Compensatory royalty agreement signed for West Forelands

Petroleum News Alaska Staff

A compensatory royalty agreement was signed in April for the 1 West Foreland gas well on the west side of Cook Inlet, allowing Forest Oil Corp. to begin producing gas for fuel at the nearby West McArthur River field.

The parties — state and federal landlords for adjacent leases — continue to disagree on whether or not enough information exists to make a final allocation decision. The U.S. Bureau of Land Management, the Alaska Department of Natural Resources and Forcenergy Inc. (now Forest Oil) had been negotiating for some time last July, when the Alaska Oil and Gas Conservation Commission ruled that the company could produce gas from the 1 West Foreland well prior to negotiating a compensatory royalty agreement as long as the company escrowed royalties until an agreement is reached.

The agreement signed in April provides for a final allocation after two years of production. The combined royalty rate, for state, federal and overriding royalties, is 17.5 percent. For the federal tract, 94.2 percent of the royalties will go to Cook Inlet Region Inc. and 5.8 percent to the federal government.