Saturday, October 19, 2013

Repsol plans: three more wells, three more rigs

Tim Bradner
Alaska Journal of Commerce

Repsol will drill three North Slope exploration wells this winter as part of its multi-year program to evaluate the company’s acreage, company officials said in an interview Oct. 11.

Two of the wells, designated Q-5 and Q-7, will be in the Colville River delta area east of the producing Alpine field. They are in the vicinity of wells drilled last year by Repsol and where discoveries were made, said Repsol Alaska Manager Bill Hardham.

A third well, named Tuttu 1, is further east near the Kuparuk River field, Hardham said. Tuttu is “caribou” in the Inupiat language

Spain-based Repsol is one of the most active exploration companies in Alaska. This coming winter season will be the company’s third year of drilling.

Two of the wells to be drilled in the Colville delta are to gather more information on oil and gas resources near wells drilled last year that were discoveries. Those were designated as Q-1, Q-3 and Q-6, he said.

Repsol has not yet announced a decision on the commerciality of those discoveries, Hardham said. Oil was also found in a third well Repsol drilled last year that was farther south.

“We are busy with this and we are working up some development scenarios. The wells we’ll drill this year will add to our information,” about the area, he said.

The company is still working on its drilling contracts but tentative plans are to use three Nabors Alaska Drilling Co. rigs for the winter season. A winter ice road will be constructed to the exploration area from the Kuparuk field roads, which are all-year gravel roads, and an ice airstrip and winter camp facility will be built near where the drilling will take place.

The exploration in the Colville delta is focused on conventional oil.

Several companies besides Repsol have been exploring in the area west of the Kuparuk field. One other firm is Brooks Range Petroleum, an Alaska-based independent that has been working in the area for several years and is now planning development of one discovery, “Mustang.”

Brooks Range hopes to have Mustang in production in 2015, according to the company’s Chief Operating Officer Bart Armfield. The company is working with the Alaska Industrial Development and Export Authority, the state’s development finance corporation, on an oil and gas processing plant for Mustang. Infrastructure to support the plant would also be available for other parties, according to the plan being discussed.

Meanwhile, one uncertainty affecting Repsol’s planning as well as that of other companies is a pending referendum in the 2014 Alaska primary election that would repeal a reduction of state oil production taxes approved by the Legislature earlier this year, Repsol spokeswoman Jan Sieving said.

Repsol supported the passage of the tax bill, Senate Bill 21, and is moving forward with its exploration, but the pending vote does create additional uncertainty, Sieving said.

“We are fully supportive of SB 21 and have started moving forward with investment decisions, but the referendum now adds to uncertainties. It’s difficult to make billion-dollar decisions when we don’t know what the tax structure will be,” Sieving said.

Wednesday, October 16, 2013

New crude crossing; Report says construction could begin within months on inlet subsea pipeline

Wesley Loy
For Petroleum News

Construction of a new subsea crude oil pipeline across Cook Inlet could begin as soon as 2014.

That’s the word from the Cook Inlet Regional Citizens Advisory Council, a congressionally sanctioned organization that monitors oil industry activity in the inlet.

“Cook Inlet RCAC has been informed that Tesoro is considering the installation and operation of a trans-Foreland subsea pipeline to transport crude oil from the west side of Cook Inlet to Tesoro’s refining facilities in Nikiski,” the council reported in its October newsletter. “Although still in the planning stages, all indications are that this pipeline is going to be built and construction could begin as early as spring 2014.”

Cook Inlet Energy’s idea

This news seems to build on a proposal that first emerged more than a year ago from Cook Inlet Energy LLC, a west side oil and gas producer. The company had said it was pursuing a 29-mile, $50 million subsea pipeline from its Kustatan production facility near West Foreland point to the Tesoro refinery near East Foreland point. That explains its name — the Trans-Foreland Pipeline.

Cook Inlet Energy is a subsidiary of Tennessee-based Miller Energy Resources Inc.

In January, Miller said Tesoro had agreed to fund up to $1.4 million in design costs for the proposed pipeline.

Petroleum News was unable to reach representatives of Tesoro and Cook Inlet Energy for comment.

Advantages of subsea line

As it stands, crude oil produced on Cook Inlet’s west side is shipped out via tankers. The inlet’s enormous tides and dangerous drifting ice add extra risk to the inlet crossings.

“Cook Inlet RCAC is very supportive of Tesoro’s proposed project,” the council said in its newsletter. “With the installation of the crude oil pipeline, there will be an alternative means of transporting crude oil from Cook Inlet’s west side facilities. We will continue to advocate for the installation of the pipeline and Tesoro has been invited to present their plans and status of the project at the Council’s Board of Directors December meeting in Anchorage.”

Cook Inlet Energy has said a subsea pipeline could offer other advantages, such as reduced oil transportation costs.

Another concern is the threat that nearby Redoubt volcano poses to the Drift River oil terminal, where tankers load. Eruptions in 2009 knocked the terminal out of service and idled oil production on the inlet’s west side for months.

The Cook Inlet RCAC said it had been in contact with Cook Inlet Energy and also Hilcorp Alaska, a major inlet oil producer. Hilcorp “has indicated that they are awaiting additional information before committing to utilizing the pipeline,” the council newsletter said.

The newsletter further said that two consultants, Glosten and Northern Economics, have been engaged to do a cost-benefit analysis of the cross-inlet pipeline.

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Sunday, October 6, 2013

State makes deal to sell royalty oil to Tesoro

Tim Bradner
Alaska Journal of Commerce

The Tesoro refinery near Kenai will purchase 5,000 to 15,000 barrels per day of Alaska royalty oil in an agreement reached with the Division of Oil and Gas. Deliveries will begin Feb. 1, 2014, and the contract runs through Jan. 31, 2015.
The state of Alaska has reached agreement with Tesoro Petroleum Corp. to sell 5,000 barrels per day to 15,000 barrels per day of state royalty crude oil from the North Slope for the company’s Alaska refinery near Kenai.

Notice of the sale, in a state Best Interest Finding document, was published on the state Division of Oil and Gas website.

Kevin Banks, chief of the commercial division in the state Division of Oil and Gas, said deliveries are to begin Feb. 1. The contract will end Jan. 31, 2015.

Tesoro’s refinery has a total capacity to process 72,000 barrels per day of crude oil but in practice processes less than that, about 65,000 barrels per day in summer, a period of high gasoline demand, and about 45,000 barrels per day in winter.

The sale will not require approval of the state Legislature because the quantities of royalty oil being sold are below the threshold requiring an OK by legislators.

Last spring the Legislature approved a larger royalty oil sale to Flint Hills Resources for that company’s refinery near Fairbanks.

The Tesoro agreement followed an informal solicitation of interest for purchases the state conducted last fall, Banks said. There were four responses, two from North Slope producers BP and ConocoPhillips, one from Flint Hills Resources and one from Tesoro. Petro Star Inc., which also operates refineries near Fairbanks and Valdez, did not respond.

Alaska has the option of taking its royalty share of oil and gas produced on state-owned leases in kind, in delivery of actual oil and gas, or in value, or payments in cash.

Traditionally the state has taken much of its oil royalty in kind, about half, to ensure that in-state refiners have a supply of crude oil.

“Some portion is always taken in value, in payments by producers, so the state has an indicator of market value to establish values for payment by refiners for royalty oil,” Banks said.

If both Tesoro and Flint Hills take the maximum amount of royalty oil their contracts allow, about 95 percent of the state’s royalty oil would be sold to the in-state refiners.

Royalties from state leases typically vary between one-eighth and one-sixth of production, although there are some leases with higher royalty rates.

Pricing terms on the Tesoro contract are similar to those in the Flint Hills contract, and are based on average west coast sales prices for North Slope crude with transportation costs subtracted.

The transportation deduction from the west coast Alaska North Slope crude price for Tesoro is $1.95 per barrel, which is the estimated difference between the west coast price and Valdez after transportation costs are accounted for. The Best Interest Finding said the state will earn a small premium on the royalty sale compared with what would have been paid by North Slope producers had the royalty been taken “in-kind,” or in cash payment.

If market price conditions between 2008 and 2012 continue through the contract period, the premium would be about 25 cents per barrel, the Best Interest Finding said.

Under state royalty sales contracts, the purchaser takes delivery of oil on the North Slope and makes arrangements for shipping with a Trans-Alaska Pipeline System owner.

To get the oil to its Kenai refinery, Tesoro uses a small shuttle tanker used now for Cook Inlet crude oil deliveries, to get oil from Valdez, in Prince William Sound, to Kenai.

Tesoro now purchases about 90 percent of its crude oil requirements from Cook Inlet and North Slope producers but has imported crude in the past. In 2012, the company imported three cargoes of foreign crude oil, according to the state Best Interest Finding.

The Kenai refinery was originally built to handle light Cook Inlet crude oil but as oil production from the Inlet declined over the years crude has had to be purchased elsewhere.

North Slope crude is heavier than Cook Inlet oil, which required Tesoro to import some lighter oil from foreign sources including at times Sakhalin, in Russia’s Far East, which has lighter crude.

Tesoro’s refinery supplies products to 31 company-owned Alaska retail outlets and 44 “branded” outlets operated by franchise owners, according to the Best Interest Finding document.

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