May Cook Inlet, Alaska Peninsula sales

State has been leasing Cook Inlet since 1959; first areawide peninsula sale was in 2005; no drilling has been done there yet

Kristen Nelson

Petroleum News

The Alaska Department of Natural Resources will hold two oil and gas lease sales May 20 at the Dena’ina Civic and Convention Center in Anchorage.

The Alaska Peninsula areawide 2009 sale includes some 5.8 million acres, with 1,047 tracts ranging in size from 1,280 to 5,760 acres.

The Cook Inlet areawide 2009 sale is some 4 million acres, including 815 tracts ranging in size from 640 to 5,760 acres.

The state’s first lease sale after statehood in 1959 was in Cook Inlet that same year. Cook Inlet areawide sales began in 1999 and include acreage from Anchor Point to Houston. There are 412 active state leases in the Cook Inlet sale area, some 1.1 million acres.

A number of units in Cook Inlet produce oil or natural gas; there is also unitized acreage under exploration. Lease sales in the last five years have had mixed results, ranging from 18 tracts sold last year for a total of $572,508, to 71 sold in 2006 for $2,875,846.

The minimum bid for the Cook Inlet tracts is $10 per acre, except tract 597 which has a minimum bid of $1,000 per acre (see sidebar). All Cook Inlet tracts have a fixed royalty rate of 12.5 percent, except tract 597 which has a fixed royalty rate of 17.707 percent. Tracts have either seven- or 10-year primary terms, depending on the tract.

Three peninsula sales

The state received no bids at the 2008 sale and only one bid at the 2007 sale. There were 37 bids at the first sale, held in 2005, and 190,494 acres were sold for $1.15 million. Shell Offshore was the big bidder in the 2005 sale, taking 33 tracts. The company relinquished all of the Alaska Peninsula leases in 2008, telling Petroleum News that the onshore and inland bay areas of the Bristol Bay region no longer fit into the company’s exploration plans. Shell spokesman Curtis Smith said at the time that the company was still interested in offshore exploration in the region.

“In no way does it diminish our potential interest in the proposed 2011 OCS lease sale in the North Aleutian basin,” Smith said, referring to the proposed outer continental shelf sale by the U.S. Minerals Management Service in federal waters.

The other Alaska Peninsula bidder — in both the 2005 and 2007 sales — was Hewitt Mineral Corp., which retains those leases. The five active tracts in the Alaska Peninsula state sale area contain some 28,410 acres.

All Alaska Peninsula tracts have a minimum cash bonus bid of $5 per acre, a fixed royalty rate of 12.5 percent and an initial primary term of 10 years.

The five-acre tract

The tract is on the west side and is actually part of the Ivan River unit, Division of Oil and Gas Director Kevin Banks told Petroleum News April 6.

Banks said the acreage had been owned as part of a larger lease but became untethered from that larger lease, something which was missed by both the state and Chevron, which is the owner of the Ivan River unit.

The 5 acres account for 0.2 percent, two-tenths of one percent, of Ivan River production.

Ivan River is owned 100 percent by Chevron; the 2,291-acre gas field first produced in 1990.

The field was shut-in in January and February while a new well was drilled, Chevron spokeswoman Roxanne Sinz told Petroleum News in an April 7 e-mail.

“The existing production is back on production and we are in the process of completing the new well,” Sinz said.

Tract originally federal

After the mineral rights were conveyed to the state the parcel was approved for inclusion in the Ivan River participating area — the producing part of the unit — and was leased in 1993. But in that sale the tract was a fragment sold with a larger core tract to the south, a tract to which it was not physically attached.

On lease maps the 5-acre tract was indicated by a line drawn to the large tract to the south.

There were other federal surveys on the lease description, but they were part of the larger block to the south.

The division said that ARCO and Phillips, which were the successful bidders on the tract, were never notified by the state that the lease included a piece of the Ivan River unit, and that they needed to join the unit.

The lease was relinquished in 1999.

A recent review of the Ivan River unit identified the unleased 5 acres within the unit and the acreage is being offered as part of the upcoming Cook Inlet competitive areawide lease sale.

—Kristen Nelson