April 04, 2002 --- Vol. 8, No. 33April 2002

State won't submit RIK contracts to Legislature this session

Department of Natural Resources Commissioner Pat Pourchot told the Resource Development Council this morning that the department will not be submitting the royalty-in-kind contracts to the Legislature this session for approval.

"I think there's just too little time left in this legislative session. The outcome, the disposition of a royalty contract before the Legislature is very uncertain by any legislative pundit's calculations."

Pourchot also said he has received written commitments from two of the three North Slope gas producers, "for a 180-day notice prior to the commencement of any future open season over the next couple of years."

And, he said, the state also wants to look at the royalty gas issue "in light of emerging federal legislation, which does provide for some access and expansion language."

With six months notice, we are not now "faced with some eminent open season," but have time to go forward with these contracts "or another royalty contract or having the state participate under some scenario in an open season."

Pourchot noted that these contracts are good through the end of the next legislative session.

"So all of the state's interests and options, I think, are protected."

But the delay is likely to affect Foothills exploration plans.

Mark Hanley, Anadarko Production Corp.'s Alaska public affairs manager, told PNA the delay in approval of the royalty gas contracts will "quite likely" delay Anadarko's investment in Foothills exploration.

"It's unlikely that we're going to invest a lot of money in an exploration well until we have some assurance of RIK gas and access language in federal law that provides fair access at a reasonable price."

Hanley said the company had hoped that seismic shot this winter and last would be the basis for a Foothills exploration well in 2003. But without "some assurance of federal law and the RIK contracts, we're unlikely to make significant additional investments in the Foothills," he said.

Hanley agreed that timing was tight. With public comment closing at the end of April, it only left two weeks in the legislative session, and there was no certainty that the Legislature would approve the contracts in that short a period of time.

There is progress, he said, and the royalty board meeting is scheduled.

But he said that without an approved contract, "as an investment choice it's going to make it difficult for us to make that expenditure to drill a well next year."

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