Community Perspective

Regulators need to look at Hilcorp’s intent on gas

BP has been an outstanding corporate citizen of Alaska and will be genuinely missed, not only for its technical skills in managing the Prudhoe Bay production but also for its philanthropic contributions to the quality of life in our state. Alaskans owe BP thanks for all it has done.

Alaskans were pleased to note the recent announcement by Hilcorp that it had entered into an agreement with Doyon, Limited. It will jointly initiate oil and gas exploration on Doyon’s lands. This will be welcome news to Fairbanks.

I suggest our Legislature and the Dunleavy administration determine what we can learn from BP’s departure from the Alaska scene. How is Alaska rated competitively and internationally regarding development of our energy sources? We have an abundance of oil and gas in Arctic Alaska. BP was no stranger to the rigors of operating in the Arctic and the high cost of developing our oil and gas resources, yet it has chosen to concentrate its capital and skills in other projects around the world. Why?

We need to understand the corporate strategy that goes into deciding where to invest capital prior to development. Another case in point: Shell, which expended several billion dollars in offshore exploration in the Arctic outer continental shelf, saw fit to depart Alaska rather than continue any further exploration. Why?

The sale of BP to Hilcorp does not require the Federal Trade Commission to approve the transaction, because it is being purchased by a private corporation and is not a merger.

Regulatory approval at the state level is, for the most part, tasked with the Regulatory Commission of Alaska along with other state agencies. The responsibility of the commission is to protect the broad public interest and the impact of a concentration of control on the supply of Alaska’s Cook Inlet gas combined with the gas reserves to be acquired from BP. This fact should be of concern to the commission.

Hilcorp began acquiring gas reserves in Cook Inlet over the past 11 years. This included production facilities and infrastructure in Cook Inlet. Hilcorp also acquired a franchise to supply the greater Anchorage bowl with natural gas. During this time, two major events occurred: the closure of the Agrium urea-ammonia unit and the closure of the ConocoPhillips liquefied natural gas facility in Kenai. Allegedly the reason for closure of these two facilities was the growing concern that there would not be an assured sustainable supply of gas in the winter months. The Anchorage bowl would be prioritized and not subject to seasonal interruption.

It became apparent that Hilcorp was just about the only marketer for gas with the closing of the two Kenai facilities.

As exploration continued in Cook Inlet for oil, there was also the discovery of gas. In many cases the discovery was likely capped and became stranded because there were no other marketers and Hilcorp had its own supply of gas.

There has been little effort to evaluate the total gas reserves in Cook Inlet alongside of what Hilcorp has already acquired. Figures from the U.S. Geological Survey should be reviewed on both Cook Inlet and the North Slope reserves with the advent of Hilcorp’s acquisition of BP’s holdings. It is in the public interest for the Regulatory Commission of Alaska to evaluate the adequacy of these reserves to ensure that Cook Inlet gas has an opportunity for developing a market beyond that of Hilcorp.

What assurances do we have that Hilcorp, in acquiring BP’s North Slope gas, might hesitate to market North Slope gas in Alaska while favoring its higher priced contract gas from Cook Inlet that it already controls?

It is my belief that the Regulatory Commission of Alaska did not sufficiently evaluate the Cook Inlet gas reserve in the past. That resulted in the creation of only one market for Cook Inlet gas. The commission should ensure that the public interest is served by allowing opportunities for new participants to enter the marketplace for gas with the assurance that there is an adequate supply available. Another possibility would be that the state withhold its royalty gas should there be an opportunity for new participants to enter the field. 

The commission has the obligation to ensure that all areas of the state are afforded, where practical, the opportunity to use our gas. This should include evaluating shipment of gas to Fairbanks by using the haul road from the North Slope.

Frank Murkowski served as Alaska governor from 2002-2006 and previously served as a U.S. senator. He is a Republican.

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