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DNR: terms to change for O&G sales Division of Oil and Gas says Beaufort Sea, North Slope, foothills sales will contain conditions, options, not previously seen Kristen Nelson Petroleum News
The Alaska Department of Natural Resources’ Division of Oil and Gas has set a date, Oct. 26, for state areawide oil and gas lease sales in the Beaufort Sea, on the North Slope and in the North Slope foothills and says it expects to change some terms.
“Consistent with the state’s effort to boost oil development, the lease sale terms are expected to include conditions and options not previously seen in lease sales for these areas,” DNR said in a June 9 statement. The department said as part of its effort to boost oil production it will be aggressively marketing its offerings, including tracts bordering the 1002 area of the Arctic National Wildlife Refuge.
DNR Commissioner Dan Sullivan said the lease sale plans are in line with the Parnell administration’s goal to increase production through the trans-Alaska oil pipeline to 1 million barrels per day within a decade.
“In Alaska, we have a massive resource base, a favorable political and investment climate, particularly as we continue to pursue tax reform, and a strong commitment to environmental protection,” Sullivan said.
DNR said undeveloped resources on state lands include smaller pools of conventional oil, heavy and viscous oil and potentially enormous shale oil deposits.
The department noted that last fall’s areawide oil and gas lease sales resulted in leasing of large blocks for shale oil exploration, referring to some half a million acres acquired by Great Bear Petroleum south of current production.
Different Cook Inlet terms DNR did not say what conditions and options would be included in the lease terms, but did say it would release terms and conditions for the sales as early as possible in advance of the Sept. 11 deadline required in statute.
Although the state has offered some net profit share leases in the past, recent oil and gas lease sales have been bonus bid sales with a minimum of $5 to $10 an acre, royalties of 12.5 percent to 20 percent, a five- to 10-year initial lease and annual rents which increase through the first few years.
The Cook Inlet areawide sale scheduled for June 22 has quite different terms for three tracts which were formerly part of the Cosmopolitan unit. Bidders must bid on all three tracts as a bundle and the minimum bid is $50 per acre. A work commitment is required, including a lease plan of exploration to be filed within six month of lease issuance; rental rates begin at $50 an acre and rise to $500 an acre in the fifth and following years, until completion of the work commitment, when the rental rate drops back to the statutory $1 an acre in the first year, $1.50 in the second, $2 in the third, $2.50 in the fourth and $3 in the fifth and following years.
The work commitment requires completion of a well evaluating the stratigraphic interval correlative to the oil reservoir discovered in the Starichkof State No. 1 well before the end of the fourth year of the lease.
State’s strategy DNR said the state’s five-part strategy to achieve the governor’s 1 million bpd goal includes enhancing the state’s global competitiveness, chiefly through oil tax reforms and where appropriate new infrastructure and royalty relief; ensuring an efficient, reliable permitting system; catalyzing the next phases of North Slope development including federal onshore and offshore resources and “development of the state’s massive natural gas, conventional and unconventional oil resources”; building partnerships necessary for development of the state’s resources while protecting its interests and environment; and promoting the state’s resources to world markets.
The Parnell administration has asked for cooperation from the federal government to achieve increased access to and production from federal lands. Sullivan said the state will take a leadership role on its own land by offering state leases close to highly prospective federal acreage such as ANWR’s 1002 area.
One impact of state leasing and eventual production close to federal acreage such as ANWR could be drainage of oil from under federal land. The Sourdough discovery south of Point Thomson, on the Staines River across from ANWR, is believed to be part of a reservoir stretching under the 1002 area.
If oil migrated from the ANWR portion of the reservoir to wells drilled on state acreage, legal experts have said the rule of capture would govern; since the ANWR 1002 area is not available for leasing, the federal government has no opportunity to recover oil through leasing and drilling that acreage.
On the western side of the North Slope, in the National Petroleum Reserve-Alaska, the federal government does lease its acreage, so in an analogous situation there, tracts on both state and federal acreage would be available for leasing, drilling and unitization, and the federal government would receive royalties on oil produced.
The fall areawide lease sales are tentatively scheduled for Oct. 26 in the Wilda Marston Theatre at the Z.J. Loussac Library in Anchorage.
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