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Selling the Beaufort MMS’s Goll heads south to try and raise interest in Beaufort Sea OCS acreage Petroleum News Alaska Houston Office
John Goll, Alaska regional director for the U.S. Minerals Management Service, is about to embark on a journey that may help save Alaska's struggling Outer Continental Shelf leasing program.
Goll told Petroleum News Alaska the week of Feb. 13 that he plans to visit companies in Houston, Calgary, Denver and perhaps New Orleans over the coming months to drum up interest in the Alaska offshore exploration program, highlighted by three Beaufort Sea oil and gas lease sales proposed over the next few years. Incentives to sweeten the deal For the first time in the program's long history, Goll will be equipped with an attractive list of proposed government incentives designed to draw players to offshore Alaska.
But he said the incentives, which would ensure royalty suspension on initial barrels produced from new discoveries, are actually part of a larger plan to rebuild industry trust in a program that is now a shadow of its former self.
Judging from industry's obvious disinterest in the Alaska OCS and the area's rapidly deteriorating lease base, it appears a lot is riding on the federal government's next series of Beaufort Sea sales, tentatively beginning with Sale 186 in September.
Few active leases The number of active federal offshore leases in Alaska stood at a paltry 44 at year-end 2002, compared to a program high 894 leases in 1990, according to records furnished by the MMS.
Granted, the big lease base in the early 1990s was built largely on numerous and highly successful sales in the 1980s. In 1988 alone, MMS conducted sales in the Beaufort Sea, Chukchi Sea and North Aleutian Basin. In 1991, sales again were held in the Chukchi and Beaufort.
But then came the Bill Clinton years, which saw only three Alaska OCS sales in eight years and a steep, corresponding decline in both the number of active leases and industry's participation in offshore sales. Just 59 leases were issued during the period from 1996 to 1998, compared to 575 in 1988 alone.
Moreover, there hasn't been a lease sale anywhere on Alaska's OCS since August 1998, meaning time is running out for what leases remain. That's because Beaufort leases, which account for 42 of the current 44 active OCS leases, carry primary terms of 10 years. So leases issued in 1996 will begin to expire in 2006, and about half of the remaining 42 Beaufort leases were issued in 1996.
Predictable sales the goal Goll is keenly aware of Alaska's OCS problems, but said the Bush administration is “bringing a different emphasis” to the program, one which he said focuses on better access, smoother permitting and industry incentives.
“We're trying to get into a predictable mode,” he said, “and we're trying to have a better package for companies.”
Goll has no illusions of returning to the big lease sales of yesteryear. “We were never expecting to get back to that,” he said. Rather, Goll is looking to slowly rebuild the Alaska OCS program on the back of the big independent producer, which has become increasingly involved in onshore areas of the North Slope.
“The big players are still there, but there is more interest from the large independents,” Goll said. Still, industry's general interest in September's Beaufort Sea lease sale remains “guarded,” he added.
“We plan to visit companies ... to explain access and permitting issues, and to coordinate this with the (state) government,” Goll said. “We're trying to get more certainty.”
MMS has forwarded its notice for September's proposed Beaufort Sea lease sale to Gov. Frank Murkowski, who has about two months comment on the size, timing and location of the sale. If the Department of the Interior decides to proceed with the sale, it would issue a final notice for Sale 186, tentatively scheduled for September 24.
The proposed sale area includes roughly 1,850 whole or partial blocks encompassing about 9.7 million acres, stretching from the Canadian border on the east to near Barrow on the west. Virtually everything that is available in the Beaufort would be up for sale. Royalty relief worked in Gulf of Mexico As far as the incentives, MMS is employing a royalty relief strategy that has worked well in deepwater Gulf of Mexico. Rather than basing the amount of royalty suspension on water depth, however, Alaska exemptions would vary depending on tract size and distance from existing infrastructure. Royalties would not be charged on the first 10-to 45 million barrels of production.
The royalty suspensions in Alaska also would be subject to a price threshold, based on $28 per barrel in 1994 and adjusted for inflation. Royalty on all oil production in a calendar year is due if the average Nymex oil price for that year exceeds the adjusted threshold.
Sale 186 would include several plums, namely three drilled prospects — Kuvlum, Hammerhead and Sandpiper — that eventually were turned back to MMS by their leaseholders. MMS estimated Kuvlum reserves at 100 to 300 million barrels, Hammerhead at 100 to 200 million barrels, and Sandpiper at 20 to 70 million barrels.
However, Goll made it clear that all is not riding on the successful outcome of the proposed September Beaufort lease sale. MMS is proposing two additional areawide sales in the Beaufort — Sale 195 scheduled for 2005 and Sale 201 scheduled for 2007.
“Not all is based on one sale,” Goll emphasized. “We have to be in this for the long haul. It's looking to the future. We have to lay a foundation.”
In addition to the Beaufort Sea, OCS lease sales are proposed for the Cook Inlet in 2004 and 2006 and the Chukchi Sea in 2004 and 2007. But those sales, if they proceed, would be fashioned specifically around areas that have received interest from potential bidders, Goll said.
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