May 25, 2010 --- Vol. 16, No. 42May 2010

RCA approves Enstar and Marathon contract

The Regulatory Commission of Alaska approved a gas supply contract between Enstar Natural Gas and Marathon Oil Co. on May 24, saying it served the public interest.

The contract, APL-8, supplies some 6.8 billion cubic feet in 2011 and 7.2 billion cubic feet in 2012, with a maximum daily delivery of 29 million cubic feet. The contract includes tier pricing, charging a premium for demand above 9 mmcf per day and an additional premium for rare instances when Enstar needs more than 29 mmcf per day.

The contract prices natural gas using futures on the New York Mercantile Exchange, with an inflation-adjusted floor and ceiling. Interruptible “excess” volumes, or those above the maximum deliverability, have a ceiling based on the equivalent price of heating oil.

The RCA approved the contract without a formal investigation and hearing.

During a comment period, the state Attorney General’s office questioned the pricing provisions in the contract — specifically how Enstar reached specific floors, collars, premiums and adjustments — but said the need for gas supplies outweighed its concerns.

The AG made similar comments about a recent Chugach contract with Marathon. The RCA recently approved that contract, also without a formal investigation and hearing.

A group of five Democratic lawmakers questioned pricing provisions in the contract that could have Alaska paying a higher rate for gas than the rest of the country. Commissioner Kate Giard addressed those questions in a concurring statement to the ruling by citing a state law passed this year that makes supply and reliability take priority over price.

“As I understand the law, so long as a public utility has the foresight to unequivocally state that without the contract the utility will be short of supply, our approval is required,” Giard wrote. “The new law seems to allow gas supply at any price and, so, I concur in the approval of this gas supply contract between Enstar and Marathon.”

State asks for competing Susitna basin exploration license proposals

The Alaska Department of Natural Resources, Division of Oil and Gas, said in a notice published May 23 that it intends to evaluate an exploration license proposal received April 29. The proposal is in the Susitna basin, in an area where Forest Oil held an exploration license from 2003 through 2007.

Because the division is also requesting competing proposals, the name of the applicant and the provisions of the proposal are confidential.

The area is some 408,060 gross acres, the division said, and consists of state-owned land within township 26 north, range 6 through 10 west; township 25 north, range 6 through 10 west; township 24 north, range 6 through 10 west; and township 23 north, range 8 through 10 west, Seward Meridian.

Peters Creek is at the northern edge of this area, which is west of the Parks Highway and west of Talkeetna and Trapper Creek.

Comments on the exploration license proposal, competing proposals and new information for the best interest finding are due by July 1.

Editor’s note: See full stories in the May 30 issue of Petroleum News, available online at noon Alaska-time on Friday, May 28.

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