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State decision on Drift River plan expected soon

Hilcorp likely to use only 1 tank, not 2, initially due to DEC concerns

Posted: November 1, 2012 - 8:04pm

After a summer of pricey upgrades, the future of the Drift River oil storage facility rests in the hands of state officials who are expected to make a final decision on Hilcorp Alaska’s amended oil spill and contingency plan for the facility within the week.

The plan, otherwise known as a C-Plan, is a critical piece of the puzzle that, if approved, would allow Hilcorp to utilize the facility as it hoped when it purchased the asset — located near the base of Mount Redoubt, an active volcano — to accommodate its desired increases in Cook Inlet oil production.

Hilcorp officials hoped to start using two of the seven, 270,000-barrel tanks by October. However, the company will likely only be able to use one tank for the time being due to state concerns, officials with the Department of Environmental Conservation said.

“Through the (C-Plan) renewal process and the review process, some things came up that we realized that two tanks wasn’t going to work, they could only use one until a couple of more upgrades were made to the facility,” said Graham Wood, an environmental program manager with the DEC’s industry preparedness program.

Chevron drafted the C-Plan the facility currently operates under, but that plan expires on Nov. 7, Wood said.

In Hilcorp’s updated plan, Wood said the company did not have enough “secondary containment” for the second storage tank, which would handle the volume of oil stored there in case of a “catastrophic release,” he said.

“In order for them to remain in compliance, we said, ‘Hey, you can either upgrade your secondary containment right now before your plan is approved, or you can just use one tank,” Wood said. “They have committed to just use one tank until they can upgrade their secondary containment further.”

Hilcorp External Affairs Manager Lori Nelson said the company felt summer construction measures to increase flood protection at the terminal were “sufficient for any risks the facility would face.” Those construction measures included raising the facility’s 20-foot berm designed to protect the tanks from volcanic mudslides called lahars another 15 feet, which cost the company $18.5 million, Nelson said.

“Some of the requests for additional information brought that into question and we thought the right thing to do was to take it down to the request for one tank, which we know, without the interpretation of increased risk, that what’s in place is sufficient according to regulation for secondary containment,” she said.

Cook Inletkeeper’s Bob Shavelson said his group was “intimately” involved in commenting on Hilcorp’s Drift River proposal. Shavelson said he was comforted to know the company would only be using one tank for now, but “any notion that their diking system can stop a volcanic lahar is ludicrous.”

“I don’t think the state has been cautionary, I think the state has been simply applying the rules,” he said. “The rules are clear and Hilcorp knew them or should have knew them.”

If DEC approves Hilcorp’s C-Plan with one tank, the company would then have to submit an amendment to the plan to use a second tank after making the necessary upgrades, Wood said.

Hilcorp had previously operated at the facility by storing oil in one tank under temporary permission, but that permit expired in mid-October prompting the company to begin a tightlining operation again. Tightlining allows only for a finite amount of oil storage — most oil is moved straight from the pipeline to an oil tanker docked at the Christy Lee Platform two miles offshore of the Drift River tank farm.

The tightlining operation increases the amount of oil tanker traffic in Cook Inlet, which was recently identified by a Cook Inlet Regional Citizen’s Advisory Council-commissioned study as the greatest risk to Cook Inlet waters because of the tankers’ great capacity and concentrated operations in the middle of the inlet.

CIRCAC wrote in a July position paper that it would prefer the company use a trans-Foreland pipeline as a means of oil transportation to reduce the risk of an oil spill. Other residents have supported the pipeline idea as a means of reducing the risk of a volcano-caused spill at the facility. Hilcorp, however, has not supported that idea for financial and production-related reasons, Nelson said.

Said Shavelson, “If Hilcorp was a responsible company and they were looking at a long term investment in Cook Inlet, they would go the pipeline route.”

However, Nelson said storing more oil at Drift River tanks would allow the company to cut tanker traffic between the Christy Lee platform and the Tesoro refinery almost in half.

“With the tank access with the approval of the C-Plan, what we would normally have to load (off) every 10 to 12 days will now only be once to twice a month,” depending on production levels, she said.

Hilcorp, whose executives have stated they would like to double their oil production by 2015, has already increased production from Alaska assets by 20 percent, Nelson said, in part due to rehabilitation work at the Swanson River field. That work almost doubled production from the site, she said.

“We are working over wells, repairing broken wells, and it has just been a lot of digging in and doing what we know how to do — revive those aging assets and bring production back up to what its max is,” she said.

Nelson said Hilcorp would have to increase production significantly to justify asking the DEC for permission to bring more than two of Drift River’s tanks online.

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