The state and Murphy Oil Corp. are locking horns over the Northstar oil field along Alaska’s North Slope.
The offshore field is on state and federal leases, producing from an artificial island located in the Beaufort Sea about six miles northwest of Prudhoe Bay. The field started production in 2001.
BP is the operator and major owner of the field, with Murphy, based in El Dorado, Ark., holding a small minority stake.
The dispute between the state and Murphy concerns how production from the Northstar “participating area” is allocated between the state and federal leases.
The allocation makes a big difference to the state in terms of royalty and tax collections. Basically, state revenue is greater if more of Northstar’s production comes from the state leases.
Confidential proceedings
During a Feb. 7 legislative hearing, attorneys with the Alaska Department of Law submitted a brief case summary indicating “$160 million plus” is at stake in the Northstar dispute.
The summary indicates the dispute began in late 2009.
The dispute hasn’t yet reached the courts. Rather, Murphy is pursuing an administrative appeal through the Alaska Department of Natural Resources.
A weeklong evidentiary hearing was held before a DNR hearing officer in March 2012.
The matter now sits before DNR Commissioner Dan Sullivan.
The appeal proceedings are confidential, and the hearing was closed. Petroleum News requested certain documents, but the state denied the request.
Martin Schultz, supervisor of the Department of Law’s Oil, Gas and Mining Section, said the case is confidential due to provisions in state law protecting company tax, engineering and geological information.
However, Schultz was able to discuss a few details.
He described the case as a complex engineering and science case, with certain experts involved on both sides.
It’s essentially “a battle over competing reservoir models” of the Northstar field, he said.
The state believes more of the field’s production should be allocated to the state leases, with such production subject to state royalty and tax collections. Murphy, on the other hand, is arguing that more of the production should be allocated to the federal leases.
BP’s status
The dispute reaches back to the field startup in 2001, Schultz said.
Northstar hit peak production of about 85,000 barrels per day soon after startup. State records show the field has produced about 156 million barrels of crude oil.
The $160 million the Department of Law estimates is at stake in the dispute seems enormous, given that Murphy Oil’s ownership in Northstar is very small at about 1.4 percent.
But Schultz explained that the figure includes royalty and tax impact not only to Murphy but also to the field’s major owner, BP.
BP is not a litigant, however, as only Murphy appealed the Northstar allocation issue, Schultz said.
Depending on the DNR commissioner’s decision, an appeal to state Superior Court could follow.
“I have no way to predict when the commissioner’s office might issue a decision,” Schultz said.
DNR spokeswoman Elizabeth Bluemink indicated no decision was imminent.
