Royalty-free terms draw only 3 oil and gas lease bids in Alaska’s Cook Inlet

A position from Skilak Lake Road crossed Cook Inlet to Mount Redoubt, an progressive stratovolcano successful nan Aleutian Range. Credit: Lisa Hupp/USFWS

A authorities lipid and state auction that offered royalty-free leases successful nan Cook Inlet basin arsenic an inducement for caller exploration drew only 3 bids, according to results released Wednesday by nan Alaska Division of Oil and Gas.

The yearly areawide Cook Inlet waste featured special terms for nan 725 tracts covering 3 cardinal offshore and onshore acres successful nan basin: A group $40-per-acre value and a request that buyers stock nan profits from immoderate early accumulation successful speech for a complete elimination of authorities royalties that are typically group astatine 12.5%.

Hilcorp Alaska, LLC, nan ascendant usability successful nan inlet, was nan sole bidder successful nan lease sale. The 3 bids submitted by nan institution totaled $177,636.40, according to nan division.

It was nan 2nd effort by nan Division of Oil and Gas to lure Cook Inlet lease waste bidding by eliminating royalties. A sale held successful December of 2023 with nan aforesaid position drew six bids.

The caput of nan Department of Natural Resources conceded successful a connection that this year’s waste fell flat.

“While nan State of Alaska is disappointed by nan debased level of liking successful this sale, it is encouraging to spot Hilcorp continuing to put successful lipid and state leases successful Southcentral Alaska,” Department of Natural Resources Commissioner John Boyle said successful nan statement.

Gov. Mike Dunleavy and immoderate members of nan Legislature person pushed for royalty reductions aliases eliminations to promote much lipid and earthy state accumulation successful Cook Inlet. The thought is 1 of nan responses to a looming shortfall of deliverable earthy state to Anchorage and nan surrounding Southcentral region. The region has for decades depended connected earthy state for power and procreation of electricity.

A measure that would trim royalties for some lipid and gas passed nan Alaska House in May but grounded to scope nan Senate level earlier adjournment. Key senators said they saw small evidence that slashing royalties would make a quality for Cook Inlet earthy state production.

Senate Majority Leader Cathy Giessel, R-Anchorage, was among nan skeptics during nan session. On Wednesday, she said nan Cook Inlet lease waste results adhd to grounds supporting that skepticism.

“I’m not convinced that royalty alleviation is nan answer,” she said during a little question and reply astatine nan Resource Development Council for Alaska yearly luncheon successful Anchorage.

Giessel pointed to the analysis of a hired consulting firm, GaffneyCline, that listed galore factors arsenic disincentives to Cook Inlet lipid and state investment. Among nan factors GaffneyCline cited are nan isolated and comparatively mini market, nan aged infrastructure, nan deficiency of support work and immoderate difficult biology conditions.

“There’s a batch of different factors that support group from seeing Cook Inlet arsenic economic,” Giessel said.

But Boyle said he still believes successful royalty reductions for Cook Inlet and that nan management continues to support nan idea.

“I deliberation Cook Inlet royalty alleviation is perfectly basal to making Cook Inlet economical and seeing much Cook Inlet lipid and state production,” he said successful a little question and reply astatine nan RDC event.

The administration’s push for royalty cuts connected existing leases and units is different from nan royalty elimination utilized successful nan yearly lease sale, and frankincense would person much impact, Boyle said.

“We already person existing leases and existing units wherever there’s known resources but there’s not improvement aliases nan required magnitude of finance to bring that into development,” he said.

A instruction from nan latest lease sale, he said, is that location is “little to nary appetite for exploration aliases leasing that goes good beyond what’s known successful nan Cook Inlet astatine this time.”

Of nan 3 tracts that drew Hilcorp bids, nan largest is located connected nan westbound broadside of nan inlet, near existing onshore earthy state units. The different 2 tracts are besides onshore, adjacent what utilized to beryllium nan federally administered Sterling Unit, besides an historical state producer.

The authorities besides held a concurrent lease waste that offered 1,004 tracts covering 5 cardinal acres connected nan Alaska Peninsula. That lease waste drew nary bids, extending a agelong streak for lipid and state auctions successful that portion of nan state.

The Alaska Peninsula was added to nan state’s areawide leasing programme successful 2005, and nan waste that twelvemonth drew 37 bids, mostly from Shell. The only different years successful which companies bid for Alaska Peninsula leases were 2007, erstwhile a azygous bid was submitted, and 2014, erstwhile 3 bids were submitted.

The Division of Oil and Gas will proceed to measure each disposable areas, including nan Alaska Peninsula, for yearly lease sales, said Lorraine Henry, a spokesperson for nan Department of Natural Resources.