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AOGCC OKs off-unit CNG-fueled vehicle use
Hilcorp Alaska, Milne Point operator, converting vehicles to CNG use; waiver allows vehicles to travel off unit on unit business Kristen Nelson Petroleum News
The Alaska Oil and Gas Conservation Commission has approved a request from Hilcorp Alaska for use of compressed natural gas in Milne Point unit vehicles that travel off-unit on unit business.
AOGCC regulations require custody transfer metering of production before it is severed from the unit.
In April Hilcorp, the Milne Point unit operator, requested a waiver to allow vehicles fueled with CNG produced at Milne to leave the unit on unit-related business.
In its April request to AOGCC Hilcorp said it was modifying Milne Point unit vehicles to run on CNG with unleaded gasoline or diesel as a secondary fuel. The company said the CNG was produced at Milne Point and "produces fewer emissions including reduced GHG emissions than a gasoline or diesel fuel." It also said unleaded gasoline and diesel used at Milne were imported from Fairbanks.
Hilcorp told the commission two Milne Point unit vehicles were operating on CNG and said it planned to install dual fuel conversion kits in unit-owned vehicles and eventually in heavy equipment, including buses. The company said the CNG-fueled vehicles were currently confined to use within the unit, but said it hoped to have up to 10 CNG vehicles in operation by the end of the year "with transport to and from Deadhorse approved."
Out-of-unit usage The issue is when royalties and taxes are required on production -- typically when that production leaves the unit -- with exceptions for use within a unit.
In its June 12 approval of the waiver request AOGCC said common examples of "on lease uses that are allowable and thus not subject to payments of royalties and taxes" are generator fueling to create electricity; providing heat for buildings; and use in pumps and compressors used to ship products.
CNG use in vehicles within the unit "would fall into this same category of allowable uses that aren't considered sales." But without the waiver, "CNG fueled vehicles would be restricted to in unit use only unless the CNG is measured by custody transfer quality meters prior to fueling the vehicles," AOGCC said.
Unit-related business which could take a CNG-fueled vehicle outside unit boundaries include trips to another unit to buy/borrow a needed tool; unit-owned buses going to the Deadhorse airport to pick up or drop off employees; response to emergencies elsewhere on the Slope; and unit personnel provide transportation to governmental and regulatory agencies, the commission said.
Requiring CNG fuel to go through a sales quality meter is not a practical solution, it said, "because there would not be a reasonable way of determining how much of that fuel was used off lease and thus would be required to be sold and have royalties and taxes paid versus how much was on lease and wouldn't be subject to paying royalties and taxes."
AOGCC concluded that since CNG use in unit-owned vehicles working in the unit was allowable "and not subject to the payment of royalties and taxes," and since there are legitimate reasons for a unit vehicle to leave the unit, granting the requested waiver was appropriate.
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