Williams wants new royalty contract

Kay Cashman, PNA publisher & managing editor

An official in the governor’s office told Petroleum News Alaska on March 13 that Williams Cos. Inc. has asked the Murkowski administration for a new five-year royalty oil contract to replace the one that expires at the end of 2003. Williams buys up to 68,000 barrels of North Slope crude per day under the existing contract.

The request is “not surprising,” he said, since Williams confirmed in late February that it is in negotiations with a potential buyer for its Alaska operations, including its North Pole refinery (see article in PNA’s March 2 edition).

“A five-year, guaranteed source of supply would have a lot of value to a buyer,” the state official said.

He would not identify the buyer, other than to say he “understood” it was an in-state company.

Arguments against signing a new contract with Williams have come from other oil companies doing business in Alaska, he said; companies that want the royalty oil put up for bid and who would likely turn around and sell the oil to Williams at a higher price.

Also at issue is credit risk. Williams posted a $201 million overall loss for fourth quarter (compared to a $1.24 billion fourth quarter loss in 2001) and for the full year 2002 had a loss of $737 million. Then the Tulsa-based company paid $90 million in preferred stock dividends, so the loss for common shareholders amounted to $827 million, which compares with a loss of $478 million for 2001, when the preferred stock wasn’t an issue. The Murkowski administration (through the Alaska Department of Natural Resources) can write a royalty contract for one year without legislative approval, but if it wants a five year contract, the administration has to go to the Legislature for approval of the contract.

And time is running out because the process requires getting the contract approved by the state Royalty Board, followed by a 30-day public notice, prior to submitting the contract to the Legislature.

The Legislature has to say yea or nay. It can’t change the terms of the contract.