October 29, 2001 --- Vol. 7, No. 136October 2001

RCA conditionally approves Unocal-Enstar gas sales agreement

The Regulatory Commission of Alaska has conditionally approved a natural gas sales agreement between Unocal and Enstar Natural Gas Co. an agreement which pegs the price of Cook Inlet natural gas to Henry Hub futures prices.

The RCA said that Enstar and Unocal characterize the gas sales agreement as an "exploration contract" because focus is on exploration for new gas sources. While Unocal is confident new gas will be discovered, the commission said, "the fields are likely to be small and the cost of production and transporting the gas to market will be high."

In an Oct. 25 decision the RCA said it was conditioning its approval by limiting the term of the agreement to delivery of 450 billion cubic feet, limiting Unocal's ability to sell third party gas to 15 percent of the annual gas volume sole and providing Enstar with a first right of refusal to purchase non-economic gas before Unocal may sell non-economic gas to other parties.

Parties opposing the gas sales agreement told the RCA that it shifts the risk for future Cook Inlet gas exploration to Enstar ratepayers. The RCA said that, while it understands the concern, it finds "that Enstar has identified its future requirements a developed a credible compendium of gas supply contracts to meet those requirements."

Both Marathon Oil Co. and the commission's Public Advocacy Section wanted the entire agreement disapproved. But the RCA said that no fatal flaws in any condition were demonstrated.

The RCA said it was satisfied that negotiations were at arms-length, and that, with the modifications included in the order, the agreement is in the public interest.

DNR begins process for North Slope royalty gas sale

The Department of Natural Resources Division of Oil and Gas has issued a preliminary best interest finding and determination to sell Alaska North Slope royalty gas in a competitive sale.

The Alaska Royalty Oil and Gas Development Advisory Board will hold a public meeting Nov. 13 to discuss the proposed sale and take public testimony on the sale and the preliminary finding.

DNR said Oct. 28 that the state usually receives cash from the oil and gas lessees for its royalty share, but has the option of taking its royalty in-kind and selling it itself. Depending on the outcome of the competitive sale process, the state may sell some of the royalty gas that would be produced if a North Slope gas pipeline is built.

DNR said that rising interest in a gas pipeline project, coupled with the possibility of an open season for nomination of pipeline capacity as early as January, has created a unique opportunity for the state. The open season is a request from the pipeline sponsors to potential gas shippers to make a firm commitment to use the pipeline.

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