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State goes after opportunity to maximize gas royalty sales Following up on interest from potential bidders, DNR issues preliminary best interest finding, schedules royalty board meeting for November
Kristen Nelson PNA Editor-In-Chief
The Department of Natural Resources said Oct. 26 that rising interest in a gas pipeline project, coupled with the possibility of an open season for nomination of pipeline capacity as early as January, has created a unique opportunity for the state to sell its North Slope royalty gas.
DNR’s Division of Oil and Gas issued a preliminary best interest finding and determination to sell Alaska North Slope royalty gas in a competitive sale Oct. 29. The Alaska Royalty Oil and Gas Development Advisory Board will hold a public meeting Nov. 13 to discuss the proposed sale and take public testimony.
DNR will then complete a final finding and prepare an invitation to bid, which must provide at least 30 days notice to bidders and specify some conditions of the royalty in kind gas offering including quantity, length of contract and delivery point.
There will be a bid opening and because there will be multiple bid variables, DNR will evaluate proposals, contracts will be drafted and submitted to the royalty board which will prepare a recommendation to the Legislature.
Tentative dates Dec. 12 for a final finding and invitation to bid, bid opening Jan. 16, royalty board hearing Feb. 4 and contracts submitted to Legislature for approval Feb. 14.
Purchaser would have to provide shipping The producers also have an interest in what the state does with its royalty gas.
Division of Oil and Gas Deputy Director Bonnie Robson said Oct. 26 that purchasers of the state’s royalty gas would buy at the lease or unit, so they would be responsible for shipping. But if the state lets the producers sell the gas and takes royalty in value, then the producers must ship the state’s gas. Because of that, she said, the state has already had inquiries from the producers as to whether the state will take its gas in value or in kind.
Robson told the governor’s Alaska Highway natural gas policy council access to in-state gas subcommittee that while there could be an open season for a gas pipeline in January, but there is some indication the open season may be pushed back.
If we are not in open season during a royalty gas sale, that gives the state more time to work with the bids, if there are attractive bids and room for negotiation, she said. The goal is to get proposals through the royalty board and to the Legislature — which must approve any royalty sale — so that the Legislature would have a month or so to hold hearings and consider the bid.
Robson said bidders can request volume, although in no case, she said, would the state be deposing of 100 percent of its royalty gas. Bidders can also propose a length for a contract, she said, but most interest now seems to be for shorter periods of time.
Benefits of a sale now DNR said in the preliminary finding and determination for an ANS royalty gas sale that the state is considering an immediate ANS royalty in kind gas sale because “potential buyers are motivated to bid for RIK gas in order to be able to nominate capacity on the gas pipeline during an open season” and because “the sale of RIK may contribute to earlier commercialization of ANS gas and the successful completion of a pipeline by bringing additional participants to the open season.
“Additionally, there is potential for generating greater royalty revenues in the bidding process for the opportunity to participate in an ‘open season’…” The state must receive at least as much for royalty in kind sales as it would if it took royalty in value.
DNR said that companies faced with securing a gas supply as a precondition to participation in an open season have approached the state with proposals to buy its ANS royalty gas in kind, some for marketing in the Lower 48 and some for potential in-state petrochemical plants. Companies with unexplored leases seek the state’s royalty gas to ship before their own gas is developed. The state also received a proposal last December to sell its gas to fuel a power plant for a large Internet data center on the North Slope, and has been directed by legislative resolution to consider royalty gas sales for this purpose.
The state said it may also attract bids from other in-state buyers who would use the gas on the North Slope or for in-state utilities or industrial uses along the pipeline route.
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