Owners of the trans-Alaska oil pipeline collected money from shippers during the 1980s to pay for the eventual dismantlement, removal and restoration of the pipeline at the end of its useful life.
Federal filings show the money collected plus earnings now surpasses $5 billion, and two companies that made payments are asking questions about it now that BP is selling its Alaska assets to Hilcorp.
If the pipeline owners over-collected, shippers who paid toward dismantlement, removal and restoration — known as DR&R — would be due a refund once the pipeline is decommissioned. Petro Star Inc. and Tesoro Alaska Co. want a state agency to seek guarantees that the money will be available for pipeline dismantlement when it’s needed. They also want potential future refunds protected.
Lawyers for the companies registered their concerns in letters this month to the Regulatory Commission of Alaska. They are asking the agency to put conditions on Hilcorp’s request to acquire BP’s “certificate of public convenience and necessity” to operate the pipeline system, or TAPS. A portion of the pipeline runs through the Fairbanks North Star Borough.
“BP and the other TAPS carriers have already collected, and are earning a return on, billions of dollars of future DR&R costs in TAPS rates,” states a letter to the commission signed by Angela Speight, vice president and general counsel for Petro Star, which operates a refinery in North Pole. “However, to date, neither the RCA nor the Federal Energy Regulatory Commission (FERC) has required any of those revenues to be escrowed or otherwise set aside to ensure that such funds are available when they are needed when TAPS is abandoned.”
Tesoro maintains that decommissioning the pipeline will cost about $2.6 billion. That number is based off of a 2005 estimate, the latest available, according to attorney Robin Brena, who is representing Tesoro.
Based on that estimate, over-collections plus earnings qualify Tesoro for a refund of roughly $140 million, Brena told the commission. Tesoro is asking the commission to delve deeper into the agreement between BP and Hilcorp with respect to pipeline decommissioning.
Hilcorp’s role with pipeline decommissioning is described as limited in a joint application to the commission requesting the transfer of BP’s certificate to operate TAPS.
“Having the single largest owner of TAPS exit Alaska and completely cease providing TAPS service when it has significant outstanding financial obligations to pay for DR&R and refund over-collections of DR&R to its shippers represents a unique factual and regulatory circumstance for this commission,” Tesoro, through its attorney, told the RCA.
The letter stated an additional 75 or 100 years could pass before the pipeline reaches the end of its useful life. Tesoro wants to know how “this segmentation of DR&R responsibilities would actually work in practice,” Brena wrote.
Tesoro also wants to know what happens if a conflict arises between the companies responsible for pipeline dismantlement.
“The application does not address the regulatory implications of the manner or the legal mechanism through which the inevitable disputes over DR&R responsibilities among the various owners over time would be resolved, or how the liability for DR&R responsibilities will be apportioned if one of the owners or guarantors fails,” the letter signed by Brena states.
BP Alaska spokeswoman Megan Baldino did not respond to specific questions but confirmed in an email that BP, ExxonMobil and ConocoPhillips will retain pipeline dismantlement obligations after BP’s share of the pipeline is sold.
Baldino said the “three parent company guarantees will remain in place to uphold those TAPS obligations” to the Alaska Department of Natural Resources, federal Bureau of Land Management and the regulatory commission.
A spokesman for Hilcorp has on multiple occasions declined to respond to questions on aspects of the deal with BP.
BP owns 48.4% of the pipeline system. ConocoPhillips, ExxonMobil and Unocal Pipeline own the remaining portion.
The trans-Alaska oil pipeline, which went into operation in 1977, is one of three pipelines being transferred to Hilcorp as a part of a larger $5.6 billion sale of BP Alaska assets to the Texas-based private limited liability company. Hilcorp has been doing business in Alaska since 2012.
Petro Star is an affiliate of the Arctic Slope Regional Corp., which operates another subsidiary known as ASRC Energy Services, whose president has praised Hilcorp’s purchase of BP.
The Regulatory Commission of Alaska is accepting public comment on the pipeline certificate transfers through Dec. 13.
Contact staff writer Amanda Bohman at 459-7545. Follow her on Twitter: @FDNMborough.