Royalty gas from North Slope open to bidders through January

State has option to receive cash or take gas and sell it itself

Posted: Thursday, December 27, 2001

ANCHORAGE - The state will begin accepting offers to purchase Alaska North Slope royalty gas, the state Department of Natural Resources announced Wednesday.

Royalty gas is the share of total state-owned gas production. In the North Slope, that amounts to an eighth of the natural gas reserves, according to Mark Myers, director of the agency's division of oil and gas. Known natural gas reserves in the North Slope total 35 trillion cubic feet, and estimates of the entire reserve are as high as 100 trillion cubic feet, Myers said.

For its royalty share, the state usually receives cash from oil and gas lessees. Myers said the state also has the option to take its royalty in actual gas and sell the product itself.

As a result, the state may sell some of the royalty gas produced if a North Slope gas pipeline becomes a reality.

BP, Exxon Mobil and Phillips Petroleum have spent more than $100 million studying the feasibility of delivering North Slope gas to the Lower 48. Last month, BP Vice President Ken Konrad told a meeting of the Resource Development Council that the study indicates the project does not make economic sense. A final report is expected to be completed as early as February or March.

And earlier this month, Cambridge Energy Research Associates, an energy consulting firm, said developing the region's natural gas fields is not feasible for at least 13 years.

Still, the state-owned gas has grown in demand, according to DNR officials. The big three companies have stated an intention to possibly auction off shipping capacity in the proposed pipeline early next year. Such an auction, called an "open season," is common when pipelines are under consideration.

"This allows some companies without knowledgeable reserves to play a role," Myers said, adding that taking bids also allows the state to gauge the maximum value of the gas.

An open season typically involves long-term contracts. Those pacts generally can be voided under certain conditions, such as a project not being completed.

But before gas shippers bid on such long-term contracts to use the pipeline, they want to have guaranteed access to natural gas reserves. That's the reason behind the interest in purchasing part of the state's share of the gas, Bonnie Robson, deputy director of the Alaska Division of Oil and Gas, told the Fairbanks Daily News-Miner.

Proposals are being taken until Jan. 31. All offers will be opened and announced at a public meeting set for Feb. 1 in Anchorage.

Any resulting contracts would go before the Legislature for final approval.



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