Legislature(2007 - 2008)SENATE FINANCE 532
04/27/2007 01:30 PM Senate FINANCE
| Audio | Topic |
|---|---|
| Start | |
| SB104 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| += | SB 104 | TELECONFERENCED | |
| + | TELECONFERENCED |
MINUTES
SENATE FINANCE COMMITTEE
April 27, 2007
1:37 p.m.
CALL TO ORDER
Co-Chair Bert Stedman convened the meeting at approximately
1:37:27 PM.
PRESENT
Senator Bert Stedman, Co-Chair
Senator Lyman Hoffman, Co-Chair
Senator Charlie Huggins, Vice Chair
Senator Joe Thomas
Senator Fred Dyson
Senator Donny Olson
Senator Kim Elton
Also Attending: JOHN NORMAN, Chair, Alaska Oil & Gas
Conservation Commission
Attending via Teleconference: From an Offnet Location: CATHY
FOERSTER, Petroleum Engineering Commissioner, Alaska Oil & Gas
Conservation Commission
SUMMARY INFORMATION
SB 104-NATURAL GAS PIPELINE PROJECT
The Committee heard testimony from the Alaska Oil & Gas
Conservation Commission. The bill was held in Committee.
CS FOR SENATE BILL NO. 104(JUD)
"An Act relating to the Alaska Gasline Inducement Act;
establishing the Alaska Gasline Inducement Act matching
contribution fund; providing for an Alaska Gasline
Inducement Act coordinator; making conforming amendments;
and providing for an effective date."
This was the ninth hearing for this bill in the Senate Finance
Committee.
Co-Chair Stedman informed the Committee that John Norman, Chair
of the State of Alaska Oil and Gas Conservation Commission
(AOGCC) would be updating the Committee on the gas offtake study
the Commission conducted. Mr. Norman would also address other
issues he deemed important in regards to the Alaska Gasline
Inducement Act (AGIA).
1:38:07 PM
JOHN NORMAN, Chair, Alaska Oil & Gas Conservation Commission,
communicated that besides himself, the Commission included
Daniel Seamount and Cathy Foerster, who served as the geology
commissioner and the petroleum engineering commissioner,
respectively.
Mr. Norman stated that the primary mission of AOGCC, which is
one of the oldest regulatory agencies in the State, "is to
regulate the exploration and production of oil and gas within
the State for the following purposes: prevent waste, protect co-
relative rights which is a way of saying that all of the owners
of a resource have their fair chance to recover their portion of
it; work to ensure greater ultimate recovery of Alaska's
valuable hydrocarbon resources; and protect underground sources
of fresh water."
1:39:22 PM
Mr. Norman characterized AOGCC as "an independent quasi-judicial
regulatory commission." He distributed a 19-page packet of
material [copy on file] which included a copy of his prepared
remarks as well as a copy of the non-confidential portion of the
February 28, 2007 Prudhoe Bay Major Gas Sales Study report
compiled by AOGCC on gas offtake levels. Other attachments
included papers that would assist in understanding "the trade-
offs between production of oil verses gas in the different
reservoirs, one directed toward Prudhoe Bay, a second
specifically directed toward Point Thomson, and a third to the
North Slope generally."
1:40:25 PM
Mr. Norman read from his written remarks as follows.
This afternoon I'll discuss the AOGCC's role in North Slope
gas sales and give you a status report.
Most knowledgeable Alaskans know the significance of 35 TCF
of natural gas. However, very few people realize that
hundreds of millions of barrels of oil and condensate could
be lost if gas offtake is not correctly managed.
Oil is Alaska's bird in the hand and gas in our bird in the
bush. The AOGCC is responsible for setting the gas offtake
allowables from the North Slope oil fields to ensure that
we do not harm our bird in the hand while aspiring to grasp
our bird in the bush.
In general, maintaining reservoir pressure enhances oil
recovery, but producing gas depletes reservoir pressure.
Therefore, gas reserves in most fields are usually sold
only after most of the oil has been produced. Until then,
the gas that is produced with the oil is used to promote
increased liquid production in various ways.
For example, gas might be reinjected into the reservoir to
provide the energy needed to get the liquid hydrocarbons to
the surface, or the gas might be used for enhanced oil
recovery operations.
Both of those are happening right now at Prudhoe Bay and
other North Slope fields.
Therefore, North Slope gas sales will involve trade-offs
between oil and gas recovery. It's not practical to get
every drop of oil out of the ground before starting gas
sales, and the AOGCC certainly does not take that position.
We just want to ensure that the trade-offs that inevitably
will occur, result in greater ultimate recovery of both gas
and oil.
Prudhoe Bay has an existing gas offtake allowable. It is
2.7 BCF per day and was set in 1977.
The AODCC usually waits for an application from the
operator to apply or modify pool rules. However, in 2005 we
recognized that:
(1) North Slope gas sales discussions were heating up,
(2) the 2.7 BCF per day gas offtake allowable for Prudhoe
Bay was set in 1977, about the time the field began to
produce; and, although that offtake rate was based on the
best available information at the time, we now have 30
years and 11 billion barrels of production and production-
related data to help determine a better number
(3) most of the publicly discussed pipeline options could
require more than 2.7 BCF per day offtake from Prudhoe Bay
(4) performing the necessary studies to determine an
appropriate offtake could take a lot of time, and
(5) the AOGCC did NOT want to cause any project delays.
1:45:28 PM
Mr. Norman departed from his prepared remarks to emphasize that
AOGCC's "normal process" would be to receive an application from
"some owner or the operator" requesting AOGCC to consider
changing the daily gas offtake level or other action. The
submittal of an application would typically trigger a process
that would include public hearings as opposed to AOGCC actively
taking action "ahead of the owners." The concern that no such
application had been submitted by any owner, then or to date,
prompted AOGCC to undertake the study on its own in anticipation
of activities prompted by AGIA.
1:46:15 PM
Co-Chair Stedman interrupted to ask whether not having any
applications is something the State "should be concerned about"
or was there sufficient time to do the required work "between
now and when we need to have gas for a gasline."
1:46:27 PM
Mr. Norman expressed that the three commissioners were concerned
about it. That concern prompted them, "on our own initiative, to
undertake the studies that we have done." He advised the
Committee that there would be "one answer for Prudhoe Bay and
another for Point Thomson."
Mr. Norman assured the Committee that the work conducted by the
Commission has allowed AOGCC to be "well positioned now to move
very quickly and be in a position to do proper rule making on
Prudhoe Bay gas offtake". The situation in Point Thomson would
be addressed separately in his remarks.
1:47:14 PM
Senator Olson asked regarding the make-up of the Commission,
specifically whether the demands placed on it might require more
than three commissioners.
1:47:43 PM
Mr. Norman divulged that the Commission has discussed whether
its size affects its ability to properly "discharge our
responsibilities." The determination is that the size is "good."
The Commission's "staff is excellent" and issues are addressed.
He pointed out, however, that "the things that go wrong, the
enforcement actions, the investigations" do place a drain on the
Commission's geologists, engineers, and other resources.
1:48:22 PM
Mr. Norman returned to his prepared remarks.
To give us the most current information, BP and the other
Prudhoe Bay working interest owners agreed to provide the
AOGCC staff and consultants access to their simulators
including the underlying engineering, geologic, and
geophysical information. They voluntarily set up a data
room in BP's Anchorage offices, equipped with computers and
software allowing review of the simulator results.
1:49:29 PM
It is very important to note that the data and information
offered meet the standards of AS 31.05.035(d) and 20 AAC
25.537(b) governing confidentiality of information.
In simple terms, the data made available to us was not
something we were otherwise entitled to, it belonged solely
to the Prudhoe Bay working interest owners, we needed it to
perform our study, and the only way for us to get access to
it would be to agree to keep it confidential.
The study began in January 2006, and ended in late 2006. BP
and its partners were helpful and provided us all that we
needed.
1:50:42 PM
This past February, we published a summary report, approved
by BP and its partners. The report is available on the
AOGCC website.
1:51:01 PM
To that point, Mr. Norman directed the Committee to a copy of a
confidential summary memorandum [copy on file], dated February
28, 2007, about the Prudhoe Bay Major Gas Sales Study that he
received from Jane Williamson, Senior Reservoir Engineer. [NOTE:
This memorandum is numbered page 8 in the packet of material
distributed by the AOGCC.]
As soon as we announced that we had completed our study,
everyone wanted to know the magic number, but it's not that
easy.
Mr. Norman avowed, however, that the Commission would be
"prepared, upon receipt of an application by an operator, to
move very quickly to be able to update" the existing 2.7 billion
cubic feet (BCF) of gas per day offtake rate.
First, it's a multi-variable equation. The right offtake
volume will depend on when sales start, how aggressively
the oil has been produced in the meantime, and what
mitigating steps are in place and planned. And second,
there are legal restrictions on what results of the study
we can share and how we share them.
As soon as we have enough information to make a meaningful
determination, we will hold public hearings and make as
much information available as is needed and legally allowed
to support the assigned offtake allowable.
1:52:51 PM
We intend to complete our evaluations and make our final
rulings on gas offtake allowables for both Prudhoe Bay and
Point Thomson well in time for the "open season" process.
1:53:28 PM
That said, here's what we can say:
(1) The later gas sales begin, the smaller the oil losses.
(2) Depending on the life of the North Slope
infrastructure, delaying too long could result in decreased
gas recovery.
(3) The lower the offtake rate, the smaller the oil losses.
(4) The more the oil production is accelerated before gas
sales start, the smaller the oil losses.
1:54:59 PM
(5) The more that is done to mitigate the detrimental
effects of gas sales, the smaller the oil losses.
(6) Oil loss is more sensitive to the acceleration of oil
production and the mitigating steps than it is to start-up
timing or offtake rate.
By the time we get a pipeline built, selling gas from
Prudhoe Bay will likely be okay at a higher offtake rate
than the current 2.7 BCF per day, provided BP and its
partners continue working: (1) to accelerate oil production
(for example: aggressive infield drilling and operational
vigilance to minimize production interruptions) and (2) to
mitigate for gas losses (gas cap water injection and using
CO2 for EOR, for example).
Mr. Norman communicated that injecting water as opposed to
reinjecting gas is another proven "method of filling that
voidage and helping to maintain reservoir pressure." Another
mitigating method being tested is the injection of CO2, which is
a byproduct of gas that can be recycled and used to mitigate the
void resulting from the sale of gas and maintain oil production.
We are comfortable that, unless a substantial delay occurs
(which could make our analysis stale and require additional
analytical work), we will be adequately prepared to
determine the Prudhoe Bay gas offtake allowable when an
application comes before us.
1:56:23 PM
Mr. Norman stated that the information AOGCC currently has would
allow them to be "well-positioned" for two to three years to
determine the appropriate Prudhoe Bay gas offtake level. The
study would require updating after that.
1:56:53 PM
Mr. Norman concluded his remarks on Prudhoe Bay by stating that
the AOGCC is at the moment "positioned to move fairly quickly"
when an application was submitted. He reiterated that the
receipt of an application is "the triggering event that normally
would occur, and it would be our reference that the owner or
operator come in and submit an application to us and say that
this is our desired offtake amount."
1:57:38 PM
Now I would like to talk about Point Thomson, where we
can't make such a confident statement.
One year ago the AOGCC, Exxon, and its partners agreed upon
a similar process for studying the allowable gas offtake
from Point Thomson. The AOGCC contracted reservoir
evaluation consultants to assist its technical staff in
performing the Point Thomson study. Exxon and its partners
agreed to give AOGCC staff and consultants access to a data
room in Exxon's Houston offices. It was agreed that the
data room would include reservoir engineering, geologic and
simulation information and would be equipped with computers
and software allowing review of the simulator results. The
study was supposed to begin before September 2006 and last
up to six months. Exxon and its partners indicated that
they planned to apply to the Commission in late 2006 or
early 2007 for Pool Rules and a gas offtake allowable rate
for Point Thomson.
1:59:04 PM
Unfortunately, we were not able to follow that timeline.
Exxon had delays in preparing the data room and
information. The process was finally slated to begin late
last year, about the same time that Department of Natural
Resources found Exxon and its partners to be in default on
their leases. We attended one meeting where Exxon presented
a small portion of the information we would need, but since
then the study has been on hold pending resolution of legal
issues.
2:00:19 PM
Without a thorough study, it will be difficult for the
AOGCC to have sufficient information to make a gas offtake
ruling on Point Thomson. So that one remains a wild card -
in many ways.
2:01:06 PM
Mr. Norman concluded his remarks on Point Thomson and summarized
AOGCC's position on both Prudhoe Bay and Point Thomson gas
reservoirs as follows.
So, in summary:
(1) There are hundreds of millions of barrels of oil and
condensate at risk if Alaska doesn't manage gas sales
properly.
(2) The AOGCC is charged with setting gas offtake
allowables that will protect Alaska's valuable hydrocarbon
resources.
(3) The AOGCC intends to perform its function so that it
does not delay the project, i.e., before an open season.
(4) We've done the technical work to prepare us to address
Prudhoe Bay's offtake without causing that delay.
(5) There's still a lot to be done for Point Thomson; so
delay is possible there.
Mr. Norman concluded his prepared testimony and advised that he
and Kathy Foerster, AOGCC's petroleum engineering commissioner
who was participating via teleconference, were available to
answer Committee questions.
2:02:47 PM
Co-Chair Stedman asked the Committee to first direct their
questions to issues concerning Prudhoe Bay.
Co-Chair Stedman asked how much time would be required for AOGCC
to finalize its gas offtake analysis and provide a
recommendation in order to "facilitate the gasline."
2:03:11 PM
Mr. Norman stated that if the Commission received an application
from an entity today, a determination could be made within six
months. This would provide sufficient time for AOGCC to conduct
a technical review and meet legal requirements such as noticing
to the public. There were individuals and entities in the State
that had "strong feelings on what ought to happen with the gas
and they have an opportunity and a right to be heard in a public
forum."
2:04:35 PM
Co-Chair Stedman understood therefore that moving forward on a
Prudhoe Bay application would not be problematic, even though no
application has been presented to date.
2:04:47 PM
Mr. Norman affirmed that if an application was submitted to
AOGCC today, a six month time period would be realistic.
Commission action, absent a request, could be likened to
"shooting in the dark". This is because the AOGCC, as a quasi-
judicial agency, must operate in a manner similar to a court.
Rather than "dictating the pace of development," operators
submit an application to the Commission which would specify
their needs. AOGCC would either approve or deny or approve with
some amendments.
Mr. Norman also noted that the Commission must meet other
statutory requirements. For instance AOGCC would conduct
hearings and inquiries if it finds that some entity was
considering an activity that would result in waste.
2:06:23 PM
Co-Chair Stedman identified having "a successful binding open
season sooner than later" as being an area of concern in regards
to AGIA. Thus, the question is when must the Commission provide
it's determination in order to accommodate an open season in 36
months.
2:06:48 PM
Mr. Norman replied that, at a minimum, an operator or owner
should submit their application to the Commission six months
before the open season. In addition to knowing the applicant's
anticipated startup date, the Commission must know what offtake
rate the applicant was seeking to make their project work.
Otherwise, the Commission would be guessing.
2:07:42 PM
Mr. Norman also stressed that, even though the requested offtake
volume would not be tapped for years, it is important that the
applicant consider what could be done "right now to accelerate
production to remove this tradeoff between oil and gas." The
applicant should also consider "what mitigation measures could
be employed to make sure that, in producing gas, you don't waste
oil." These things would be addressed during the public forum.
Mr. Norman reiterated that the study recently conducted by AOGCC
was an abnormal procedure, as their mission is to regulate the
industry. Typically the process is triggered by the receipt of
an application as it would provide the Commission "something
tangible and specific to act on". At this point in time, this
element is missing in regards to either Prudhoe Bay or Point
Thomson.
2:08:50 PM
Co-Chair Stedman asked a timeframe for a Commission
determination on Point Thomson.
Mr. Norman deferred to AOGCC's petroleum engineering
commissioner, Kathy Foerster.
2:09:10 PM
KATHY FORESTER, Petroleum Engineering Commissioner, AOGCC,
testified via teleconference from an offnet location and
informed the Committee that a minimum of 18 months would be
required for the Commission to make a Point Thomson
determination. However, the process could not even begin until
the Commission received "access to sufficient Point Thomson
information owned by the Point Thomson's owners." The analysis
of that information, once received, would take "a minimum of one
year". The Commission would then require an additional six
months in which to review the application.
2:10:13 PM
Senator Elton referred to Mr. Norman's testimony about the six
points the Commission was comfortable saying [See Time Stamp
1:53:28 PM]. To that point, he recalled [unspecified] testimony
presented to the Committee the previous year "which suggested
that, at this point in time, every well that is drilled that
hits only gas is like a dry hole" since there is no way to get
it to market. Therefore, he suggested that consideration should
be given to adding another point to the afore-referenced list,
that being "that the sooner we get a gas pipeline, the more oil
we may produce and get into the oil pipeline."
Senator Elton contended that more oil would be available if more
drilling was conducted as a result of having a gas pipeline.
2:11:30 PM
Mr. Norman agreed that the ability to transport gas in addition
to oil would stimulate more activity. He clarified however, that
the points he made were speaking to the focus of the Commission,
which was to ensure that oil would not be wasted in the effort
to harvest gas.
2:12:06 PM
Mr. Norman re-emphasized that there was more than two billion
barrels of recoverable oil remaining in Prudhoe Bay. "That is a
huge reservoir." To put this in context, he noted that in
December of 2006, there was a report of a huge discovery of oil
in the Gulf of Mexico. The report was referring to a one billion
barrel field.
Mr. Norman pointed out that the two billion barrels of oil
remaining in Prudhoe Bay would be the sixth biggest oil field
ever discovered in the United States, irrespective of the 11
billion barrels of oil that have already been produced in
Prudhoe Bay.
Mr. Norman stressed that the potential to produce that remaining
oil should not be reduced "in a rush to get gas going." The
Commission believes that the effort should not be an "either -
or" scenario. The Commission would strive to both accelerate the
effort and mitigate any effort that would be detrimental to the
recovery of oil in the endeavor to have gas available for sale
"when the operators are ready."
2:13:59 PM
Senator Elton asked whether the Commission has contemplated
taking action against Exxon to recover some of the money spent
on such things as hiring a consultant to assist in the analyses
of the Point Thomson data, now that Exxon has decided against
making the data available.
Senator Elton also asked whether that decision was solely
Exxon's or whether it was influenced by others with an interest
in the field.
Mr. Norman stated that to date, the Commission has not
"considered any recourse or recovery" of the approximate
$200,000 that has been expended. The Commission has however,
written a letter to Exxon seeking clarification on their
position. He was of the understanding that Exxon was considering
continuing the effort.
Mr. Norman disclosed that it would be AOGCC's desire "to
continue this informational exchange with Exxon while" the legal
proceedings regarding the viability of their leases in Point
Thomson "played out". AOGCC considered the two issues
"distinct". He was optimistic that the informational exchange
would occur.
2:16:14 PM
Ms. Foester agreed with Mr. Norman. AOGCC would like Exxon to
reach a firm decision in regards to the informational exchange
before AOGCC took any action that might "damage our relationship
with Exxon". Since Exxon's position has changed repeatedly over
the past several months, the Commission submitted a written
request to them seeking "a formal decision" on their part. If
they decided not to proceed, the Commission could consider other
avenues. Working with them at this point is in the best interest
of the Commission.
2:17:19 PM
Senator Elton asked Ms. Foester whether Exxon would
independently make the decision or whether it would be made in
conjunction with the other parties involved in Point Thomson.
Ms. Foester stated that due to operating agreements and other
"working interest ownership" agreements, all four of the owner
companies would be involved in making the decision. While the
operating agreements would detail the specific parameters, she
understood that two and perhaps three of the four primary owner
companies, BP, Exxon, Chevron, and ConocoPhillips, must agree on
the course of action.
2:18:25 PM
Co-Chair Stedman asked Ms. Foester to discuss the operator
decision making process further as conflicting testimony in this
regard has often been provided.
Ms. Foester stated that the confusion surrounding this issue is
often compounded by "agency speak" in which an agency such as
AOGCC refers to the operator as the entity. A decision, however,
often requires other owners' agreement. Often times, all must
"agree or it doesn't happen."
Ms. Foester stated that in the case of sharing the Prudhoe Bay
data, "if one of the major owners had said no, then it could not
have happened." That is typically the way things are in unit
operating agreements as well as their accompanying financial
agreements. For example, if "Exxon wanted to drill a well at
Point Thomson and the other owners didn't agree then it might
not happen."
Ms. Foester clarified that when AOGCC speaks about who's
drilling a well at Point Thomson, instead of saying it is being
drilled by Exxon, BP, ConocoPhillips, and Chevron, they simply
say Exxon. Thus, a reference to the operator should be viewed in
the sense that that entity is representing all of "the working
interest owners." She apologized for any misunderstanding this
might cause.
2:19:39 PM
Mr. Norman agreed with Ms. Foester. The answer to how a decision
is made would lie within the unit operating agreement. These
agreements typically specify what percentage of approval would
be required "for certain things to occur." While this
information was not readily available, a copy of the agreement
was on file with the State of Alaska.
Mr. Norman stated that the situation could however be
complicated by regulations regarding what might be considered
proprietary information. This might include such things as
anonymity or, in this case, whether there even is, in light of
the legal questions, a Point Thomson unit agreement at this
point in time.
2:21:09 PM
Co-Chair Stedman communicated that the Point Thomson unit
operating agreement fills up 14 boxes.
2:21:16 PM
Senator Huggins asked for further information regarding the
"data room;" specifically how access or non-access to it would
affect the time frame and cost of the analysis.
2:21:52 PM
Mr. Norman stated that if AOGCC conducted its own study without
access to the data, the cost in terms of time and developing
information, "would be significant." The operators have a long
in-depth history of information about these reservoirs. AOGCC
does not. Rather than provide a broad estimate of the expense
today, AOGCC could provide more accurate costs at a later date.
It was likely that it would cost AOGCC millions of dollars to
develop the type of information possessed by the operators.
Mr. Norman advised that the effort might also create conflict as
some of the required information was proprietary and legal
action would be required to access it. That also would
"translate into time." The cooperative effort that occurred at
Prudhoe Bay worked well.
Mr. Norman noted that even though AOGCC conducted a thorough
review of the information provided by operators about Prudhoe
Bay, having that information saved a significant amount of time.
2:24:38 PM
Senator Huggins asked how long the Point Thomson evaluation
would take if AOGCC had access to a data room.
Mr. Norman deferred to Ms. Foester as she was the commissioner
designated to participate in that effort. The other
commissioners would receive their information in the same manner
the public would.
2:25:24 PM
Ms. Forester remarked that the Prudhoe Bay analysis took
approximately one year to complete. AOGCC received access to the
data in January 2006 and published a report in February 2007.
The expectation is that an analysis of Point Thomson would take
12 to 18 months to complete as, in addition to the multitude of
issues reviewed at Prudhoe Bay, Point Thomson had numerous
"geological and geophysical questions of great complexity" that
must be addressed.
2:26:21 PM
Senator Huggins communicated the understanding that the State
has lagged behind in its ability to keep current on operator
agreements. He asked AOGCC for an update in that regard.
2:26:53 PM
Mr. Norman explained that an "operating agreement is a companion
agreement with the unit agreement." The unit agreement is a
negotiated agreement which "describes physical boundaries" and
the leases committed to that unit. "The whole idea is to allow a
general area to be developed in an orderly fashion" rather than
having individual operations occurring randomly. In other words,
the goal is to create a unit that would encompass the subsurface
reservoir boundary, which, "deep beneath the earth doesn't
respect the section lines and townships", and then approach its
development "in the most orderly way with each owner recovering
its own share."
Mr. Norman stated that once a unit agreement is developed, an
operating agreement for that area would be formed. In the case
of Prudhoe Bay, three parties, ConocoPhillips, BP, and Exxon,
formed a group and drew up an operating agreement. One of the
first things addressed in that agreement was to designate who
would be the operating partner.
Mr. Norman communicated that a multitude of details would be
addressed in an operating agreement. For instance, it would
specify the course of action that would be taken if the operator
resigned; how to replace an operator; and the level of authority
the operator would have in regards to making expenditures.
Mr. Norman stated that attached to an operating agreement is a
financial schedule which specifies how the accounting would
occur. This would include such things as how much the operator
could charge the others for operating overhead expenses and
other expenditures.
Mr. Norman remarked that an operating agreement would also
specify such things as how the operator would notify the
partners when wells are drilled. In some cases, when a new well
is drilled, the partners choose whether or not to participate on
it. Even if they initially choose not to participate, they could
opt in later. They would however be subject to a penalty in
recognition of the fact that other partners had taken the risk.
Mr. Norman informed the Committee that over time, the original
operating agreement is typically amended numerous times; new
companies might enter into the agreement and some of the
original companies might leave. This creates "layers of first
amended, tenth amended operating agreements and sometimes it can
be a fairly difficult chore to work back through all of those
layers."
Mr. Norman was unfamiliar with a specific situation which might
have prompted Senator Huggins' question. However, the scenario
he described is typical of many operating agreements.
2:30:07 PM
Senator Dyson inquired to the volume of gas currently used for
fuel or injection in Prudhoe Bay.
Ms. Foester responded that approximately half of a BFC is
currently used on site. Thus, two of the current daily 2.7 BCF
offtake allowable would be available for sale.
2:30:57 PM
Senator Dyson asked Ms. Foester to speculate, based on advances
in technology and other information gleamed since the 2.7 BCF
offtake allowable was specified, as to whether the level of a
revised offtake allowable would be higher or lower than 2.7 BCF.
2:31:30 PM
Ms. Foester could not speculate as a multitude of variables are
involved. These would include such things as how much oil had
been removed and what mitigating measures had been put in place
to replace gas as a reservoir injector. "If they've done an
aggressive job of infield development drilling, and if they
haven't had substantial shutdowns to slow things down and go in
the opposite direction of accelerating the production, and if
they have a good plan in place for replacing that gas with
something else, then my expectation is" that the offtake
allowable would be higher than the current 2.7 BCF amount.
Ms. Foester acknowledged that the inability of the AOGCC to
provide a solid answer is frustrating to many.
2:32:43 PM
Ms. Foester echoed remarks made by Mr. Norman in a separate
hearing in which he likened figuring out the allowable offtake
level to the Legislature's attempt to provide a State budget
amount for FY 2009. It would be impossible to do at the moment
because of the multitude of factors that could "happen between
now and then that are going to impact that number."
Senator Dyson acknowledged.
Senator Dyson asked whether there were areas in which wells are
shut in because the gas/oil ratio (GOR) is out of alignment.
Ms. Foester replied in the affirmative. There are many shut in
and cycle wells. Some wells maintain a low GOR and produce
constantly. There are wells with high GORs that have been shut
in for a number of years. Cycle wells are those whose GOR levels
fluctuate and thereby dictate its operation.
Senator Dyson asked whether there is "a pattern" to the wells
having high GORs.
Ms. Foester clarified that her expertise in the Prudhoe Bay
field was being tested by Senator Dyson's questions. In general,
"further out in the oil rim, there's probably lower GOR, and
closer in to the gas cap areas of the field would be the higher
GOR wells."
Senator Dyson asked whether there are wells to which a process
referred to as channeling occurs. In these cases, the reservoir
has been negatively affected by high pressure gas being blown
through to the well bore.
Ms. Foester would investigate this and provide an answer at a
later time.
In response to a question from Senator Dyson, Ms. Foester stated
that the average level of CO2 in the gas is approximately ten or
11 percent.
2:35:16 PM
Senator Dyson asked regarding "the optima way of handling the
gas liquids" at this point, irrespective of the fact that there
is currently no way to transport them.
Ms. Foester detailed how gas is currently utilized on the North
Slope. There is a use "or market" for it; specifically as
reinjecting gas into reservoirs is a significant part of
"enhanced oil recovery operations".
2:36:32 PM
Senator Elton revisited the situation at Point Thomson and the
fact that AOGCC has invested approximately $200,000 into the
evaluation process. The question is whether AOGCC had identified
a specific timeline in which to work out things with Exxon in
consideration of such things as an obligation to pay the
consultant contracted by AOGCC to assist in the evaluation.
Senator Elton also inquired to the nature of the agreement with
the lease holders at Point Thomson.
2:38:16 PM
Mr. Norman disclosed that the evaluation contract was with "a
very well-known national engineering firm that has expertise
with this particular type of reservoir." The contract is on a
fee for service basis, and therefore AOGCC is not being charged
unless services are requested.
Mr. Norman stated that the information resulting from AOGCC's
investments to date is being used "as efficiently as possible".
An accurate amount expended to date on the Point Thomson study
would be provided.
Mr. Norman next discussed the agreement the Commission has with
the lease holders at Point Thomson. It is a formal agreement
called a Statement of Principles that was based on the Statement
of Principles agreement AOGCC developed with the Prudhoe Bay
owners. There are not "any real substantive differences" between
the two with the exception of a few changes requested by the
Point Thompson lease holders during the negotiation process. A
confidentiality agreement was attached to the Statement of
Principles. He would verify his understanding that the
agreements were public documents. Copies would be provided to
the Committee if they were.
Mr. Norman characterized the agreement to be a "tight
arrangement" as opposed to a contract.
2:40:30 PM
Mr. Norman expressed that the Commission has two paths of action
to choose from when in regards to accessing field data. One was
to use Commission's "subpoena powers and to try to force
information to be forthcoming". The other was to get the
operators to "cooperate with us." The latter had been the chosen
in regards to Prudhoe Bay. Because of its success, that same
path of action was advanced with the Point Thomson operators.
Mr. Norman reiterated that copies of the Statement of Principles
agreements for both the Prudhoe Bay and Point Thomson reservoirs
would be provided unless that action was prohibited for some
legal reason.
2:41:32 PM
Co-Chair Stedman directed that the material be provided to his
office for distribution.
2:41:40 PM
Senator Elton clarified his inquiry. Rather than needing a copy
of the agreements with the lease holders, he was willing to
accept a short analysis from the Commission as to whether one
party could abrogate the agreement
Senator Elton also desired to know how long the Commission was
willing to wait to hear a decision from Exxon about the data
before alternate action might be taken.
Co-Chair Stedman asked whether the requested information could
be provided before the May 16 Legislative adjournment date, in
light of the volumes of paperwork associated with the agreement.
2:42:40 PM
Mr. Norman assured the Committee that the answer to whether one
party could abrogate the agreement would be provided. He
understood that the agreement could be terminated. If the level
of cooperation failed to meet expectations, the Commission would
implement a legal course of action.
Mr. Norman would endeavor to provide as specific an answer as
possible to Senator Elton's questions.
2:43:20 PM
Senator Thomas asked for a preliminary analysis of how
aggressively the producers were furthering oil production and
implementing mitigating factors.
2:44:06 PM
Mr. Norman stated that operators were actively pursuing these
goals, however, "the thing that has been disappointing to the
Commission and disappointing to all Alaskans are some of the
interruptions of production which is a slightly different way of
talking about acceleration."
Mr. Norman contended that even though production might stop or a
field might be shut in for a while, "hopefully eventually you
recover that oil". However, recovery of that production is "at
the tail end years later, and by that time, the trade-off
becomes more acute between oil and gas because hopefully by that
time, you're close to having a pipeline and major gas offtake."
The aging infrastructure on the North Slope as an important
issue; adequate maintenance would assist in preventing
production interruptions.
2:45:03 PM
Mr. Norman stated that AOGCC believes, however, that "the
operators are doing all they can to recover oil and certainly
it's in their financial interest to do so." The Division of Oil
and Gas is also monitoring this.
Mr. Norman stated that the Commission would ask the applicant
what more could they do "to accelerate production, and what more
could they do "to avoid interruptions of production."
Senator Thomas asked whether the experiences to date might
prompt the Commission to include language in leases allowing
them to assess data that was reservoir rather than proprietary
related. This would remove AOGCC's reliance on having a company
provide information voluntarily or having to subpoena it.
2:46:57 PM
Mr. Norman viewed the situation differently. The key to having
access to reservoir data is to "secure the leases."
Mr. Norman specified that AOGCC's jurisdiction runs statewide.
The Legislature granted them the authority to police State,
Alaska Mental Health, federal and Native lands. It has the tools
to get the information they need to conduct an analysis.
Mr. Norman contended, however, that "the pathway of a
cooperative effort in our opinion got us there faster."
Unfortunately the legal "complication" at Point Thomson has been
disruptive to the receipt of the data, "but if we need to fall
back on stronger methods, we have subpoena power. We have the
ability to convene hearings if waste is imminent and we have the
methods that we could employ to get at this information although
that is a more complicated way to do it."
There being no further questions, Co-Chair Stedman thanked Mr.
Norman and Ms. Foester for their testimony.
The bill was HELD in Committee.
Co-Chair Stedman conducted housekeeping of the following day's
meeting.
ADJOURNMENT
Co-Chair Bert Stedman adjourned the meeting at 2:49:56 PM.
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