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MMS outlines terms for proposed March Beaufort Sea sale Notice includes royalty suspension volumes, as in 2003 sale, conditional on oil prices below inflation-adjusted $39 per barrel Kristen Nelson Petroleum News Editor-in-Chief
The Minerals Management Service has issued a proposed notice of sale for its next Beaufort Sea sale, tentatively scheduled for March 30 in Anchorage. Alaska Gov. Frank Murkowski has 60 days to comment on the size, timing and location of the proposed sale, and then after addressing any comments it receives from the governor, if the Department of the Interior decides to proceed with the sale, MMS would issue a final notice for the sale at least 30 days prior to the public opening of the bids.
The sale area includes approximately 1,800 whole or partial blocks encompassing some 9.4 million acres offshore Alaska’s northern coast in the Beaufort Sea, extending from the Canadian border on the east to near Barrow on the west. The sale area “excludes offshore areas near Barrow and Kaktovik used by the Inupiat for bowhead whole subsistence hunts,” MMS said Oct. 18.
The agency said it will require any offshore oil and gas activity to be coordinated with Inupiat whalers during their hunt.
The agency said it has developed six other lease stipulations to help minimize effects to the environment and to the Inupiat people, including requirements for protection of biological resources and spectacled and Steller’s eiders, bowhead whole monitoring, use of pipelines rather than tankers and booming for fuel transfers.
“These stipulations supplement our regulatory regime that companies must follow to keep their activities safe and pollution free,” MMS Regional Director John Goll said in a statement.
The agency estimates the Beaufort Sea could contain 7 billion barrels of oil and 32 trillion cubic feet of natural gas — those volumes are the mean estimate of conventionally recoverable reserves. Royalty suspensions based on price, zone As in the September 2003 Beaufort Sea sale, MMS is proposing royalty suspensions on the production of oil and condensate, subject to price thresholds. Zone A, tracts closer to infrastructure, receive a royalty suspension volume of 10 million to 30 million barrels of oil and condensates, depending on the size of the lease. Zone B tracts, those farther from infrastructure, receive royalty suspensions of 15 million to 45 million barrels, depending on the size of the lease.
There is no royalty relief for any calendar year in which the actual New York Mercantile Exchange annual price of oil exceeds the ceiling price threshold, adjusted for inflation, for oil in that year. The ceiling price threshold is based on $39 per barrel, the 2004 base year, adjusted for inflation. If the Nymex quarterly price is below the fixed floor price of $21 per barrel (that price will not be adjusted for inflation), oil produced during that calendar year will be royalty free, and would not count against the lease’s royalty suspension volume, although there would be no royalty-free volume if the lease’s royalty suspension volume has already been used.
There are 64 MMS leases active in the Beaufort, some 120,000 hectares in total.
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