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Royalty oil deal with Tesoro stretched
Tesoro is seeking an important change to a proposed deal to buy royalty crude oil from the state of Alaska.
As originally proposed, Tesoro was to buy the North Slope oil under a negotiated one-year contract.
Now the proposed deal is for two years. No other terms of the contract have changed, said Kevin Banks, a petroleum market analyst with the Alaska Department of Natural Resources.
Tesoro operates a refinery on the Kenai Peninsula at Nikiski. The plant is one of Alaska’s main suppliers of gasoline, jet fuel and other products.
Royalty oil is the state’s share of oil produced from leased, state-owned land. Royalty oil sales generate major revenue for the state.
Approvals needed As only a one-year deal, the Tesoro royalty contract didn’t require approval from the Alaska Legislature.
For the longer deal, however, legislative approval is needed, Banks said.
The Alaska Royalty Oil and Gas Development Advisory Board will review the amended contract and provide a recommendation to the Legislature.
The board will hold a public hearing at 1 p.m. Dec. 11 in room 602 of the Atwood state office building at 550 W. 7th Ave. in Anchorage.
The eight-member royalty board’s job is to “facilitate wise development” of Alaska’s oil and gas royalty interests. Bob Roses, a former state legislator, is currently board chairman.
Legislators in April approved a five-year contract for the sale of royalty crude to Flint Hills, which operates a refinery at North Pole.
Contract terms DNR previously made a preliminary finding that the royalty oil sale to Tesoro would be in the state’s best interest.
Under the proposed contract, Tesoro would buy 5,000 to 15,000 barrels of royalty oil per day.
DNR estimated the one-year contract would provide $189 million to $568 million in revenue to the state.
The state has a long history of selling royalty oil to Tesoro. The state supplied North Slope crude to the Nikiski refinery through most of the 1980s and ’90s. Sales totaled 230 million barrels under seven contracts, DNR said.
In addition, the state has supplied Tesoro with Cook Inlet royalty crude.
The state can cash in its royalty oil in two ways: sell it directly to refiners or other customers, or let North Slope producers market it with their own volumes. State law generally precludes direct sales at bargain prices, even if doing so might achieve some desired economic objective.
—Wesley Loy
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