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Royalty contract extended with refiner
Kristen Nelson Petroleum News Editor-in-Chief
The Alaska Department of Natural Resources said Dec. 29 that it has negotiated a six-month short-term contract to sell state North Slope royalty crude oil to Williams Alaska Petroleum Co. to bridge the gap between Williams and Flint Hills Resources LLC ownership of the North Pole refinery.
The crude oil is used at the refinery, near Fairbanks in Interior Alaska, which Williams sold to Flint Hills Resources in November. The sale of Williams’ Alaska assets while negotiated, is not yet complete, and may not be finalized until after March 2004, when an existing short-term royalty oil contract expires.
The sale of Williams’ Alaska assets, announced Nov. 17, included sale of the refinery to Flint Hills, sale of a 3.0845 percent interest in the trans-Alaska pipeline to Koch Alaska Pipeline Co. LLC and sale of 26 convenience stores to Holiday Stationstores of Minneapolis, Minn. Flint Hills is a subsidiary of Wichita, Kan.-based Koch Industries Inc.; Koch Alaska Pipeline is a subsidiary of Koch Pipeline Co., also a Koch Industries subsidiary.
The short-term royalty oil contract between the state and Williams in October replaced two long-term contracts.
Department of Natural Resources Deputy Commissioner Richard LeFebvre said in a Dec. 30 letter to the Alaska Royalty Oil and Gas Development Board that the October short-term contract was intended to “supply oil to Williams’ North Pole refinery while negotiations proceeded” between Flint Hills and the state. Negotiations still Those negotiations, LeFebvre said, “are still ongoing,” and so the state and Williams have signed a second short-term contract for the state to supply royalty in-kind oil to the refinery for six months beginning April 1.
The second short-term contract allows the state to give the required 90-day notice to North Slope producers that it will take royalty in-kind. The nomination deadline for April is Jan. 2, he said.
LeFebvre said contract negotiations between the state and Flint Hills “are nearly complete.”
Once the royalty board and the Alaska Legislature have approved the Flint Hills contract, it will supercede the short-term Williams’ contract, and Flint Hills “will be obliged to take oil nominated now and pay according to the new long-term contract,” LeFebvre said.
The department expects to bring a long-term contract between the state and Flint Hills to the royalty board and then to the Legislature “sometime in January,” he said.
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