April 20, 2000 --- Vol. 6, No. 16April 2000

State receives first net profit share payment

Thirteen years after the start of oil production from the Endicott oil field, the state of Alaska has received its first net profit share payment from a lease at the field, Gov. Tony Knowles said April 20. BP Amoco made the $2.6 million payment at the end of March for production during the month of January.

"The length of time between start up of production and the payment to the state is clear evidence that the NPS program was designed for a world where oil prices would be at least two or three times higher than they ever reached," Knowles said. "Nonetheless, I'm pleased to see the state finally receiving some profit-sharing income from these NPS leases."

Few producing leases on the North Slope include such profit sharing agreements which were offered in lieu of up-front bonus bids for leases at a time when the price of oil was expected to surge. In expectation of sharing in any windfall profits, the NPS leases delayed payments to the state until the lessee had recovered their costs of exploration, development, and operating. Monthly operating costs are subtracted from monthly revenues before net profit share payments are made.

The lease at Endicott is from the state's 1979 Beaufort Sea oil and gas lease sale.

"Only some of the leases had net profit share" in sale 30, Division of Oil and Gas Petroleum Manager Bill Van Dyke said. "They all had a royalty -- this lease also has a 20 percent royalty rate. Which is considered a cost when you do your net profit share accounting. So it would have paid out sooner if they'd not had to pay a 20 percent royalty."

Endicott has been in production for 13 years and has now paid off the capital investment. The first net profit share payment was for January 2000 and was made at the end of March. Net profit share payments are due two months after the production month.

Van Dyke said that net profit share payments from the Endicott lease should continue now that development costs have been paid off, although he noted that "a big dip in oil prices or new capital spending would slow down or stop the NPS payments for a while."

There are a few net profit share leases in the Milne Point unit that are near payout, Van Dyke said, but not quite there yet. The division did a net profit share audit at Endicott, he said, but has not yet done one at Milne Point.

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