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DNR favors longer Tesoro oil contract
The Alaska Department of Natural Resources has made a preliminary finding that it would be in the state’s best interest to extend by one year a recently executed contract to sell royalty oil to refiner Tesoro.
The agency is now inviting public comment on the finding, which is posted online at www.dog.dnr.alaska.gov.
Tesoro operates a refinery at Nikiski, on the Kenai Peninsula. The refinery is one of the state’s main sources of gasoline, jet fuel and other products.
In October, DNR and Tesoro signed a one-year supply contract for state royalty crude oil. Royalty oil is the state’s share of oil that private companies produce from leased state acreage.
Under the contract, Tesoro agreed to buy 5,000 to 15,000 barrels a day of North Slope royalty crude starting on Feb. 1, 2014, and continuing through Jan. 31, 2015.
Shortly after the deal was reached, Tesoro executives asked to lengthen it by a year, DNR said.
And so, DNR is proposing to amend the contract to extend oil deliveries to Jan. 31, 2016. This is the only contract change that’s being proposed.
Major revenue source The state has a long history of selling its royalty oil to Tesoro and other in-state users. The state also disposes of royalty oil by letting the North Slope producers market it on the West Coast along with their own volumes.
Revenue from royalty oil sales constitutes a major revenue stream for the state, along with production and other taxes.
Based on price forecasts and other factors, the state estimates the added year of royalty oil sales to Tesoro will generate revenue of $193 million to $580 million.
Due to the short duration of the original contract, DNR was free to sign the Tesoro deal on its own.
Adding an extra year to the contract, however, will require approval by the Alaska Legislature in the upcoming session.
—Wesley Loy
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