Alaska News

Producers refuse to provide gas-marketing details to state

Alaska's major oil producers are refusing to give the Walker administration information about plans they may have for marketing natural gas from the North Slope, data that could be essential for planning the proposed $55 billion Alaska LNG project.

The gas at Prudhoe Bay and Point Thomson on the North Slope is necessary to support the mega-gasline project that teams the state, through the Alaska Gasline Development Corp., with the same companies the administration is battling for information — BP, ConocoPhillips and ExxonMobil.

Though Alaska officials have not mentioned the LNG project in their written requests to the major oil producers, the data they're seeking is relevant to the state's plans to one day sell North Slope natural gas to replace declining oil-production revenue.

Alaska LNG, which would ship liquefied natural gas to overseas markets, is not expected to begin production until 2025 — if ever.

The dispute has played out in a series of letters between the state and producers. It began in January, when then-Natural Resources commissioner Mark Myers sent letters to the oil producers saying the state would seek information starting in 2016 about their efforts to market natural gas, including pricing terms, volumes to be delivered, and the identity of parties expected to be involved in "substantive" marketing discussions with the partners.

The information would be sought as part of the state Division of Oil and Gas' annual review of development plans for oil and gas units, Myers said. Those plans include long-range development activities and operations proposed for the coming year.

The Oil and Gas Division has followed up with additional letters to the producers, seeking information about steps they will take in 2016 to prepare for a major gas sale. The move is obviously related to a proposed gas pipeline, because without a line, there could be no gas sale.

BP, which operates the Prudhoe Bay unit on behalf of other major lease-holders ConocoPhillips and ExxonMobil, has called the state's request for information unlawful, unprecedented and extraordinary.

"The division has never required the type of information now being sought," said Scott Digert, manager of Reservoir Management for BP Exploration Alaska, in a May 2 letter to Corri Feige, director of the division.

Dave Van Tuyl, regional manager at BP in Alaska, wrote a separate letter on May 2, expressing concern that the state could one day be a competitor of the major Prudhoe Bay producers if it markets its own gas.

Sharing "commercially sensitive marketing information" with a potential competitor "raises significant antitrust concerns" under state and federal law, he said. It would also violate the gas line project confidentiality agreement signed as part of Alaska LNG, where "appropriate collective marketing" information has been shared with with key state officials who have signed confidentiality agreements.

That confidential information should not be shared with Oil and Gas Division staff performing their regulatory duties, Van Tuyl said.

He added that the Prudhoe Bay producers have no duty to market gas outside the North Slope, because such a market does not exist. "If some other party" builds an 800-mile pipeline — necessary to deliver that gas to a port — then the producers "might" be required to plan for gas marketing, Van Tuyl said.

Then, in a comment that sounded like a swipe at Gov. Bill Walker, he said: "Today, attempts to build such a massive pipeline remain as speculative as when the Alaska federal district court found the attempt to do so by the Alaska Gasline Port Authority 'speculative' and ruled that the alleged non-local market for Alaska North Slope gas was not 'an existing and relevant economic market.'"

In 2006, Walker was the private attorney at the port authority when the U.S. District Court in Alaska dismissed the organization's antitrust lawsuit alleging that ExxonMobil and BP were working together to fight its effort to build a mega-gas pipeline at the time. Jim Whitaker, now Walker's chief of staff, was head of the port authority at the time.

Walker declined to respond to the comment, said Grace Jang, his communications director.

Referring to his administration's battle for information from the producers, Walker said recently that "discussions are ongoing."

Feige, with the Oil and Gas Division, again pressed for gas marketing information in a May 12 letter to BP's Digert, citing state administrative code that requires development plans to include "long-range proposed development activities for the unit," including for gas reservoirs, to the extent that information exists.

The state wants the detail as part of BP's proposed 2016 plan of development for the initial participating area of the Prudhoe Bay unit.

The area, where oil originally began flowing at the giant Prudhoe Bay oil field in 1977, was still responsible for almost half the 508,000 barrels of daily production on the North Slope in 2015.

On March 31, BP submitted a development plan for the area that calls for a steep reduction in drilling amid low oil prices. The state is expected to complete the review by June 30 and the plan is expected to begin July 1 — the start of the state's fiscal year.

Marty Rutherford, acting commissioner following Myers' retirement in March, said in a recent interview that the state's requests stem from a decision by the Alaska Oil and Gas Conservation Commission last fall related to natural gas offtake on the North Slope. The commission decided natural gas could be removed from the North Slope at a rate of 3.6 billion cubic feet of gas per day to support the Alaska LNG project.

Currently, gas is being used to maintain pressure in the field, ultimately increasing production of oil, which has more economic value than gas.

"It is important for the division to really understand what is going on at Prudhoe Bay in terms of (the producers') long-term development for how they'll deal with a major gas sale," she said.

Rutherford said most of the information received would fall under the "confidential cloak" of the division, referring to the division's strict confidentiality rules related to data from oil and gas companies.

Ken Boyd, a former Oil and Gas Division director and retired consultant, said he thinks the state's request for long-term information as part of an annual development plan is excessive.

"Having a conversation with BP is OK, but to put it in a (development plan) that has to be approved to keep your unit alive is a step too far. You're in the realm of crystal-ball gazing" with a project that may not happen, Boyd said.

BP said it has provided the contractually required information in its development plan, and has voluntarily provided some additional data.

BP's Digert said the major Prudhoe Bay companies continue to address facilities, equipment, wells and operational changes to prepare for a major gas sale.

"Those activities are still in the evaluation stage, recognizing that the Alaska LNG Project would not be ready to receive gas from the (area) for at least eight or nine years," said Digert.

The state and producers have often expressed their support for the project and, in particular, completing the current stage of pre-engineering and design that is set to end this year.

It's unknown what will happen after that. Next steps include a decision for more extensive engineering studies that could cost the parties $2 billion, and a final decision that had originally been set for 2019 but could be pushed back.

In communications with Feige, ConocoPhillips and ExxonMobil have said they support BP's conclusions. ConocoPhillips also requested a meeting with division staff to discuss the requests.

The Oil and Gas Division continues to gather information from the companies, said Diane Hunt, the division's external relations coordinator.

Larry Persily, former federal gas line coordinator and now an oil and gas adviser to Kenai Peninsula Borough Mayor Mike Navarre, said the exchange of letters is another hurdle in a complicated project.

"The state is asking for a lot of information they haven't asked for before, so it's no surprise the companies are taken aback by what they see as an intrusion into their marketing," he said. "But will this war of letters jeopardize the LNG project? Not any more than the ongoing disagreements between all the partners."

Alex DeMarban

Alex DeMarban is a longtime Alaska journalist who covers business, the oil and gas industries and general assignments. Reach him at 907-257-4317 or alex@adn.com.

Sponsored