Providing coverage of Alaska and northern Canada's oil and gas industry
March 2020

Vol. 25, No.09 Week of March 01, 2020

Oil patch insider: Rig moves from Deadhorse to Charlie 1; AK’s unique oil owner

Petroleum News

On Saturday Feb. 22 Accumulate Energy Alaska in partnership with Cruz Construction moved the Nordic 3 drill rig down the Dalton Highway from Deadhorse to Mile 386 and then 34 miles west on its ice road to the Charlie 1 exploration well ice pad.

Per an announcement by the Alaska Department of Transportation, the move was expected to take until 9 a.m. Sunday Feb. 23, which was when Petroleum News received an email from Accumulate general manager of operations Erik Opstad with a photo of the rig onsite (see earlier shot of rig on the ice road in the pdf and print versions of this issue).

At approximately 2.8 million pounds, DOT told Accumulate that the rig was the heaviest vehicle ever to travel the Dalton Highway.

In Accumulate’s Icewine project, Charlie 1 is on state oil and gas lease ADL 393380. It will be drilled to an approximate depth of 11,000 feet and may include laterals, sidetracks or additional penetrations.

The well will intersect seven stacked prospects, four of which are interpreted as oil bearing in nearby Malguk No.1 (drilled in 1991 by BP) and are therefore considered appraisal targets, 88 Energy, Accumulate’s parent, said.

The primary drilling objective is the Seabee formation.

Alaska public oil ownership unusual

While almost all the land and mineral rights in Lower 48 states is in the hands of private citizens, the state of Alaska is required to retain ownership of mineral deposits in the land it received with statehood from the federal government.

There are two basic systems governing the ownership of oil: the Napoleonic model, used by socialist countries, in which resources are owned and controlled by the government; and the Anglo-Saxon model, subscribed to by most capitalist countries including the United States, where personal property rights extend all the way down to the core.

“The difference between the treatment of subsurface mineral ownership has far reaching implications. And, Alaska finds itself in a strange place between the two,” Alaska economist Ed King wrote in his most recent newsletter.

In the Anglo-Saxon system, “private property rights reign high,” King said.

Except in Alaska, “almost all Americans have complete ownership of the subsurface estate beneath their lands.”

During the first world war, mineral and other resources became increasingly important to U.S. defense, so the federal government decided to control these strategic resources by passing the Mineral Leasing Act of 1920.

The act identified certain resources as having strategic importance to the nation - specifically coal, oil, natural gas, and some other minerals. Any of these resources under federal land would not transfer to new owners from that point forward.

Alaska was the first state to enter the union after the Mineral Leasing Act passed. And the Alaska Statehood Act further reinforced the Napoleonic system, prohibiting private ownership of mineral rights in Alaska on lands granted to the state.

Alaska’s public oil ownership status makes it unlike any other state in the union. And, it’s inability to include taxation in its oil contracts makes in unlike any other nation-state with oil ownership.

“The constitution prevents us from including taxes in our ownership contracts. Therefore, we cannot provide the fiscal certainty that a production sharing agreement offers,” King wrote.

“In fact, using taxes to attempt to get more out of our ownership position could be, in effect, a material change in the fiscal terms of the contract with the leaseholders. And, if the higher tax rate results in less development, it directly conflicts with the statement of policy in our constitution,” which essentially obligates the state to lease and encourage development of its resources.

There’s more and it’s worth reading. Check out King’s newsletter at https://kingeconomicsgroup.com/alaska-is-unique-when-it-comes-to-oil-ownership-and-taxes/


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