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Providing coverage of Alaska and northern Canada's oil and gas industry
June 2009

Vol. 14, No. 26 Week of June 28, 2009

State reaches $15.7M royalty oil settlement with Williams

Kristen Nelson

Petroleum News

Alaska has reached a $15.7 million settlement with Williams Alaska Petroleum Inc. over payments for royalty oil purchased by Williams.

“We are required by the constitution and by statute to sell royalty in-kind oil for no less than the value we receive for royalty in-value,” Alaska Department of Natural Resources Commissioner Tom Irwin said in a June 23 statement. “DNR oil and gas royalty accountants verify that this agreement achieves this goal for the group of royalty in-kind contracts for the dispute period.”

The state can take its royalty oil and natural gas — typically 12.5 percent — as product or as the value of the product. When the state takes royalty in-value it relies on the producer of the oil or gas to sell it; when the state takes its royalty in-kind the state contracts for the sale of the oil or gas.

The state supplied royalty oil to Williams Alaska Petroleum, the former owner of the North Pole Refinery, under several long-term supply contracts from 1978 through March 2004, DNR said. The contracts included a legacy 25-year supply contract dating from 1978 and several shorter-term contracts dating back to 1997.

Price followed Prudhoe payments

DNR said the royalty oil sales price under its contracts with Williams Alaska followed the payments made by the Prudhoe Bay oil producers for royalty in-value, so as the producers’ royalty in-value payments were adjusted from time to time because of royalty audits, regulatory changes in their allowed royalty deductions or changes to their royalty formulas, the price for the royalty in-kind oil sold to Williams Alaska also changed in the same direction and amount.

The state sued Williams Alaska last October to collect unpaid contract price adjustments that had been due for some time.

DNR said the State of Alaska and Williams Alaska reached an agreement to resolve the unpaid price adjustments, resolving the pending lawsuit and all of the disputed retroactive price adjustments arising from the royalty oil supply contracts under which Williams purchased state royalty oil.

The $15.7 million settles all claims by the state and counterclaims by Williams Alaska. DNR said some 25 percent of the amount will be deposited in the Permanent Fund, 0.5 percent in the Education Trust Fund and the remainder in the Constitutional Budget Reserve Fund.

Refinery sold in 2004

Williams completed the sale of its Alaska business interests March 31, 2004, for some $290 million.

Subsidiaries of Wichita, Kan.-based Flint Hills Resources LLC purchased the refinery at North Pole, two petroleum terminals — in Anchorage and Fairbanks — and crude oil and refined products inventories. Flint Hills is a wholly owned subsidiary of Koch Industries Inc.

Koch Alaska Pipeline Co., a subsidiary of Koch Pipeline Co., purchased Williams’ 3.0845 percent interest in the trans-Alaska oil pipeline system.






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