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Special leases mature into money makers Net profit share leases in three Alaska North Slope oil and gas units have reached payout status; state collects $61.7M in 2013 Wesley Loy For Petroleum News
Royalties from oil and gas produced on state leases provide one of Alaska’s largest government revenue streams.
A smaller but still substantial revenue stream comes from a handful of so-called net profit share leases.
“These leases provide, in addition to royalty revenues, a percentage of lease net profits after all development and operating costs are recouped,” says the new 2013 annual report from the state Division of Oil and Gas.
The state has about 20 active net profit share leases. As of the end of fiscal year 2013, nine had reached payout status, and the state is receiving a monthly payment for its share of the profit, the annual report says.
Active net profit share leases that have reached payout are in the Duck Island, Milne Point and Colville River units on the North Slope.
Serious money A pie chart in the annual report indicates that in fiscal 2013, the division took in more than $2.64 billion in royalty revenue, while net profit share leases generated about $61.73 million.
The division allocates this and other revenue among various state funds including the general, permanent, school and constitutional budget reserve funds, the annual report says.
Alaska has had net profit share leases since 1979, the University of Alaska Anchorage’s Institute of Social and Economic Research said in an April 2006 policy paper.
“Net profit share leases became controversial in 1996 when BP insisted on renegotiating lease terms for its Northstar prospect to eliminate net profit shares, some of which ranged as high as 90 percent, before developing the field,” the paper said. “However, BP and several other companies have been producing oil from several North Slope fields with smaller net profit shares - generally 30 percent - for many years without conflict or controversy.”
Audits and marketing The annual report contains other interesting nuggets.
For example, it cites Alaska Oil and Gas Conservation Commission records showing that 150 development and service wells and 21 exploration and stratigraphic test wells were completed in Alaska during the 2013 fiscal year. The annual report also notes that the division gained authority in 2003 to audit lessee royalty and net profit filings.
“Since then, 60 audits have been issued and an additional $156.3 million in state revenue has been collected as a result,” the report says.
The audits examine volumes and values, as well as costs claimed as deductions.
“Because a royalty filing provides information at a summary level, it is important to audit the details that support the filing to ensure that royalties and net profit share payments have been correctly calculated, reported and paid,” the annual report says. “In conducting an audit, an auditor may look at oil and gas valuation, costs associated with the transportation of oil and gas, and exploration, development and production costs.”
A table near the back of the annual report summarizes the enormous volumes of undiscovered, technically recoverable oil and gas believed to remain in Alaska, including its outer continental shelf.
Part of the division’s job is reaching out to companies and investors.
“Much of this effort has been conducted in Houston, Texas, targeting both U.S. and international companies ranging in size from small independents to supermajors,” the annual report says.
The division participates in major conferences such as NAPE, the North American Prospect Expo.
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