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MMS slashes bid, rental amounts for sale 186
Kristen Nelson Petroleum News editor-in-chief
The Minerals Management Service has dramatically reduced the minimum bid and rental rates for leases to be offered in its upcoming Beaufort Sea oil and gas lease sale. When MMS announced the sale in February, it said the minimum bid would be $62 per hectare, and the annual rental rate $13 per hectare (a hectare is equal to 2.47 acres), rates the agency said are “consistent with past OCS sales in the Alaska Region.”
MMS said July 17 that, after further consideration, it is proposing a minimum bid of $37.50 per hectare for Zone A and a minimum bid of $25 per hectare for Zone B. Zone A is the area closest to shore and includes the area from Harrison Bay to Point Thomson; Zone B is the remainder of the sale area, that farther from the coast from east of Barrow to the Canadian border. MMS said it believes Zone A “holds the most promise for near term development and production of oil and gas resources.” The agency said the Zone B rates are similar to those used by the state of Alaska for some leases in the northern part of the state, and are similar to those used by the Bureau of Land Management for leasing of less prospective acreage in the National Petroleum Reserve-Alaska.
“Hence, the revised terms presented here will allow the federal offshore lease offering to be comparable to other sales in this area,” the agency said. All bids received in the sale will undergo extensive evaluation to determine if they represent fair market values, MMS said. Sliding rental to encourage quick exploration The proposed sliding scale rental rates are $7.50 per hectare in Zone A for the first five years, increasing thereafter to $30 per hectare in years nine and 10. The Zone B rental rate is $2.50 per hectare for the first year, increasing each year to $20 per hectare in the 10th year.
MMS said the new bidding rates “are designed in part to provide potential bidders the incentive to acquire sufficient acreage to support a timely seismic data acquisition program.” The sliding-scale rental terms are “intended to encourage expeditious exploration of domestic energy resources.”
The agency said the proposed reductions are being announced now to give potential bidders and other interested parties time to consider the changes in preparing for the lease sale. Comments on the changes close Aug. 1. A final notice of sale, establishing all terms and conditions for sale 186, will be issued at least 30 days before the sale.
The agency said it is not changing royalty rates of 12.5 percent, or proposals for royalty suspension for oil and condensate production from those in the February proposed notice of sale: for a lease of 770 hectares or less, the Zone A royalty suspension volume is 10 million barrels and the Zone B royalty suspension volume is 15 million barrels. For 771 to 1,540 hectares the volumes are: 20 million barrels in Zone A and 30 million barrels in Zone B. For 1,541 hectares or more the volumes are: 30 million barrels in Zone A and 45 million barrels in Zone B.
At New York Mercantile Exchange prices below $18 per barrel of oil (average daily price for a quarter of a calendar year with no adjustments for inflation), production would be royalty-free and would not count against the royalty suspension volume.
The royalty suspension program also has a ceiling: Above $28 per barrel in 1994 dollars, plus annual adjustment for inflation, relief is revoked and production in that year counts against any remaining royalty suspension volumes. Floor and ceiling prices apply during periods when production has not exceeded the original royalty suspension volume amounts.
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