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Ken Boyd leaving Division of Oil and Gas Director says areawide leasing biggest change that has occurred while he’s been with division; plan modeled on worldwide leasing programs Kristen Nelson PNA News Editor
He’s helped bring about a lot of changes in the way the Division of Oil and Gas does business, and there are some things he thinks need more work, but division Director Ken Boyd said Aug. 2 that he will be leaving: “I’ve been here 10 years and I think 10 years is enough for me,” he said.
Ten years isn’t long enough for everyone, however. Alaska Oil and Gas Association Executive Director Judy Brady said Sept. 15 when Boyd spoke to the Alaska Support Industry Alliance that the organization plans to ask Pat Pourchot, the new commissioner of the Department of Natural Resources, to ask Boyd — formally — to reconsider his resignation.
Boyd said he has no immediate plans, and while he is willing to stay into October to ensure a smooth transition, “that will be up to the new commissioner.” Natural Resources Commissioner John Shively stepped down Sept. 8 spend more time with his family.
Boyd has been director of the Division of Oil and Gas since May of 1995. He joined the division as deputy director in July of 1990 and became acting director in early 1995 after a career in the oil industry that began in the 1970s when he worked for Gulf Oil Corp. on various ventures around the world, including Alaska. He moved to Alaska in 1978 as district geophysicist with Marathon Oil Co. and left the company when they transferred their exploration operation out of the state in 1985 and worked as a private geophysical consultant.
Boyd has a master’s degree in geology from Rensselaer Polytechnic Institute. Three administrations Boyd told PNA Aug. 11 that he was appointed deputy director in July 1990 at the end of the Cowper administration, and served as deputy director through the Hickel administration. He became acting director in early 1995 under the Knowles administration, and was named director in May of 1995.
During the Hickel years, Boyd said, he worked mostly on the second part of exploration credits that applied to non-state lands.
The state wasn’t entitled to exploration data on non-state lands, but Boyd said they felt that if they could give some sort of credit they’d be able to get the information. He offered an award for some data in the National Petroleum Reserve-Alaska, “data to which we would not be entitled, but would have been useful to us in our Colville River sales.” The state was interested in seismic data, but the companies declined the offer. Boyd said he thinks one of the reasons they declined is that the bill provided that the state would be able to show the seismic data to try to interest people in its own nearby acreage. Exploration licensing a big effort One of the biggest things he worked on during the Hickel administration was exploration licensing. It was something he’d been interested in before he joined the state, Boyd said, because it’s the way so many other countries handle exploration, but it took a couple of years to get through the Legislature because it was so different from the way Alaska had been running its leasing program.
Boyd gathered up prospectuses and information on programs run by other countries. “And we tried to put something together that would work in Alaska,” he said. Exploration licensing wouldn’t be allowed in the state’s most prospective areas — on the North Slope and Cook Inlet, but would be targeted to the Interior, where companies weren’t working.
“We weren’t getting any interest in the Interior. And that’s where it was meant to be used.” With no bonus bid, he said, companies can focus their spending on exploration programs.
“And that program sort of languished, I think, for a while. And the focus stayed on our key areas, basically the slope, our portion of the Beaufort Sea, Cook Inlet. But now it’s starting to pick up.” Slow start to program “We had a couple of early applications that were dropped and the program really is still not perfect. You ago to the Legislature and you come out with something and you say, gee, I wish I had done this. When you actually go to put something into practice you start to see some clumps,” Boyd said.
The program got off to a slow start because there was no money appropriated for the program, which, like other leasing, requires a best interest finding. The department finally went to the Legislature for an appropriation to outsource base work for a best interest finding. That was completed and the first exploration license, for the Copper River basin, was issued in August.
“What I actually asked them for was enough money to do a series of Interior basin findings just in sequence. Just continuous. So you would always have a fresh finding, and fresh findings available — since they last for 10 years now. Then if somebody came in and wanted a license in one of those areas, you wouldn’t have to wait that year-plus to get the finding done and run the chance that the company will just lose interest. But that wasn’t to be. I mean they did give me the money for the one that they knew I already had clients or customers so to speak. And it’s fair enough. I don’t have customers for the others. But if I had a finding would I get a customer?” Applications for Susitna Basin The division got exploration license applications in the Susitna Basin this year and Boyd said the preliminary finding for that area was basically done because it was part of the preliminary finding for the Cook Inlet areawide lease sale, which was then shrunk down to exclude the Susitna basin.
Boyd said that some parts of the exploration licensing program are clunky, but the program exists, “and while it’s not perfect we have been able to work some of the clumsiness out of it by actually doing one.” What’s clumsy now, he said, is that if a company wants to shot 3-D seismic as part of the work commitment for a license, “they really aren’t going to want to commit to a well … If they did, they’d have to bond for this huge amount of money for drilling this well, when in fact what they really want to do is go out and do seismic.”
Many countries, he said, do exploration licenses in two licensing rounds, allowing companies to identify prospects in a first phase and then drill in a second.
“So we’re trying to work that out by allowing them to have the seismic and then put the commitment for any drilling into after they’re converted to leases.
“And that’s the part that I’m not sure is going to be perfect.” Areawide leasing most important effort Of the programs Boyd has worked on to help the state get its land explored, he said he thinks areawide leasing “is the most important and has the most use and means the most” in terms of how DNR does business.
Before the areawide leasing program was enacted, Boyd said, oil and gas lease sales were by nomination. The state called for comments and people indicated areas they’d like to lease and the state then put together a lease sale area. The state could use a best interest finding if it wasn’t more than five years old.
“But the real rationality I think was that we have worked up here now for over 20 years and in Cook Inlet for 30 or 40 years, and that the issues we’re writing about in these findings were just not changing. I mean the effects on caribou, the effects on birds, the mitigation measures we developed — were working, we think they’re working anyway — and why keep reinventing this wheel?”
That issue was addressed in areawide leasing by making best interest findings good for 10 years, but allowing for supplements for significant new information.
“It’s like having an encyclopedia, which you buy in a particular year and it’s very new and very good and it’s right up to date. But then a year later — obviously things happen — so they issue supplements. And that’s sort of the idea.”
The areawide leasing program broke up the state’s most prospective areas — onshore North Slope; state Beaufort Sea waters; and the Cook Inlet basin — findings are done and then the land is offered on a yearly basis.
The state will also offer an areawide lease sale in the foothills area and Boyd said there has been discussion of offering exploration licensing in the foothills area if there is no interest in the areawide sale, but, he said, “obviously there’s more interest now, with Anadarko and ASRC and their joint venture there and people are sort of moving a little bit farther south…” The current interest in gas is also a factor for the foothills area, Boyd said: “If there’s a gas line built and there will be… conventional wisdom says it’s a gas province.” Royalty relief changes Royalty reduction has also been addressed in the years he’s been with the division, Boyd said, and while there’s always been a royalty reduction statute, he said, the most recent royalty relief bill is different because “other royalty relief statutes that were on the books at the time contemplated that either the field was already in production or it was shut in … and had to have so much production for so many years before you could apply.”
The most recent royalty reduction legislation, however, only requires that a field is sufficiently delineated — it allows the state to give royalty reductions for a delineated field that’s never been in production.
Boyd said this is something that he thinks needs more work. It caused a huge discussion. “And reasonably so. I mean people had to feel comfortable with this… The notion is that the state will grant some sort of royalty relief up front to get the project moving but, over time, the state has to be made whole.” Boyd said he’s not arguing that it isn’t the right idea, but “it’s the way it’s written. It is so hard to figure out what it actually says. There’s one paragraph in there that we worked on it seemed like for months and it’s still, it still doesn’t read right.”
This royalty reduction hasn’t been used yet, but as development gets farther and farther from infrastructure it might be used — or maybe it never will be, Boyd said: “I think one of the reasons this bill may be less necessary over time is because of 3-D seismic. The success ratios are so high now, the confidence level is so high, that after you’ve shot the seismic and once you’ve done all this massaging to it, you really are confident that you’re going to do well.”
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