State makes tentative deal to buy North Pole oil refinery

Agreement could bring state about $8 million in additional revenue

Posted: Tuesday, February 10, 2004

Flint Hills Resources has secured a tentative crude oil contract with the state that will allow it to buy the Williams Alaska Petroleum refinery at North Pole.

Under the agreement, the company would get up to 77,000 barrels of oil per day for at least five years and the state could see about $8 million in added revenue, Gov. Frank Murkowski said Monday.

Other concessions include price parity for wholesale gasoline and jet fuel between Fairbanks and Anchorage, where fuel is typically cheaper, and an agreement to process low-sulfur fuel.

"We're satisfied it is significantly more beneficial to the state," Murkowski said.

Facing billions of dollars in debt, Williams Cos. had been trying to sell its North Pole refinery, two oil terminals, 29 Williams Express stores and a 3.08 percent share of the trans-Alaska oil pipeline.

Flint Hills and Koch Alaska Pipeline Co. - two subsidiaries of Wichita-based Koch Industries - were among the companies negotiating to buy Williams out of Alaska.

Williams, based in Tulsa, Okla., announced a $265 million deal in November to sell its holdings to various companies pending regulatory approval.

An agreement with the state to buy royalty oil will allow Flint Hills to close the deal, said company spokesman Allen Wright.

Williams expects to close on most of its Alaska sales by March 31, said Williams spokesman Jeff Cook. But selling its share of the pipeline could take longer since it requires agreement from other TAPS owners and federal antitrust review, Cook said.

North Slope oil producers operating on state leases must pay the state a percentage of their production. The state can receive some of these royalties in the form of oil.

Flint Hills has an agreement with the state to purchase between 24,000 and 77,000 barrels per day at a 30-cent per unit premium over normal royalty-in-value sales.

The state could see an additional $8 million if the company buys the maximum quantity of oil, said Department of Natural Resources Commissioner Tom Irwin.

Prices would also be based on Alaska North Slope sales rather than a variety of markets, Irwin said.

Flint Hills also agreed to price reforms for both gasoline and jet fuel in Fairbanks that include wholesale annualized parity between gasoline sales in Fairbanks and Anchorage.

The company also agreed to charge the same or lower prices for jet fuel in Fairbanks over Anchorage. Flint Hills will work to promote the Fairbanks International Airport as a fueling stop for Asian and European cargo carriers.

In addition, the company will install equipment to process low-sulfur, clean fuels in Alaska and keep previous Williams agreements with the Alaska Railroad and the Government Hill Community Council.

The Flint Hills agreement would last five years followed by provisions for five one-year contract extensions.

The Alaska Royalty Oil and Gas Development Board will meet next Tuesday to consider the contract and it should be before the Legislature for ratification by March 2, Murkowski said.

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