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Burlington Resources drops Alaska leases With a gas pipeline from the North Slope years away, company declines to pay third year’s rent on Foothills leases it won in 2001 areawide sale Kay Cashman & Kristen Nelson Petroleum News
Burlington Resources has dropped the 32 leases it took in Alaska’s first areawide North Slope Foothills lease sale in May of 2001.
Pat Galvin, Alaska Division of Oil and Gas petroleum land manager, told Petroleum News that an annual rent payment of $367,002 was due on the leases July 1.
“When we didn’t receive it, we put in a courtesy call. They said they weren’t going to pay it.” The division didn’t receive any other explanation, he said, nor did it receive anything in writing.
“There were several factors involved in our decision,” Burlington Resources Houston spokesman James Bartlett told Petroleum News Aug. 13. The Alaska gas line appears to be at least seven to eight years away and it already has plenty of gas behind it and in the interim we would have incurred carrying the cost if we had retained the leases.
“There is a lot of opportunity in other areas of the world. Alaska is unlikely to become a core area for Burlington any time soon,” he said.
That’s about what the state had heard.
Division of Oil and Gas Director Mark Myers told Petroleum News: “They didn’t contact us with a reason (for dropping the leases). But I ran into one of their geologists in April at the AAPG (American Association of Petroleum Geologists) conference. He said Burlington’s management had concerns about the uncertainty and timing of the gas pipeline.” Company paid $1.99 million for leases The company, bidding as “5051 Alaska Inc.,” a legal entity set up by Houston-based Burlington to bid in the 2001 sale, bid on and took 32 leases for $1,982,231.46, 20 percent of the dollars bid at the $9,799,277.10 sale. The state sold 858,811 acres at the Foothills sale, at that time the most acreage ever sold in a single sale. The record was topped at the 2002 Foothills sale, when more than a million acres were sold.
The state’s lease rents are progressive: $1 an acre the first year; $1.50 the second; $2 for the third year; $2.50 in the fourth year; $3 in the fifth and following years, so the rental payment would have continued to increase. Company had looked at leases as low-risk opportunity The leases Burlington took at the sale covered more than 183,000 acres and were in a block in the southern half of the Foothills sale area, between the Anaktuvuk and Itkillik rivers. Burlington paid $5.50 an acre for 13 of the leases and $14.44 an acre for the other 19.
Since this was the first lease sale in the area the state had to do title work on all of the acreage receiving bids after the sale and didn’t issue leases until July 1, 2002. The leases had a 10-year term running from the issue date.
Ellen DeSanctis, Burlington’s vice president of corporate communications, told Petroleum News after the 2001 sale that its bids were a low-risk way to enter an emerging gas opportunity.
“We are trying to get a toehold in some opportunities in the far northwest of North America that would be in concert with our efforts in the Mackenzie Delta to build a position in what could be future opportunities in North American, particularly gas,” DeSanctis said in May 2001.
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