The final part of the Badami unit transaction — transfer of the pipeline system — is under way, and is expected to result in a tariff reduction for shipping crude oil on the Badami pipeline.
BP Exploration (Alaska)’s sale of the Badami unit to Savant Alaska and ASRC Exploration closed in early last year.
There was a separate agreement between BP Transportation (Alaska) Inc., or BPTA, and the purchasers covering the Badami Pipeline System. The parties to that agreement have now applied to the Regulatory Commission of Alaska for transfer of the Badami Oil Pipeline certificate of public convenience and necessity, the CPCN, from BP to Nutaaq Pipeline.
The application says the sale price for was $1.
BPTA retains 100 percent of the decommissioning, restoration and reclamation obligation for the Badami Pipeline System and upon notice from Savant and ASRC Exploration that they have ceased production from Badami, “the Badami Pipeline System will be transferred back to BPTA for decommissioning.”
Because the sale price is $1, the sale is expected to result in a tariff lower than the current $12.25 per barrel rate.
“This is the final piece of the transfer of Badami to a new operator,” BP Exploration (Alaska) spokeswoman Dawn Patience told Petroleum News in an email. She said commercial terms for the deal were not disclosed.
RCA approval required
The companies said the sale of the pipeline is contingent on RCA approval.
The sale covers the Badami Pipeline System (the Badami Oil Pipeline and the Badami Utility Pipeline (natural gas)) to Nutaaq Pipeline, owned 67.5 percent by Savant Alaska LLC and 32.5 percent by Badami Pipeline Holding Co. LLC, a wholly owned subsidiary of ASRC Exploration LLC.
The pipeline ownership percentages are the same as those Savant and ASRC Exploration hold in the Badami unit.
Savant and ASRC Exploration are assigning their interests to Nutaaq Pipeline, which will own, operate and maintain the Badami Pipeline System. The companies said in the application that Nutaaq Pipeline will contract with Savant to perform day-to-day operation of the Badami Pipeline System.
Same proportion as Badami ownership
BP Exploration (Alaska) was the developer of the Badami field, which that company discovered in 1990. Badami is on the North Slope west of Point Thomson. BP produced crude oil from the field intermittently from 1998 through 2007 and in 2008 it began working with Savant Alaska on plans to restart the field. ASRC Exploration joined BP and Savant in late 2008 in bringing the field back on production. Regular production began in November 2010.
BP conveyed the Badami unit to Savant and ASRC Exploration on Jan. 7, 2012. That purchase and sale agreement included a separate agreement between BPTA, Savant and ASRC for transfer of the Badami Pipeline System with the intention, “at least initially,” the companies said, of maintaining alignment between the Badami unit owners and the pipeline system used to move oil produced at the field.
Nutaaq has filed a request with the Alaska Department of Natural Resources to transfer the Badami Oil Pipeline right-of-way lease to Nutaaq. The companies said that transfer is a prerequisite to Nutaaq’s ability to operate the Badami Pipeline System and they are requesting the transfer of the certificate of public convenience and necessity be granted contingent on subsequent approval of the transfer of the right-of-way lease.
Point Thomson
The companies said that in addition to moving crude oil from Badami, the line in the future will play a role in transporting natural gas condensate from the Point Thomson field. The Point Thomson export pipeline is expected to connect with the Badami pipeline, which “has substantial unused capacity” available to transport Point Thomson production.
Upon approval of the certificate transfer, the companies said Nutaaq Pipeline will request “a new tariff rate that will reflect a substantially reduced rate base” because of the $1 purchase price. There would be “some increases in operating costs,” the companies said, and the tariff would also include “a reasonable margin.”
“In total,” the companies said, “these changes will result in a significantly reduced transportation rate that will benefit shippers” and the state and “encourage additional development and more market entrants to use the currently unused capacity on the Badami Oil Pipeline.”
The companies said if the transfer is approved, “BPTA will be voluntarily walking away from a significant unrecovered capital investment in the Badami Oil Pipeline of approximately $21.3 million.” Shippers would not have to pay for that unrecovered capital cost, “nor would Nutaaq pay for it in the acquisition price. This benefit overshadows the increases in costs under the new ownership yielding a substantial and lasting benefit to shippers,” the companies said.
Once Point Thomson volumes are added to the line, “the rate is expected to drop even more because the costs will be spread over many more barrels.”
The companies said that even after Point Thomson barrels are added to the line, “there will still be significant unused capacity for additional new production that the low rates will help to attract.”
Badami is currently producing fewer than 1,500 barrels per day and Point Thomson is expected to have initial production of 10,000 bpd.
