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August 2018

Vol. 23, No.34 Week of August 26, 2018

State’s fall lease sale date set

Kristen Nelson

Petroleum News

Petroleum News

The Alaska Department of Natural Resources, Division of Oil and Gas, will open bids at its fall lease sales Nov. 15 at 9 a.m. at the Dena’ina Center in Anchorage.

The sales include the state’s annual Beaufort Sea, North Slope and North Slope Foothills areawide sales, and three sales of blocks of leases: Gwydyr Bay block; Harrison Bay block; and Storms block.

Minimum bids are: $25 per acre for the Beaufort Sea, North Slope and block sales; and $10 per acre for the Foothills sale.

Royalty rates are 16.67 percent for the Beaufort Sea sale, state-ASRC tracts and the north sub-region of the North Slope areawide and the three block sales; and 12.5 percent for the south sub-region of the North Slope areawide and Foothills. The primary lease term is 10 years for the Foothills tracts and 8 years for all other tracts, with a possibility of a one-time extension under certain conditions.

Work commitments

For the block sales, the state will only accept bids on entire blocks.

The state described the blocks as contiguous, state-owned lands which have geological and seismic data available to the public. The division said it “has not identified and analyzed prospects,” but it is including drilling requirements, with specified targets, in each of the blocks.

The Gwydyr Bay block is 23,012 acres of state-owned uplands and state-owned tide and submerged lands in nine leases in the North Slope and Beaufort Sea areawide sales, north of Prudhoe Bay and east of Milne Point. Based on the acreage and the $25 per acre minimum bid, the minimum bid for the Gwydyr Bay block would be $575,300.

The work commitment for the Gwydyr Bay block is a well to the base of the Kuparuk A.

Specifics are: “Before the fifth anniversary of the effective date of the lease, the lessee shall complete, suspend, or plug and abandon one well that has penetrated to the base of the Kuparuk A interval as observed as the Miluveach top correlative stratigraphic surface seen in the Sak Riv 1A well … at 12,348 feet measured depth. The penetration may not be within a 1,500 feet radius of the bottom hole location of any existing well.”

The work commitment includes submittal of well data including “at a minimum a mudlog, gamma ray log, resistivity log, and porosity log, before the fifth anniversary of the effective date of the lease, to substantiate adherence to the work commitment terms.”

The Harrison Bay block, at 66,275.28 acres, is the largest of the blocks. It consists of 21 leases in the Beaufort Sea areawide sale area. Based on acreage and the $25 per acre minimum bid, a minimum bid for the Harrison Bay block would be $1,656,882. The block is northwest of the Colville River unit and southeast of Smith Bay along the National Petroleum Reserve-Alaska.

Required drilling for the Harrison Bay block is to the base of the Kuparuk C, with a well to be drilled before the sixth anniversary of the lease. The specific are that the well be completed, suspended or plugged and abandoned “to the base of the Kuparuk C interval as observed at the LCU correlative stratigraphic surface seen in the S. Harrison Bay #1 well … at 7,289 feet measured depth.” Well data (the same as listed for the Gwydyr Bay well) would need to be submitted before the sixth anniversary of the effective date of the lease to substantiate adherence to the work commitment.

The Storms block is south of Prudhoe Bay, adjacent to the Guitar unit, and includes 30,592 acres of state-owned uplands in 12 leases in the North Slope areawide sale area. At the minimum bid of $25 per acre, the minimum bid for the Storms block would be $764,800.

A well is required to the base of the Kuparuk C before the fifth anniversary of the effective date of the lease. Specifics are that the lessee shall “complete, suspend, or plug and abandon one well that has penetrated to the base of the Kuparuk C interval as observed as the LCU correlative stratigraphic surface seen in the Hemi Springs State 1 well … at 7,256 feet measured depth.” Well data, the same as listed for the Gwydyr Bay block well, is required to be submitted before the fifth anniversary of the effective date of the lease to substantiate that the work commitment has been completed.

Language is the same for all of the blocks: the lease will automatically terminate if the lessee fails to meet the work commitment.

Extension possible

Rental is $10 per acre for years one through eight, except in the Foothills where rental begins at $1 per acre in year one, increasing by 50 cent increments to $3 per acre in years five through 10.

For all other acreage, after eight years the DNR commissioner may grant an extension, with the combined term not to exceed 10 years, based on funds expended to explore and develop the lease, types of work completed and any other relevant information. The lease extension may be conditioned on a performance bond or a work commitment or both.

If a one-time lease extension is granted, the rental for the last three years of the lease will increase to $250 an acre, although the commissioner may impose a lower rent if it is determined the lessee has exercised reasonable diligence in exploring and developing during the initial term.

- KRISTEN NELSON






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