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The Explorers 2008: Want best value for citizens, industry success
Kevin Banks Acting Director of the Alaska Division of Oil
I’m writing this at my kitchen table on the night of our latest North Slope and Beaufort Sea Areawide lease sales. We made $9.1 million in bonus bids for the State of Alaska today and I feel pretty good about it. The staff at the Division of Oil and Gas did a great job putting on the sale and it was one of our better shows in the last few years.
These lease sales tell a story with several themes. Bidders included companies from every segment of the Alaska oil and gas industry. The majors bid on a couple of tracks near their big units. Pioneer, as our newest operator on the North Slope, bid to expand its existing land position. Savant Alaska LLC, AVCG LLC and 70 & 148 LLC seemed to be gaining a toehold near existing units and I am optimistic that these companies have the wherewithal to explore and develop their tracts.
For example, you now know that 70 &148 LLC is an affiliate of Armstrong Oil and Gas which was an important catalyst that led to the eventual development of both Pioneer’s Oooguruk unit and Eni’s Nikaitchuq unit. Armstrong is also the operator of the North Fork unit in Cook Inlet.
Re-offering approach working I was struck by a feature of this sale that has not been so obvious before. The purpose of annual sales is to offer predictably as much available state land as we can. In the division we also work with the lease sale schedule in mind when we conduct our normal land management role to make sure that we can get as much land as we can in each sale. In August, the division brokered a deal with BP, the operator of the Badami unit, and BP’s new partner, Savant Alaska LLC, to begin work to re-start production there. As part of this arrangement BP relinquished several leases so that they could be offered in the sales this morning.
As it happens, Savant Alaska (and others) successfully bid for these leases. The same thing happened next to the Oooguruk unit. I believe that the consequence of the state’s management strategy demonstrates that re-offering land that is rejected by some has value to others. Our approach means that we facilitate the infusion of new exploration concepts and ideas, and hopefully new sources of capital investment, in the industry.
Resource development on federal land Development of oil and gas on federal land in the state and on the OCS is also critical to the future of the industry here. BLM deserves our praise for successfully executing September’s NPR-A lease sales. Unfortunately, parts of the NPR-A are deferred or subject to prohibitions to surface entry. I was excited that the MMS brought in nearly $2.7 billion in the Chukchi Sea Lease Sale 193 in February. I’m also enthused that BP is moving ahead with the Liberty development but I’m dismayed that so little progress has occurred elsewhere in the Beaufort Sea OCS because of litigation over environmental and subsistence resource conflicts.
Even though these areas are not state lands, successful development (and we can include environmental safety in our measure of success) of federal land will contribute in many ways to the industry and economy of the state. The industry is more diversified by the entry of large new players. Opening prospective federal acreage inspires a greater competitive spirit in the industry. As the support industry expands to meet the demands of new players in Alaska more competition may lower the costs of entry into oil business here for all. When oil is produced from federal lands and added to the flow of oil in the trans-Alaska oil pipeline, tariffs will fall.
Onshore federal development is subject to the state’s production tax and the state has an opportunity to invest through its tax incentive programs and reap the reward of future tax revenues. The state also will share in the royalties paid to the federal government. Onshore facilities built for federal oil and gas development also contribute to local tax revenues for the North Slope Borough.
The success of today’s state lease sales and the recent experience of the federal land management agencies show that we have to strike a careful balance between local, state, and national interests to promote the growth of Alaska’s oil and gas industry. For the division it means we try to secure the best value for the citizens of the state while keeping an eye on the success of the industry.
—written Oct. 22, 2008
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