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NEWS BULLETIN

January 28, 2003 --- Vol. 9, No. 10January 2003

Foothills acreage bounces back to state

Petro-Canada learned a hard lesson that ended up costing the producer a bundle of cash and the lion's share of exploration acreage it acquired in last year's North Slope Foothills Areawide Lease Sale.

After exceeding by twice the state's 500,000-acre limit for onshore acreage, Petro-Canada recently gave up rights to 148 of the 179 tracts it won and forfeited $1.13 million in deposit fees, according to state Division of Oil and Gas records.

Moreover, Anadarko Petroleum, on its own or in conjunction with partner EnCana Oil & Gas, returned five of the 19 tracts it bid on, further exasperating a situation that turned a successful $10.2 million sale into a less respectable sale of around $3 million.

The state ended up leasing a total of just 213,374 or 46 tracts, and was left holding the bag on nearly 1 million acres. The oil and gas division said it would reoffer the acreage at next May's North Slope Areawide Lease Sale.

"It's too bad and unfortunate they (Petro-Canada) couldn't pull it off," said James Hansen, leasing manager for the oil and gas division. "But it gives other companies an opportunity to come in."

Petro-Canada's share of relinquishments alone represented $6.2 million of the $10.2 million in total high bids, and roughly 900,000 of the 1.1 million acres that received bids. In effect, Petro-Canada reduced its onshore leasehold to around 400,000 acres, some of which the company acquired in the 2001 Foothills sale.

Anadarko apparently returned acreage because its leasehold was approaching Alaska's 500,000-acre limit, Hansen said. The company gave back 26,012 acres on high bids of $145,270 and forfeited $29,054 in deposits.

Petro-Canada was informed it had exceeded the state acreage limit immediately following last year's lease sale, Hansen said. The company said it was unaware of the law, he said.

To avoid future problems, the oil and gas division has posted a notice on its website cautioning prospective bidders to pay attention to state lease statutes.

Between the two Foothills sales, Petro-Canada had accumulated 1.3 million acres of onshore exploration lands, more than major Alaska producers Conoco Phillips, BP and Exxon Mobil combined.

Nevertheless, the company had several options to reduce its North Slope leasehold, including signing on partners and transferring excess acreage into exploration units and out of the chargeable acreage category.

The company said this week it remains committed to Alaska, despite the snafu, and plans to continue field work in 2003 in preparation for a seismic campaign within the coming two years.

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