An unusual offer of royalty-free gas and oil leases within the Cook Inlet basin drew a handful of bids, with state official this week calling the venture as a success.
Six tracts of bids were accepted in the annual lease auction of the Cook Inlet region, Alaska’s oldest producing gas and oil basin The State Division of Oil and Gas announced on Wednesday.
The six leases offered cover approximately 15,000 acres. The the bids made totaled $599.934 according to the results announced from the division. Hilcorp Alaska LLC, the major Cook Inlet regional operator bought three leases. The remaining three were bought from HEX Cook Inlet LLC, an independent energy company based in Alaska which was transformed into a natural gas production company in 2020, when it purchased bankruptcy-plagued Furie Operating LLC.
Contrary to past lease sales where the producer of leases purchased pay state royalties typically between 12.5% to 16.67%, the terms of this year’s Cook Inlet sale skipped the royalty requirement. Instead, they require to share profits from future production. A unique aspect that was included in this sale is the fix price of $40 per an acre.
The term was designed to stimulate an increase in natural gas production in the old Southcentral Alaska basin to supply the population center that includes the largest city in the state, which could face an possible supply in the near future.
The amount of bids received was similar to those that were received in the past states’ Cook Inlet lease sales. The most recent record-breaking performance for the State Cook Inlet areawide lease sale was in 2014, when there were 32 tracts of land leased.
In an announcement, Department of Natural Resources Commissioner John Boyle said the unusual lease conditions of Cook Inlet are part of a larger strategy that also includes legislation that was proposed by Governor. Mike Dunleavy that would cut Cook Inlet royalty rates more widely.
“Taking different approaches to this newly-released Cook Inlet lease terms is one of the levers DNR can pull to make the production of oil and gas more attractive. We believe it will attract more interest from producers who have more time to consider the potential,” Boyle said in the statement. “We are determined to use any lever that we are able to and also to move forward with the Governor’s legislation as well as other initiatives, in order to provide our state’s energy needs.”However some lawmakers have expressed reservations regarding the royalty-free leasing option as well as various Cook Inlet incentives.”
State Senator. Scott Kawasaki, D-Fairbanks stated that the legislation focusing on Cook Inlet did nothing to spur production.
“I would have hoped for more,” he said Thursday. He also said that the company “wasn’t all that excited” about the idea of a royalty-free lease and that the sales results corresponded to this impression. “I believe we shouldn’t praise ourselves at this moment,” he said.
Senator. Bill Wielechowski, D-Anchorage was a semblance of a review of the royalty-free conditions.
“It wasn’t like it was a big effect,” he said.
Wielechowski stated that the emphasis on reducing royalties may be a mistake on the part of Cook Inlet. Businesses are already able to request a reduction in royalties, however they haven’t opted for this relief, and “it isn’t like it’s the issue,” he said. The main issue to increasing Cook Inlet natural gas production is the insular character of market that makes any major growth in the supply of natural gas uneconomic the way it is, he added.
A annually held North Slope lease sale that was held at the exact time, resulted in a selling of 92 tracts that comprised 173,000 acres. It also raked in more than $6.1 million worth of bids. It was the Annual Beaufort Sea lease sale for offshore acreage within the state territory has sold 12 tracts totalling around 36,000 acres, and brought in $1.3 million in bids.
Smaller independent businesses, led by Great Bear Petroleum Ventures II LLC won the bidding.
There was no bid for parcels located in the North Slope Foothills, the higher elevation region to the south of the established oil fields and for Alaska Peninsula, the division announced..
The story first appeared in Alaska Beacon and is republished here with permission.
