Legislature(2021 - 2022)

2022-03-25 Senate Journal

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2022-03-25                     Senate Journal                      Page 2120
SB 239                                                                                                                        
SENATE BILL NO. 239 BY THE SENATE RULES COMMITTEE                                                                               
BY REQUEST OF THE GOVERNOR, entitled:                                                                                           
             "An Act approving and ratifying the sale of royalty                                                               
              oil by the State of Alaska to Petro Star Inc.; and                                                               
          providing for an effective date."                                                                                     
was read the first time and referred to the Resources and Finance                                                               
The following fiscal information was published today:                                                                           
 Fiscal Note No. 1, Department of Natural Resources                                                                             
In accordance with AS 38.06.050 and AS 38.05.183, a report of the                                                               
final best interest finding and determination for the sale of royalty oil                                                       
was transmitted.                                                                                                                
Governor's transmittal letter dated March 23:                                                                                   
Dear President Micciche:                                                                                                        
Under the authority of Article III, Section 18, of the Alaska                                                                   
Constitution, I am transmitting a bill relating to approval and                                                                 
ratification of the sale of royalty oil by the State of Alaska to Petro                                                         
Star Inc. (Petro Star).                                                                                                         

2022-03-25                     Senate Journal                      Page 2121
The Commissioner of the Department of Natural Resources (DNR)                                                                   
has determined that it is in the best interest of the State to take royalty                                                     
oil in-kind from leases on the North Slope. To this end, DNR has                                                                
negotiated a proposed contract titled “Agreement for the Sale of                                                                
Royalty Oil between and among the State of Alaska, Petro Star Inc.,                                                             
and Arctic Slope Regional Corporation” (Proposed Contract). The bill                                                            
would approve and ratify the Proposed Contract.                                                                                 
The Proposed Contract obligates the State to deliver to Petro Star                                                              
12,500 barrels per day (bpd) between January 1, 2023, and December                                                              
31, 2024 (years one and two of the contract), and between 10,000 bpd                                                            
and 12,500 bpd between January 1, 2025, and December 31, 2027                                                                   
(years three to five of the contract). Based on monthly average                                                                 
forecasts, Petro Star’s nominations under the Proposed Contract could                                                           
represent 19 percent to 22 percent of the State’s North Slope royalty                                                           
oil. The State will receive a price for its royalty oil that will equal or                                                      
exceed the price it would have received had it elected to keep its                                                              
royalty in-value. In total, the Proposed Contract is expected to net the                                                        
State roughly $17 to $19.8 million in revenue above what the State                                                              
would receive by taking the royalty in-value.                                                                                   
The State currently sells royalty oil to Petro Star under a one-year                                                            
contract, which, due to its short duration, did not require legislative                                                         
approval. The current contract terminates on December 31, 2022. The                                                             
Proposed Contract would take effect on January 1, 2023 and terminate                                                            
on December 31, 2027.                                                                                                           
This bill is the culmination of diligent analysis and public process that                                                       
are imperative for responsible resource stewardship. The Department                                                             
and the Alaska Royalty Oil and Gas Development Advisory Board                                                                   
(Board) considered the fiscal, economic, societal, and environmental                                                            
impacts and benefits of the agreement. DNR issued a Final Best                                                                  
Interest Finding and Determination on the agreement that included                                                               
analysis of the factors for the sale of royalty oil in AS 38.05.183. The                                                        
Department did not receive any comments from the public on the sale                                                             
during the public comment period that ended on March 2, 2022.                                                                   
Additionally, the Board held two public hearings on the sale. In                                                                
accordance with AS 38.06.050, the Board voted to approve a written                                                              
recommendation and report on March 9, 2022, recommending                                                                        
legislative approval of the agreement.                                                                                          

2022-03-25                     Senate Journal                      Page 2122
The bill would allow the State to obtain the maximum value for its                                                              
royalty oil. I urge your prompt and favorable action on this measure.                                                           
Mike Dunleavy