Approval of Petro Star royalty sale moves

Legislative approval of a contract for sale of a portion of the state’s royalty crude oil to Petro Star Inc. passed the Alaska Senate 17-0 in February and has now cleared the House committees to which it was assigned. It had not yet been scheduled for a floor vote when Petroleum News went to press.

Senate Bill 30 authorizes approval of a four-year contract beginning Jan. 1, 2018, and ending Dec. 31, 2021.

The sale required a best interest finding from the commissioner of the Department of Natural Resources; a final finding was issued in September 2016.

The state has a five-year contract to sell 20,000 to 25,000 barrels per day of royalty oil to Tesoro, approved by the Legislature in 2016. That contract is estimated to result in additional state revenues or $45-56 million relative to revenues the state would have received for royalties in value.

DNR negotiated two contracts with Petro Star. The first covered 2017 and did not need legislative approval; it was recommended by the Alaska Royalty Oil and Gas Development Advisory Board and entered into in August 2016.

The second contract, for January 2018 through December 2021, was recommended by the board in August. The governor introduced a bill for approval and ratification of the royalty oil sale to Petro Star.

The agreement is between the state and Petro Star and Arctic Slope Regional Corp. Petro Star is a wholly owned subsidiary of ASRC. Petro Star was founded in 1984, commissioned the North Pole Refinery in 1985 and the Valdez Refinery in 1993. The refineries have a combined capacity to produce some 25,000 barrels per day of refined products.

The volumes to be sold to Petro Star decrease by year, as expected state royalty volumes decrease: year 1, 16,400-20,500 bpd; year 2, 13,200-16,500 bpd; year 3, 10,800-13,500 bpd; and year 4, 8,400-10,500 bpd.

The contract is expected to generate $22-$27 million in revenues in addition to the amount the state would have collected if it had taken the royalty in value.

- KRISTEN NELSON