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Providing coverage of Alaska and northern Canada's oil and gas industry
January 2019

Vol. 24, No 3 Week of January 27, 2019

DNR, DO&G brief Senate Finance Committee

Overview covers activity, with busiest season in 20 years expected, status of division permitting backlog, royalties to state

Kristen Nelson

Petroleum News

Corri Feige, commissioner designee for the Alaska Department of Natural Resources, along with Deputy Commissioner Sara Longan and Division of Oil and Gas Director Chantal Walsh, briefed the Senate Finance Committee Jan. 17.

The briefing included an activity update and an overview of permitting.

Walsh walked the committee through the status of development and said 2019 is expected to be the busiest year in the last 20 for North Slope exploration and production drilling.

Asked by committee co-chair Sen. Bert Stedman, R-Sitka, why the activity level is so high, Feige said she thought part of the exploration uptick was being driven by the new Nanushuk-Brookian play types. The North Slope is now classified as a super basin, she noted, and 40 years after Prudhoe Bay came online the companies have found a new play type.

Co-Chair Sen. Natasha Von Imhof, R-Anchorage, asked why, with a lot of supply and opportunity worldwide, were companies investing in Alaska?

Feige said it was her personal opinion that companies like a divergence of prospects in their portfolios, and also like investments in stable business climates where long-term investments can be made with some comfort of a return. There is, she said, a lot of sovereign risk elsewhere - the risk of investment being nationalized - and in Alaska there is political stability and also, for the last few years, stability on the tax side.

Sen. Bill Wielechowski, D-Anchorage, asked about rig counts, and Walsh said the rig count projection for the exploration season is upwards of 15. (That number would include rigs drilling production wells. The most recent Baker Hughes rig count, from Jan. 18, shows Alaska with 10 rigs active, up one from the previous week, and up from five a year ago.)

Stedman asked for historic counts and comparison with rig counts in the Lower 48.

Great potential

Walsh said there are fields showing great potential, such as Pikka, and smaller fields like Mustang and Placer poised to come online, with enormous potential in the play type referred to as the Brookian play or Nanushuk and Torok formations.

And the North Slopeís legacy fields, Prudhoe and Kuparuk, have exceeded expectations from both the companies and the state.

There are smaller companies - Caelus, BlueCrest and Armstrong - with exploration plans that will help with production into the future, Walsh said, while new players, like Oil Search, indicate industry acknowledgement of large, viable fields previously unknown.

She said the state is continuously working with North Slope communities, the national administration and the congressional delegation on Arctic energy policy and support for responsible development in the Coastal Plain of the Arctic National Wildlife Refuge, the federal Outer Continental Shelf and the National Petroleum Reserve-Alaska.

Permitting

Feige said DNR had been asked for an update on the current status of development permits.

Deputy Commissioner Sara Longan, formerly director of the Office of Project Management and Permitting, provided that update.

She said the Division of Oil and Gas has been focused on operating as efficiently as possible. She noted that in 2013 it took some 180 days for the division to issue permits - an average number of days was shown on a presentation graph as 185.5. That average has dropped to 90 days in 2018, she said, and can be as low as 30 days.

This change was achieved by modernizing some procedures, with automation allowing electronic applications, continuous feedback loop with applicants and updated guidance documents available online.

A lot of time can be added to the process if applications are incomplete, she said, and the development of updated guidance documentation assisted applicants in filing complete applications.

There were also some structural improvements within DNR, such as moving the state pipeline coordinatorís office into the division as the state pipeline section for better alignment and synergy.

The division currently does not have a permit backlog, Longan said.

Stedman asked for a comparison of permitting times between Alaska, Texas and North Dakota - noting that it looked as thought Alaska had substantially closed the gap.

Wielechowski asked if DNR was seeing any impacts from the federal government shutdown. Longan said yes, DNR requires federal permits to do some of its work, such as gravel assessments - people arenít even answering their phones, she said.

Wielechowski asked for a short paper on the impact.

Royalty rates

The committee also got an overview of the different royalty rates the state receives or does not receive.

There are two sources of revenue to the state from production, Walsh said, royalties and taxes. Royalties come through the division, with 25 percent going to the Permanent Fund and the remainder to the general fund.

In four areas on the North Slope the state receives different percentages of royalties.

Offshore, within 3 miles of the coast, the state receives 100 percent of the royalty; from 3-6 miles out it receives 27 percent; at distances greater than 6 miles it receives no royalty.

In the NPR-A, the royalty rate is either 12.5 percent or 16.67 percent. The state receives no royalty - 50 percent goes to the federal government and 50 percent to a mitigation impact fund benefitting the five affected communities in NPR-A.

On the ANWR Coastal Plain, the royalty rate is 16.67 percent, with the stateís share 50 percent of that.

And on state lands, the royalty rate is 12.5 percent or 16.67 percent, with the stateís royalty share ranging from 83 percent to 100 percent, based on whether Arctic Slope Regional Corp. lands are involved.

Asked about a potential change to the royalty split between the state and ASRC by Sen. Donny Olson, D-Golovin, Feige said there are a number of settlement agreements governing joint lands and said there were no discussions to change the royalty distribution.

Royalty rates vary between projects in NPR-A, a chart in the presentation shows, with Greater Mooses Tooth 1 having a 16.67 percent royalty, an estimated 82 percent going to Alaska Native owned tracts, with the federal government taking 9 percent and 9 percent going to the mitigation impact fund.

In GMT-2, which also has a 16.67 percent royalty, an estimated 8 percent goes to Alaska Native owned tracts, 46 percent to the federal government and 46 percent to the mitigation impact fund.

Lands in the Willow field have either a 16.67 percent or a 12.5 percent royalty, with 50 percent going to the federal government and 50 percent to the mitigation impact fund.






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