrong in the integration of Prudhoe Bay that should be examined and maybe fixed. But we never got around to issuing that final decision because (Attorney General) Bruce Botelho entered his opinion that basically said that … the oil and gas commission was acting inappropriately and we should not be looking at reunitizing the interests in the field that had already been unitized. And even to this day I’ve wished Botelho would take a second look at that.”
Johnston said he didn’t want government to “jump in there and integrate the interests” but had hoped that government involvement “ would provide the incentive for industry to do what I felt was the right thing and that was to bite the bullet themselves and to renegotiate those interests and really, truly combine and fully integrate the interests of both the oil rim and the gas cap and run it as one property.
“And I don’t know if things would be different today if industry had done that. But I just wonder today whether we would be dealing with an ARCO-BP merger at this point, or whether ARCO would still be a viable entity.”
“But at the time, we were told that to … reintegrate the interests would be just impossible because it would be way too difficult for people to recalculate the equity that would be involved in terms of establishing one ownership rather than two because so much oil had been produced…”
Hearings a success and a disappointment “I view the Prudhoe Bay hearings both as a success and as a disappointment,” Johnston said. “I was disappointed that we did not resolve the reunitization question.”
But on the success side of the hearings, Johnston sets the Prudhoe Bay MIX project — the miscible injectant enhancement project. “And I think, again, if it were not for this commission handling those issues the way it handled it, I’m not sure that project MIX would ever have seen the light of day.” Johnston said that it is speculation on his part, but that he believes the commission played a very important role in getting the companies to commit to project MIX.
Once the commission heard that more could be done to maximize production from the Prudhoe Bay oil pool, Johnston said, it pushed the companies to do more — “and they came back and they put on the table project MIX. And with that the commission became comfortable that the operators were doing everything they could to improve ultimate recovery from Prudhoe.”
Ever increasing role for the commission Johnston said he thought that with BP now poised to control Prudhoe Bay development there will be an ever increasing role for the commission. Prudhoe, even with its declining reserves, is still Alaska’s crown jewel, he said, “and that’s going to argue for a very close scrutiny on the part of the commission to make sure that the interests of the state are protected.”
“I think the commission is going to have to figure out exactly what its role is going to be,” Johnston said, “because basically the commission has a very small staff and even though we are improving its computer capabilities and processing capabilities with reservoir modeling hardware and software you still need to have the technical knowledge in order to do that, the technical assets, the personnel to do that. And that’s where the commission will be lacking.”
The commission has “a very modest reservoir modeling effort under way,” Johnston said, and it will have to figure out how to take those assets and use them so that it does understand what’s happening with the Prudhoe reservoir.
In the past, commission could only listen In the past, Johnston said, the commission’s reservoir knowledge has been limited to listening to the sworn testimony of company experts — and asking intelligent questions. Now, he said, the commission does have a tool “that we can begin to look at some of this information and tweak it ourselves to better have an understanding of what’s actually happening to these reservoirs.”
But, he said, the commission will never have the technical capabilities of industry. “Nor,” he said, “would it be appropriate for the commission to have that type of capability.” What is important, he said, is that the commission have tools so that it can analyze some of the information it receives independently, giving it a better understanding of what industry goes through and allowing it to ask good questions.
It’s comparable to building a dollhouse, Johnston said: it gives you a little better sense of how a real house is constructed. What the commission is doing, he said, is getting the tools to help it understand how industry’s reservoir models are put together and all the elements that go into them and all the difficulties. “And by doing that, we have a better handle on the limitations of …what industry is doing” and how complicated it is and how accurate it is.
Regulations revised In addition to computer modernization at the commission, Johnston has also been involved during his years at the agency in a complete regulation rewrite. From the mid to late 1990s, the commission — working with industry — spent several years revising all of its regulations, starting in 1994 before the MI-NGL hearings and completing the work late this year.
Johnston said that today, knowing what he knows now, he would advise the commission to revise the regulations section by section. “That was a long, involved process,” he said. “And a lot of people poured a lot of their time and effort into it,” both at the commission and in industry.
“To me, it was just another example of just the real talent and dedication that people in Alaska have to doing what they feel is the right thing,” Johnston said. Industry and the commission didn’t always agree on the revised regulations, he said, “but I think the important thing is that we had the give and take. And we understood a lot better where industry was coming from. I think we have better regs.”
Changes to come Johnston said he thought the Alaska oil patch would change tremendously in the next few years, with a single operator at Prudhoe, potentially a new operator at Kuparuk and a new operator at Alpine. “You may see companies that have not been active in the state for quite some time take another look at Alaska. You may see companies like Shell or Phillips or Chevron coming back. I think that would be excellent.
And, he said, “I would not write off the inlet right now,” Johnston said.
“I think the oil patch is going to absolutely take off and go great for the next few years. Everything is here right now and the only thing that’s lacking is I think the ultimate decision on the BP-ARCO merger. Once we put that to rest and money starts flowing not into acquisition but into actual exploration I think this state will explode with oil and gas development.
“We were there about a year and a half ago, when oil prices were $16-$17 a barrel. We were seeing activity that this commission was really struggling to keep up with” — development both east and west of Prudhoe.
“Those things are going to come back — at $25 barrel oil, it’s got to come back. I think there’s a wonderful world out there for the foreseeable future in oil and gas in this state.”
Johnston said he has a little bit of regret leaving the commission, but “I’m also excited that there’s going to be a lot of activity out there and I might be able to help out from a different perspective. My role will change. And I’m looking forward to it.”
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