August 04, 2003 --- Vol. 9, No. 76August 2003

Flint Hills negotiating to buy Williams' Alaska interests

It's hard to know which is the biggest news: Gov. Frank Murkowski said this morning that Flint Hills Resources, a Wichita-Kansas based subsidiary of Koch Industries, is negotiating to buy Williams' Alaska refinery and its other assets in Alaska, including its share of the trans-Alaska pipeline.

Then he described the terms the state has proposed for selling its royalty oil for use at the North Pole refinery, including selling oil at a fixed price and negotiating a commitment from the buyer to stabilize wholesale gasoline prices between Anchorage and Fairbanks.

The governor said the state is involved with both Flint Hills and Williams because in negotiating sale of royalty oil to the Williams' North Pole refinery the state decided "that what we wanted to do is enter into negotiations with whomever is the successor to Williams on the refinery."

Negotiations are tentative, the governor said, subject to Flint Hills closing on the Williams purchase.

This is the first request for proposals, Murkowski said, which "gives the buyer certainty in price." The buyer will pay a firm price, plus a per-barrel premium included in the bid. "And unlike past royalty-in-kind contracts, this contract will not require the buyer to make numerous unlimited retroactive price adjustments." The only retroactive adjustments will be for tariff quality bank adjustments.

In exchange for this certainty in terms, however, the state is asking for several things, including: commitment to level of investment, timing and production targets for modernizing the North Pole refinery; commitment to level of investment and timing for Port of Anchorage tank farm improvements; and commitment to a posted wholesale price in Anchorage and Fairbanks which will bring parity to gasoline prices in those cities. The governor said that the situation has been that gasoline refined in the Fairbanks area and shipped to Anchorage costs less in Anchorage than it does in Fairbanks.

A negotiated contract will be presented to the Alaska Oil and Gas Advisory Royalty Board, and become public at that time.

Flint Hills has refining complexes in Minnesota and Texas, and is involved in oil sands development in Canada.

Editor's note: See story in Aug. 17 issue of Petroleum News.

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