The Mighty Beaufort

And they said it would never happen, not in a 100 years!

http://www.break.com/usercontent/2009/6/oooguruk-island-june-23rd-2009-790036.html

Another Endicott/Doyon Waste Fiasco?

Much, much worse off than the 1998 Endicott illegal waste disposal scenario by Doyon drilling, which realized stiff fines and jail time for those involved. When Pioneer Natural Resources was first made aware of inappropriate waste disposal concerns by a former employee at this oil company’s Oooguruk project up north, a company investigation team flown to Alaska from Texas gathered information in efforts to protect the company. Being the 1st “Independent”, it was prudent that the operation was squeaky clean, as the Alaska legislature caved in on this project, with royalty and taxation incentives. Such fallout in concert to Sarah Palin’s legacy, “Drill Baby Drill”. So the company was supposed to mind the P’s & Q’s. According to documents on file at the Alaska Oil & Gas Conservation Committee, the oversight police, it is recorded that “The investigation team was able to determine wastes are properly indentified at Oooguruk as hazardous wastes and to confirm that records are maintained as the waste is manifested for disposal. The investigation found that operations and HSE staff are able to correctly identify non-exempt non-hazardous wastes. Pioneer’s investigation found no evidence of non-exempt non-hazardous waste being slipstreamed into the production stream. In addition to the regulatory requirements for management of these wastes, and the ready availability of a Class I disposal well for this purpose, there are significant operational and commercial disincentives to placing non-exempt non-hazardous waste into the crude oil production stream.” Of course if one wanted to get rid of waste, by placing it into the crude oil production line, it would fetch the going rate of oil, like $80-dollars a barrel! So there is an incentive. And even though Pioneer would deny such, and even though Pioneer admits that its staff can correctly identify and manifest waste for proper disposal, well this company’s own reports side differently the truth of this matter. And they document it: “Flowback tank is all Class I waste, slipstreamed 400 barrels to ConocoPhillips”. Caught in the act! One thing for sure, they indeed keep good records! So this Independent gets to send this stuff to Conoco, where it fetches some $32-thousand bucks and is eventually sent along towards the Trans-Alaska-Pipeline, contaminating the entire industry! If this is what to expect from the “Independents” then maybe it is time for jail time!

Good Faith Action Lullaby?

The independent investigation sanctioned by and through the Alaska Oil & Gas Conservation Committee targeting Pioneer Natural Resources’ Oooguruk oil development project is wrapping up. The evidence is overwhelming, that Class I - possibly hazardous at that - waste was shipped to the Trans-Alaska-Pipeline, along with miss-injections at this “Independent’s” man-made oil production island wherein thousands of gallons of “used glycol” was released into the environment and wherein “wet” hydrocarbon rich natural gas was allowed to also pollute the once pristine environment of Harrison Bay, of the Colville River delta that drains into the Beaufort Sea. And the dead birds found at the site, was the cause of death mishandling, because business comes first, or was it from environmental contamination, because business comes first? Regardless, this place is a mess when it comes to environmental stewardship. Even the state of Alaska’s attorney general called this investigation “unprecedented and serious”. So “persons of interest” were requested to be questioned by the investigative team, but here is where it gets really interesting ugly. Those on the request list were provided “legal guidance” by an attorney that said he was working independently, but at the same time was retained by guess who? Pioneer! The oil company under indictment! In fact, it is the same attorney that authored the 1st report submitted by Pioneer to the regulators, including the EPA, which basically complained about wasting over 1000 man-hours finding nothing upon the allegations of a former employee, nothing was substantiated upon the concerns with regards to Pioneer’s Oooguruk operation with respect to environmental concerns. But when the former employee provided evidence to the contrary, it was then the company shifted into damage control mode. The only way the company investigators found nothing the first go-around was by (1) workers like lying, or (2) they were told to lie! It is that simple. So the company was forced to amend the 1st report, which is not a good thing when one is dealing with the EPA! So in the 2nd report, which started to unveil the admittance of environmental atrocities, it was this same attorney who now blames everything evidenced upon on the operators , the hourly wage earners – which meant the damage control blame game was in full effect! These are the same individuals that he is now providing legal advice and advise, during the independent investigation. Something wrong with this picture? Yes, but what can we expect when the law firm this legal advisor is affiliated with is the same outlaw outfit that Enron retained, when Ken Lay was telling everybody everything is OK, when at the same time things were falling apart at the seams. Bottom line, the attorney most likely used the scare tactic upon the workers, that they needed his presence in front of the private investigators, so he could find out what those interviewed were saying, so he could further provide a lullaby for the corporation, that it wasn’t upper management who called the shots to pollute the environment by maintaining a total disregard for the rules and regulations that are designed as a deterrent, but in efforts to collect more information to tag the operators, the in-experienced operators, as the source of the illegal activates. Look out, as the bozo bus is heading that way! Yes indeed, the blame game “who is the scapegoat “ is in full production, because as soon as the investigator’s report hits the regulators desks, the oversight police will have to throw the book at Pioneer. In the 2nd report, this attorney uses conditioning tactics like, “The injection of glycol was, we believe, the result of honest, albeit avoidable, mistakes”. Wrong, as when the on-site supervisor said do it, those that wanted to stay employed did it without an iota of concern, based on fear of finding out what the un-employment line was all about! And mention is made that the “Operations personnel believed the glycol must not be hazardous”. Now according to the “Operations Supervisor at the time, test proved negative; however, no documentation of the test results has been located”. If indeed the glycol was tested, it could only be accomplished by a “certified lab”, over at Kuparuk. And the paper trail doesn’t evaporate. So here again we see lying, in efforts at trying to pull the wool. But the attorney forgot the icing on the cake with this one, “The fatal flaw was failing to start by consulting the AOGCC”. Admittance of a “fatal flaw”, somebody is in trouble my environmental friends! And attorney Lullaby goes on, “As described, the analysis performed was flawed and the conclusion reached was in error; however, no one intended to willfully or knowingly violate applicable regulatory requirements. Pioneer has taken this matter seriously from the start”. From the “START”? The company denied it in the 1st report to the regulators, “Pioneer’s investigation has located no evidence of slipstreaming used glycol into the seawater injection stream or of an incentive to do so.” Talk about a full court press denial! But now, the lullaby speaks differently, that some 49000 gallons of used glycol was discharged, but it was an honest mistake? And get this for an ending, “Pioneer appreciates that very regulatory infraction is a form of injury to the public, we respectfully believe that the injury was slight”. So Pioneer is bracing, that there was indeed a violation upon the “public trust doctrine”, an injury that should find Pioneer digging deep into its profit pocket, to pay for a management mindset even BP wouldn’t put up with, just ask the Operations Supervisor!

Worse then British Petroleum

In 1998, British Petroleum was slapped a felony and fined $500,000 along with a requirement to establish an “Environmental Management Program” at an estimated cost of $15-million, all because one of its drilling contractors decided it was all right to violate the Clean Water Act, by injecting hazardous waste - like used glycol - down an injection well not permitted by the state of Alaska to receive such crap. Doyon, the drilling contractor who sent BP in trouble, was indicted on 15 counts, with fines totaling $3-million, plus the person with his finger on the trigger found out what life in a jail cell was all about. And the U.S. Department of Justice, handling this case for the EPA, literally “threw the book” at BP and Doyon, as a means to demonstrate this penalty as a deterrent, so future oil developers on Alaska’s North Slope would realize they “shall” abide by the rules and regulations, or else. Well Pioneer Natural Resources, the 1st Independent to brave the “slope” when the “Drill Baby Drill Open for Business” sign became Alaska’s motto, this small Texas based company has found itself in trouble with the regulators, for the same dam thing. ECXEPT, the volumes miss-injected in comparison makes Pioneer the worst of the worse in the entire life time of the Prudhoe Bay oil field – some 30 years! If what BP went in trouble for was like a rain storm on the scale of environmental atrocities, Pioneer gets to use its name on the next hurricane! And finally, Pioneer has admitted to injecting 49,000-gallons of used glycol down a well, to get rid of it, without a permit. This admittance after they informed the regulators having jurisdiction that it didn’t happen, as there was “no incentive” to do such a cowardly deed! So this should be the granddaddy fine of all times, way beyond what BP and Doyon combined have paid out for violating the “Acts”, most likely enough cash that could send this “mom & pop” company packing and heading back home, maybe to jail! “Don’t come back now, ya hear!”

Say It Ain't So Sarah

When governor you said: Independent energy companies like Pioneer and many others are coming to Alaska to take advantage of the opportunities available here for creative, aggressive players in the energy industry. Offshore, northeast of Kuparuk, is a great example of what independents can do. Pioneer Natural Resources bought the leases in 2004, and along with its partner, E-N-I Petroleum, worked well with the state to get their permits fast. It’s a good model for more success by independents in the future. We will aggressively defend the state’s obligations to responsibly develop our resources. You in the industry make your living by providing the goods and services necessary to get Alaska’s resources to market. You live by contracts and legal obligations. This is how business is conducted, and you honor your legal obligations. As I told the state on Wednesday evening, WAREHOUSING Alaska’s resources isn’t an option. We’re stepping out there on some issues and sending a message that Alaska’s new administration understands how important it is to expand to areas with great potential beyond the North Slope. That includes advocating for environmentally responsible lease sales in offshore waters. To prove we can responsibly develop, we’ll beef up oversight on the North Slope because we’ve seen some legal obligations ignored.

Now that Pioneer is under investigation by a 3rd party investigative team funded by the AOGCC, it appears that you meant to say “WHOREHOUSING Alaska’s resources!

Dear Former Representative Ralph Samuels

Dear Former Representative Ralph Samuels;

With interest in becoming this state’s governor, how do you now feel about the “Independents” as you and Representative Meyers elaborated upon with praise in a legislative update on October 26, 2007? With Pioneer Natural Resources under a 3rd party investigation, requested by the AOGCC, for questionable waste disposal and air pollution waste, not to mention dead birds found at its Oooguruk drill site in the Beaufort Sea, is this what we really want from outsiders? Remember, Pioneer was the 1st Independent to brave the “North Slope” and the legislature was hoping for success. So $300,000 of state money is being spent for this investigation, or wasted, because this so-called “Independent” thought that it didn’t have to worry about the rules of the road when operating in Alaska. Is this what we want from the Independents, these small “mom & pops” that not only garnish royalty relief but bring to the “Last Frontier” an interest in capturing the interest of the legislature in efforts to change the entire oil field infrastructure, for the worst! But when the state can charge British Petroleum $4-million for oversight and charge ConocoPhillips $3-million for oversight but Pioneer gets away with a measly $2500 dollars a year for similar oversight, you get what you pay for and in this case it appears to be a no give a crap attitude towards the environment. Bottom line, when the state ignited the “Open for Business Drill Baby Drill” good-ol boy invite, we find that we are investing in interests that may not care our demand for respect, and when they get away with it, it seems like your crying out loud “We need them” idea backfired, as it is not worth it, especially for only pennies on the dollar from our resources and a mindset that places the environment at risk. So please Don’t follow in Palin’s footsteps, that these Independents are needed now and forever, amen, and realize that what may have sounded good, isn’t!

State Looses $68-million

Rep. Meyer & Rep. Samuels Legislative Update

Dear Neighbors,

We both have received several emails expressing concerns about attracting independent oil companies to Alaska and encouraging new exploration and development. We thought that this would be a good time to look at this issue and the discussion we have had on this issue during the special session.

What is an Independent Oil Company?
The oil industry is generally divided into two categories: integrated and independent. Integrated oil companies are involved in the entire value chain of oil from production to pump. In Alaska, the notable integrated companies are Exxon, B.P., ConocoPhillips and Chevron. An integrated oil company explores for, produces, transports, refines and markets oil, gas and petroleum products. An independent oil company on the other hand, is involved only in the exploration and production of oil or gas. Pioneer and Anadarko are examples of an independent oil company. You may have read recently that next year, Pioneer Natural Resources will be the first "independent" operator on the North Slope. I find the story of Pioneer in Alaska interesting. Pioneer is new to Alaska, has brought new investment and is bringing new production online early next year. New business and new production is good for Alaska but I think we can learn a lot from the challenges Pioneer has faced and the investments they have made.

Pioneer Natural Resources
Pioneer Natural Resources is a small oil company based in Irving, Texas with around 1,600 employees. To put that in perspective, Fred Meyer has 2,700 in Alaska alone. Pioneer came to Alaska in 2002 and drilled their first exploration wells on leases near the Kuparuk unit on the North Slope in 2003. Pioneer and their partner Armstrong, later replaced by ENI, discovered a relatively small accumulation of oil and began putting together a plan to develop the discovery, which was named "Oooguruk." In 2005, Pioneer discovered the project was uneconomic and applied to the State of Alaska for royalty relief.
Alaska law allows the Commissioner of the Department of Natural Resources to reduce royalties on a field if the company can present "clear and convincing evidence" that without royalty relief a project is uneconomic. The State determined that without royalty relief, Oooguruk would never be developed and granted Pioneer and its partner royalty relief on the field in December of 2005. This was the first time the State had approved an application for royalty relief and the decision can be found online at the Department of Natural Resources website.

Oooguruk
The first wells in what is now called the Oooguruk unit were drilled in 1977. The unit was originally leased in 1983, but when the original owners determined prospect was not economic they surrendered the leases to the State in 2001. The State's decision to grant royalty relief to Pioneer was based in large part on the fact that over more than 25 years of exploration, no company had been able to develop the resources. When the State considered granting royalty relief to Pioneer for the Oooguruk field, they compared State revenues with, and without royalty relief.

With royalty relief, the present value to the State of developing the Ooogurk field was $160 million dollars. You'll notice in the chart above that at the time the State wouldn't receive any severance tax from the Oooguruk field. This is because the royalty relief application was considered under the old ELF severance tax system where small fields paid no severance tax.

Twenty days after the State granted royalty relief to Pioneer on the Oooguruk project, Governor Murkowski introduced the Petroleum Profits Tax. In the table above, you'll notice that severance taxes were zero when the royalty relief application was considered. In 2006 the Legislature changed the severance tax structure in Alaska and levied severance taxes on the Oooguruk field. After evaluating the project with the additional severance taxes Pionner made the decision to continue with the project and construction started in 2006. Although the State had increased their share of the revenue from the development of the Oooguruk prospect with the new severance tax, the credits the State gave to a company for capital investment in the tax actually improved the economics for Pioneer.
Between the royalty relief and the capital credits in the new tax, the State was able to take a greater share of the revenue while encouraging the development of a field that wouldn't have been developed. Pioneer's Oooguruk project represents an investment in Alaska of more than $500 million dollars, hundreds of jobs and millions of dollars in new state revenues.

An important aspect of Pioneer's Oooguruk project is that it is the first time an independent company has negotiated a facilities access agreement with the major North Slope producers, in this case ConocoPhillips. Access to facilities is often cited as an obstacle for independents on the North Slope. Pioneer's successful negotiation of an access agreement paves the way for other independents and proves to those considering investing in Alaska that gaining access to facilities is possible.

Why Independents are Important to Alaska's Future
The development of an oil basin around the world follows a general progression. From the first discovery of oil, large companies provide the capital and develop the large discoveries. As the large pools of oil are developed, smaller companies move in and develop the smaller pools of oil around the larger pools. Alaska is following a similar progression, with the major companies dominating the large discoveries at Prudhoe Bay and Kuparuk and newer, smaller independents like Pioneer developing the smaller fields like Oooguruk.
Alaska is at the beginning of this transition period and the success of a company like Pioneer will demonstrate to others that a smaller company can succeed in Alaska. In my first email update I described the 5 criteria I believe should be used to evaluate an effective tax policy:
A tax policy that promotes "maximum use" of our resources "consistent with the public interest" will:
1. Provide a fair share for our Alaskan owned resources.
2. Encourage investment to maximize North Slope oil production from existing fields to keep our pipeline full.
3. Encourage exploration and development to expand our oil and gas resource base in order to ensure opportunities for the next generation of Alaskans.
4. Be fair to small and large producers in order to build new economic activity and jobs for Alaskans.

Given the changing nature of the North Slope, and the increasingly important role independents will play in our future, it is especially important to consider how tax policy affects the smaller companies.

Thank you for allowing us to share this information. Please feel free to contact us with any feedback.