Legislature(2009 - 2010)BARNES 124
03/09/2009 01:00 PM House RESOURCES
| Audio | Topic |
|---|---|
| Start | |
| Presentation by Armstrong Oil & Gas: the Difficulties of Doing Business in Alaska | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
March 9, 2009
1:06 p.m.
MEMBERS PRESENT
Representative Craig Johnson, Co-Chair
Representative Mark Neuman, Co-Chair
Representative Bryce Edgmon
Representative Kurt Olson
Representative Paul Seaton
Representative David Guttenberg
Representative Scott Kawasaki
Representative Chris Tuck
MEMBERS ABSENT
Representative Peggy Wilson
COMMITTEE CALENDAR
PRESENTATION BY ARMSTRONG OIL & GAS: THE DIFFICULTIES OF DOING
BUSINESS IN ALASKA
PREVIOUS COMMITTEE ACTION
No previous action to report
WITNESS REGISTER
ED KERR, Vice President
Land & Business Development
Armstrong Oil & Gas, Inc.
Denver, Colorado
POSITION STATEMENT: Provided an overview of the difficulties of
doing business in Alaska, primarily in regard to gas exploration
and development in the Cook Inlet.
ACTION NARRATIVE
1:06:22 PM
CO-CHAIR CRAIG JOHNSON called the House Resources Standing
Committee meeting to order at 1:06 p.m. Representatives
Johnson, Neuman, Kawasaki, Olson, Seaton, and Edgmon were
present at the call to order. Representatives Tuck and
Guttenberg arrived as the meeting was in progress.
^PRESENTATION BY ARMSTRONG OIL & GAS: THE DIFFICULTIES OF DOING
BUSINESS IN ALASKA
1:06:42 PM
CO-CHAIR JOHNSON announced that the only order of business would
be a presentation by Armstrong Oil & Gas regarding the
difficulties of doing business in Alaska.
ED KERR, Vice President, Land & Business Development, Armstrong
Oil & Gas, Inc., began with a history of Armstrong Oil & Gas,
Inc. (AOG), a 23-year-old company [headquartered in Denver,
Colorado]. He said AOG is a true independent oil and gas
company that carries no debt, so anything AOG does is out of its
own hip pocket. The company became active in Alaska about 10
years ago and won its first lease on the North Slope in 2000 or
2001. To date, AOG has drilled 11 wildcats on the North Slope
and has had various degrees of success. The Oooguruk project
recently placed on line by Pioneer Oil Company was an Armstrong
Project, as was the Nikaitchuq project that Eni is currently
working on. The projects were sold to Pioneer and Eni because
the capital expenditures associated with the two projects and
the pace at which Armstrong's partners wanted to go were more
than what Armstrong was ready to do, given that Armstrong
carries no debt.
1:09:09 PM
MR. KERR said AOG is active in multiple states and the Gulf of
Mexico and every state or location has its strength and
weakness. The change in tax laws in the Cook Inlet was a
catalyst for AOG to look into making capital investments there,
he pointed out. Armstrong really scrutinizes an area prior to
making capital investments because the company is in it to make
a reasonable profit for its investment. Armstrong acquired the
Northfork Unit in Cook Inlet three years ago after clearing up
several pre-existing legal situations with it. The Northfork
Unit was established in the 1960s and had only one well when it
was acquired by AOG. In 2008 Armstrong successfully drilled a
second well in the unit. However, he reported, the wells being
found today are not as good as those found in the past.
1:12:00 PM
CO-CHAIR NEUMAN inquired whether the problems with the Northfork
Unit were government or business related.
MR. KERR said Armstrong's overall experience dealing with the
State of Alaska has been outstanding. On some narrow instances
there are some challenges, he continued, but staff at the
Division of Oil & Gas has been very amenable and has tried hard
to work through any problems. The Northfork issues were created
by the unit's previous owners, he explained. It was initially
drilled by Union Oil Company of California (Unocal) and was
owned by large oil companies for a long period of time. While
these companies did not develop the unit, they did keep it in
good legal standing. In the late 1990s the unit was purchased
by a series of small individuals who parceled it out to even
smaller individuals and that created the problems. The
predominant problem was a lack of performance and another
problem was the drafting of the granting documents.
1:13:48 PM
CO-CHAIR NEUMAN related his concern about state regulations that
are imposed on industry and asked whether there are other
regulations imposed by communities that make it difficult.
MR. KERR replied that at times AOG has had some challenges with
communities, but for the most part the company has been able to
work those out. However, he continued, some colleagues have had
more significant issues than Armstrong. It is AOG's goal to
move forward in getting a gas contract with any utility possible
and to sell this gas to whatever communities is deemed best.
REPRESENTATIVE OLSON surmised that Armstrong is looking for gas
on the Northfork Unit even though Unocal was originally looking
for oil.
MR. KERR responded correct. The well drilled by Armstrong has
confirmed gas in the Tyonek Formation. There is still some
potential for oil in the Hemlock Formation and if AOG can work
out the scenario for gas then it can pursue that oil as well.
1:16:59 PM
MR. KERR continued his presentation, stating that he will be
talking with the Regulatory Commission of Alaska (RCA) in a
couple of days. It is a good idea to keep people informed about
Armstrong's activities and plans, he said. This prevents
miscommunication and helps assure that AOG does not waste time
negotiating a gas contract that will not be agreeable to the
RCA. If a project is not going to be agreeable to the RCA, then
Armstrong is better off to pursue projects elsewhere.
CO-CHAIR JOHNSON requested that discussion be avoided about what
may or may not be happening before a regulatory body. If the
legislature wants to fix something it will pass a law, he said,
but it is not the legislature's position to influence a
regulatory agency.
1:18:45 PM
REPRESENTATIVE SEATON pointed out that this area is within his
district. He said that in the past things have happened before
the RCA that the community of Homer was not made aware of and
the community fears that this gas will be exported from the
local area, whether it be to Anchorage or overseas, without the
building of infrastructure for local supply.
CO-CHAIR JOHNSON said this type of thing can be discussed, but
he wants to avoid any specific docket that might be before the
RCA. He added that he and Co-Chair Neuman have discussed having
the RCA speak before the committee.
REPRESENTATIVE SEATON responded that he would like to know
whether AOG can contract with communities or is prevented from
doing so by the RCA.
CO-CHAIR JOHNSON said this type of question would be okay.
1:21:54 PM
MR. KERR remarked that the aforementioned discussion is duly
noted. He reiterated that gas was found in the second well at
the Northfork Unit and Armstrong's goal is to enter into a gas
contract. He explained that the unique thing about oil and gas
exploration and development is that until there is expansion and
the drilling of additional wells, it is unknown how big or small
an asset is. At this time Armstrong is comfortable saying that
the Northfork asset is between 7.5 and 12.5 billion cubic feet
(Bcf) of gas, he reported, and it may well be 20-60 Bcf or even
larger. The issue associated with these numbers is that they
are risk numbers and AOG will not know until additional wells
are drilled. Armstrong has made a substantial investment to
date in the Northfork Unit, he said. The next step is to get a
gas contract and then AOG will move forward with developing the
asset and drilling additional wells. Capital expenditures could
be anywhere from $40 million to substantially more, depending on
the well results.
1:24:02 PM
CO-CHAIR JOHNSON asked whether it is typical to get the contract
prior to proving the reserve instead of the other way around.
MR. KERR replied that Armstrong is in between because the two
wells have proven the reserves and now what needs to be done is
proving the size of the reserves. This is the norm, he said.
The unique situation in Cook Inlet compared to the Lower 48 is
that there are a limited number of gas buyers. In addition, the
Lower 48 has lots of gas pipelines already in place, which is
not the case in the Cook Inlet. The challenge before Kenai
Peninsula and Cook Inlet producers is that most of the currently
producing fields were found in the 1960s. They used to be world
class oil and gas fields, but now they are declining. He said
this puts the Kenai Peninsula in a gas market that he has never
seen before - a significant decline associated with 96 percent
of the production and a limited number of new wells being
drilled.
1:26:49 PM
MR. KERR compared the Cook Inlet to two other basins of similar
size, the Bighorn Basin and the San Juan Basin, both about 100
miles long by 100 miles wide. To date, the Cook Inlet has
produced a total of 7.6 trillion cubic feet (Tcf) of gas and 1.3
billion barrels of oil, he related. The Bighorn Basin has
produced 2.4 Tcf of gas and 3.1 billion barrels of oil and the
San Juan Basin has produced 41.5 Tcf of gas and 380 million
barrels of oil. He said he researched this comparison to
determine for himself whether the challenges of the Cook Inlet
were real or imagined. In response to Co-Chair Johnson, Mr.
Kerr said the Bighorn Basin is in northwest Wyoming and the San
Juan Basin is in northwest New Mexico.
1:28:21 PM
CO-CHAIR NEUMAN voiced his concern that when the 24-inch gas
line from Prudhoe Bay to Southcentral is turned on, exploration
in Cook Inlet will come to a halt, causing job loss and impact
to Southcentral's economy, as well as the loss of investments
made by the Cook Inlet explorers.
CO-CHAIR JOHNSON inquired as to the timing for deliverability of
Armstrong's gas.
MR. KERR said his opinion, based on 26 years in the business, is
that Co-Chair Neuman's concern could be accurate if both
projects were happening at the same time. He predicted that
Armstrong's project will be on line well before the proposed
"bullet line" from Prudhoe Bay is built and that a project of
the size and scope of the bullet line will have a lot of
challenges. Armstrong intends to sell gas as soon as a pipeline
is built which would be late 2010. In response to Co-Chair
Johnson, Mr. Kerr clarified that the 2010 pipeline is the one
from his project. In response to Representative Olson, Mr. Kerr
said his project's pipeline would be about 20 miles long.
Armstrong has wells ready to produce today, subject to the
permitting process, and more wells could be drilled during the
permitting interim.
1:32:20 PM
MR. KERR, in further response to Co-Chair Johnson, explained
that the gas is traditional Cook Inlet gas with no inert gases,
[so no processing would be needed].
REPRESENTATIVE OLSON surmised that Armstrong has a ready market
for the oil.
MR. KERR responded, "Yes".
REPRESENTATIVE OLSON further surmised that since "Tesoro" is
only using 25 percent Cook Inlet oil, it would likely pay a
premium to get more of that oil.
MR. KERR replied, "Exactly". Oil is not as formidable a problem
as gas because it can be safely transported in trucks.
Armstrong is advocating a pipeline as the best way to go for
natural gas rather than trucking compressed natural gas by road.
1:33:29 PM
MR. KERR returned to his presentation, noting that in 2007 the
San Juan Basin had 984 wells drilled, the Bighorn Basin had 100
wells drilled, and the Cook Inlet only had 8 or 14, depending on
whether staked versus completed wells are counted. Thus, the
Cook Inlet only had 10 percent the number of wells as drilled in
the Bighorn Basin and 1 percent of the wells drilled in the San
Juan Basin. The total number of wells completed in the San Juan
Basin is approximately 44,700, the Bighorn is approximately
12,800, and the Cook Inlet is 1,312. In response to Co-Chair
Johnson, Mr. Kerr agreed to provide in writing the source of
this information to committee members.
MR. KERR posited that while this is a signal that not a lot has
been done in the Cook Inlet, it is also a signal that a lot
could be done in the future. The bulk of Cook Inlet production
has come from traditional structures that were drilled in the
1960s and early 1970s. However, in the Lower 48 today, exotic
production such as shale has dropped the price of gas. The
price dropped because a tremendous amount of gas was found in
the shale and because competition was created between the
service companies.
1:36:28 PM
MR. KERR pointed out that the cost of drilling a gas well in the
Cook Inlet can be 400-600 percent more than in the Lower 48.
Such an exorbitant cost necessitates selling the product at a
given price in order to not lose money. The large easy reserves
have been found in the Cook Inlet, but he said he believes there
is still a lot more gas to be found even though it will be more
challenging. The best way to promote finding that gas is to
create an environment where independents can come to Alaska and
feel like they will get a reasonable return on their
investments. It can be seen by the number of wells drilled to
date in the Bighorn and San Juan basins, that independents have
felt it will be a challenge to get a return on investment in the
Cook Inlet. For its size, an extraordinarily small number of
wells have been drilled in the Cook Inlet.
MR. KERR said the Alaska State Legislature is doing a wonderful
job in the Cook Inlet from a tax structure viewpoint. The
legislature has recognized that something needs to be done to
encourage drilling and not a lot more could be done in this
regard. Armstrong is in the process of seeing whether it can
get a return and if an arrangement can be made, Armstrong will
drill more wells. If an arrangement cannot be made that will
give AOG a return, then the project will be mothballed.
1:39:12 PM
CO-CHAIR NEUMAN asked whether AOG is talking to other companies
about added-value that would create more jobs for Alaskans,
although he acknowledged that the Cook Inlet's gas is dry and
does not have a lot of natural gas liquids for added-value.
MR. KERR responded that AOG has offices in many locations
throughout the U.S. and world, and therefore talks to other
companies and takes on partners in many projects. The pervasive
nature of the Cook Inlet is such that there is skepticism for an
independent to go in there and be able to work a contractual
arrangement to sell the gas at a price that allows a reasonable
return. It is surprising how much it boils down to others
looking and watching that first guy, he said. For example, when
AOG first went to the North Slope the theory was that an
independent could not do business there. But the Oooguruk
project is now on line and the Nikaitchuq wells are being
drilled. The capital expenditure committed for those two
projects is a little over $2 billion.
1:42:15 PM
CO-CHAIR NEUMAN inquired what AOG thinks it will be able to sell
its gas for.
MR. KERR estimated that AOG will need to receive a price in the
range of $7-$10 [per million British Thermal Units (BTU)]. The
challenge is that AOG knows the gas is there, but will
potentially have to spend $40-$80 million in costs; so the
prices must allow a reasonable return. If Armstrong says it is
going to do something and does not do it, then it does not do
anything for the State of Alaska.
CO-CHAIR NEUMAN commented that $7-$10 is good information as he
had anticipated $15-$17.
MR. KERR added that AOG knows it has gas, but the challenge is
that it does not yet have absolutes as far as how significant
the reserves are and what the cost structure will be. Issues
inevitably arise in the exploration and development business,
such as problems with drilling, the pipe gets stuck in the hole,
or things get lost in the hole, and all of these things create
cost overruns. He said AOG must have a price that allows it to
stay in business in order to do good for itself as well as for
the state.
CO-CHAIR NEUMAN remarked that he wants Armstrong and other
companies that come to Alaska to make a profit, otherwise they
will go somewhere else.
1:46:35 PM
REPRESENTATIVE SEATON asked what the current sales price is for
Cook Inlet gas under current contracts.
MR. KERR said he thinks some are over $8 and some are under. In
further response to Representative Seaton, Mr. Kerr said the
Kenai Kachemak Gas Pipeline is a 12-inch pipeline.
REPRESENTATIVE SEATON understood that existing gas suppliers
have contracted through 2014 for 95 percent of the capacity of
the Kenai Kachemak Gas Pipeline, leaving 5 percent available to
additional suppliers. He asked Mr. Kerr to discuss the issue of
an intra-state pipeline that is by contract versus a common
carrier pipeline.
MR. KERR agreed that there is plenty of space for additional
gas, but that he does not know who owns that capacity. When
there is spare capacity available, folks are generally anxious
for that capacity to be utilized. He said he would like to
think that Armstrong could work through that issue, but he
cannot answer the question specifically at this point.
1:49:29 PM
REPRESENTATIVE SEATON noted that there is legislation that would
change the Pipeline Act in Alaska. Currently, pipelines are
supposed to be common carriers, but instead contracts and
settlements are being allowed which basically makes them closed
carriers. He asked what size line and how many cubic feet per
day Armstrong would need if it were to contract the gas that it
has today.
MR. KERR first explained that the only thing preventing AOG from
providing more gas than it has today is that it has not spent
the money to drill additional wells. Since Armstrong carries no
debt and is not a public company, it is not saddled with having
to do an engineering report on reserves like what a public
company must do. In that context, Armstrong is comfortable
enough with its current reserves. It has spent a lot of money
to date and is willing to spend more to find more gas. As far
as what AOG could ship today, he said it would take at least a
year to build the pipeline and AOG could drill more wells while
the pipeline was being built. Providing six to seven million
cubic feet per day consistently is very obtainable and if AOG
drilled additional wells it could be substantially more than
that. In further response to Representative Seaton, he said he
thinks that six to seven million cubic feet could be shipped on
a six-inch pipeline, but the pipeline could be larger if
desired.
1:52:47 PM
REPRESENTATIVE SEATON recalled that eight to ten years ago the
Homer Electric Association and ENSTAR Natural Gas Company
("ENSTAR") competed before the RCA for the right to service the
Homer and Anchor Point areas. ENSTAR won. The contract
required "Northstar", owner of the unit at that time, to build
an eight-mile-long pipeline to Anchor Point and ENSTAR to build
a distribution line from there to Homer. He said he has always
been concerned about someone in the drilling business building a
pipeline. Is AOG prepared to build a pipeline, he asked.
MR. KERR replied that if everyone was agreeable, AOG could
accommodate building a pipeline to Anchor Point.
CO-CHAIR JOHNSON added that regulations may or may not allow
Armstrong to build that pipeline.
1:54:55 PM
REPRESENTATIVE TUCK inquired whether Armstrong is considering
using directional wells in addition to the two wells that have
been drilled at the Northfork Unit.
MR. KERR explained that the gas is in the Tyonek Formation and
this formation is composed of lenticular sands. There is an
abundance of these lenticular sands, but they come and go rather
than being one big continuous sand. The drilling of additional
wells will define what the best way to drill is. Armstrong will
therefore start out with conventional vertical wells. Deeper
under the Tyonek Formation is the Hemlock Formation which has
produced most of the Cook Inlet oil; this is the formation that
was originally drilled in 1965 by Unocal. With new technology
such as horizontal drilling, it could be that the Hemlock
Formation is commercial. Because it is extremely expensive to
drill a well to find this out, it must be underpinned with gas
production. He said he thinks there are two things that could
dramatically change production in the Cook Inlet: horizontal
drilling and fracturing ("fracing"). So few wells have been
drilled in the Cook Inlet that the service companies have not
put their manpower toward either of these technologies as is
being done in the Lower 48. Right now the economic threshold
has not been reached in the Cook Inlet for applying this
technology.
1:58:29 PM
CO-CHAIR JOHNSON interjected that the Northfork Unit would be
characterized as a traditional gas play.
MR. KERR agreed. He said the unique aspect of the Cook Inlet is
that there have not been enough wells drilled to rule out
unconventional gas plays.
CO-CHAIR NEUMAN requested that the Department of Natural
Resources be asked to talk to the committee about the different
gas formations in Cook Inlet and who is working where.
CO-CHAIR JOHNSON agreed.
2:00:06 PM
CO-CHAIR NEUMAN inquired as to how many companies are working in
Cook Inlet and how many people are employed.
MR. KERR answered that there are the large companies of
"Marathon-ConocoPhillips, Chevron, and Texaco" but he does not
want to guess the number of people they employ. "Pelican Hill"
was there for a period of time but has left the Cook Inlet. He
said he is unsure to what extent "Aurora Gas" is actively
exploring. The big three have been in Cook Inlet for a long
time and that has been a challenge for the Cook Inlet as
indicated by the number of wells that have been drilled. In the
Lower 48, it is the independents that drill the wells, the
independents drive the engine. He offered his opinion that Cook
Inlet suffers from not having independents. A lot of people
will be watching to see what happens in Cook Inlet with
Armstrong. In further response to Co-Chair Neuman, Mr. Kerr
estimated that 100-200 people were employed when Armstrong
drilled its Cook Inlet well, including people working as mudmen,
mud engineers, drilling engineers, drilling contractors, hands
on the rigs, surveyors, and road and fence builders.
2:03:38 PM
REPRESENTATIVE SEATON reviewed the history of the Northfork Unit
in regard to the previous owners not coming through. He said
independents are vitally important, but cautioned that not all
independents should be classified as somebody who will complete
the job. He added that he is pleased with Armstrong because
they have followed through with every commitment.
CO-CHAIR JOHNSON agreed and said he looks at independents as
well as the major producers as partners with the state. He said
his goal is for the state to be a good partner and help mate,
rather than an obstacle.
REPRESENTATIVE SEATON further added that what is needed are
independents that follow through with work commitments so the
state's resources are not tied up.
2:07:12 PM
REPRESENTATIVE OLSON pointed out that up until about 10 years
ago virtually all of Cook Inlet's gas had been found by
geologists looking for oil. This is why gas in Cook Inlet has
not had the priority that oil has had, he continued. Now
companies like Armstrong and "Marathon" are looking for gas.
MR. KERR addressed Representative Seaton's point. Armstrong
scrutinizes potential partners, both business and government, to
make sure that they can be worked with, he said. Armstrong
takes pride in doing what it says it will do, however it cannot
drill more wells in Cook Inlet without a workable arrangement.
MR. KERR concluded his presentation, stating that while there
are real challenges to doing business in Alaska, Armstrong has
successfully worked with Alaska's government agencies and finds
them responsive. Armstrong tries not to get ahead of itself by
promising something that it cannot deliver, he said. In this
context Armstrong can say that it can find gas but it cannot
guarantee the quantity until more wells have been drilled. If a
workable arrangement can be found, then Armstrong will spend its
money to drill those wells. He said AOG would like to do
business in Alaska and the Cook Inlet.
2:10:46 PM
CO-CHAIR NEUMAN asked what the state can do to set the stage for
a good working environment and ensuring that companies will want
to invest in Alaska.
MR. KERR replied that a good working environment is one where
permits can be obtained and where there is the ability to drill
wells in a safe and efficient manner. With respect to the Cook
Inlet, he continued, it is getting the product to market and
selling it at a price that allows a reasonable rate of return on
investment. A good working environment also allows access to
supplies and services in a fashion that is not so exorbitant
that it precludes a reasonable return on investment. All of
this is much the same with respect to the North Slope.
2:12:34 PM
MR. KERR, in further response to Co-Chair Neuman, said the
people at the Department of Natural Resources and the Division
of Oil & Gas are part of what is good about working in Alaska.
They sit down and try to work with the companies. When a
company honors its side of the equation, these people will work
hard to ensure success in finding hydrocarbons in Alaska. He
said a downside about working in Alaska is the historical
precedent in the Cook Inlet. Armstrong needs to make sure that
it can obtain a gas contract and get access to a pipeline that
allows for a reasonable rate of return; without that, AOG cannot
move forward in the Cook Inlet. In addition, accessing and
permitting for pipelines and wells has been challenging
historically, he continued, although Armstrong has been able to
work through them. By and large, AOG is a big advocate of
Alaska.
Mr. Kerr, in response to Co-Chair Johnson, said Armstrong Oil &
Gas does not deal with the Federal Energy Regulatory Commission
(FERC) very often.
2:15:13 PM
REPRESENTATIVE SEATON asked whether Armstrong would consider
multiple contracts with various communities or would it consider
only one contract with one sole source of exit for its gas.
MR. KERR responded that there are challenges with a split
stream, but as long as a reasonable rate of return can be
received then it can be worked out. The issues for AOG would
be: how much capital must be put in, how difficult it is to do
operationally, how much can be received for the commodity, and
the cost of producing the commodity. He said this might be a
better question for the transporter rather than AOG since it is
an issue that would be more in the transporter's lap than AOG's.
Also of importance is having an environment where one can
continue to do business and where the rules are not changed,
thus providing consistency.
2:17:20 PM
REPRESENTATIVE SEATON inquired whether Armstrong, as an
independent, would be making its gas sales to the shipper or to
the purchaser. For example, would AOG deal with ENSTAR as the
shipper or the purchaser, or with the "Marathon-Conoco" plant.
MR. KERR replied that there is not an absolute answer, but AOG's
preference would be to sell to a utility at the wellhead or at
Anchor Point. There would need to be some certainty as to what
would be received for the product. He explained that when the
price of commodities goes up so do the costs because the service
companies are always there in that regard. Armstrong would need
to set a floor for the price of its commodity, and then if the
price goes up AOG will take the business risk that any uptick in
service costs is mitigated by the uptick in commodity price.
2:19:16 PM
CO-CHAIR NEUMAN asked how Armstrong coordinates efforts with its
peers in Cook Inlet to negotiate firm transportation commitments
(FTs) with the utility companies and other buyers of its gas.
MR. KERR said Cook Inlet is a unique business environment
because it is a captured market in terms of the amount of
production and not being tied to any other pipelines. To date,
AOG is a new player in the Cook Inlet and does not have any
coordination for jointly pursuing a gas contract. He said AOG
has not asked "Marathon" or "Chevron" about piggybacking a gas
contract because of Armstrong's belief that those two companies
would want to work their arrangements on their own.
CO-CHAIR NEUMAN commented that competition is a good thing. He
surmised that Armstrong is basically on its own.
MR. KERR answered correct, AOG has not partnered with anyone.
He qualified that Armstrong has three partners within the
Northfork Unit that are independent oil and gas companies AOG
has done business with in the past. So, they are pursuing it
independently as a group.
CO-CHAIR NEUMAN presumed that Armstrong would go to the
purchasers of its gas to come up with a contract.
MR. KERR said correct. For example, as the operator of the
Northfork Unit, AOG would go to entities like Chugach Electric
Association or ENSTAR to work out a gas contract. Armstrong has
never contacted "ConocoPhillips" about doing a tandem gas
contract.
REPRESENTATIVE SEATON inquired whether ENSTAR, a purchaser of
gas with the Kenai Kachemak Gas Pipeline, would act
independently as a shipper for gas from AOG that was contracted
by another entity.
MR. KERR presumed ENSTAR would, but he said he cannot speak
definitively to that.
2:23:53 PM
CO-CHAIR JOHNSON, in response to Co-Chair Neuman, said he
anticipates having ENSTAR speak to the committee in the future
because Cook Inlet gas is important.
REPRESENTATIVE SEATON remarked that it was good to have today's
presentation in relation to what effect a bullet line and cheap
gas could have on companies that are actively drilling in
[Southcentral]. No companies have come to say there would be
negative impacts from a bullet line such as was brought up as a
possibility by Co-Chair Neuman.
CO-CHAIR JOHNSON said that what he is taking away from today's
presentation is that there could be gas in two years from Cook
Inlet. He discouraged the use of the term "cheap" gas because
the issue is what the cost would be if there is not any gas.
2:26:34 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:27 p.m.
| Document Name | Date/Time | Subjects |
|---|