Legislature(2025 - 2026)BARNES 124
04/16/2025 01:00 PM House RESOURCES
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| Audio | Topic |
|---|---|
| Start | |
| HB194 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | HB 194 | TELECONFERENCED | |
| *+ | HJR 18 | TELECONFERENCED | |
ALASKA STATE LEGISLATURE
HOUSE RESOURCES STANDING COMMITTEE
April 16, 2025
1:37 p.m.
MEMBERS PRESENT
Representative Robyn Niayuq Burke, Co-Chair
Representative Maxine Dibert, Co-Chair
Representative Carolyn Hall
Representative Donna Mears
Representative Zack Fields
Representative Dan Saddler
Representative George Rauscher
Representative Julie Coulombe
Representative Bill Elam
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 194
"An Act approving and ratifying the sale of royalty oil by the
State of Alaska to Marathon Petroleum Supply and Trading Company
LLC; and providing for an effective date."
- MOVED HB 194 OUT OF COMMITTEE
HOUSE JOINT RESOLUTION NO. 18
Supporting the continued development of the Alaska Liquefied
Natural Gas Project; recognizing the importance of the Alaska
Liquefied Natural Gas Project to the economy of the state,
energy independence, and national security; and urging the
United States Congress, President Donald J. Trump, Secretary of
the Interior Douglas Burgum, and relevant federal agencies to
take all necessary actions to expedite the success of the Alaska
Liquefied Natural Gas Project.
- SCHEDULED BUT NOT HEARD
PREVIOUS COMMITTEE ACTION
BILL: HB 194
SHORT TITLE: APPROVE MARATHON PETRO ROYALTY OIL SALE
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
04/15/25 (H) READ THE FIRST TIME - REFERRALS
04/15/25 (H) RES, FIN
04/16/25 (H) RES AT 1:00 PM BARNES 124
WITNESS REGISTER
JOHN CROWTHER, Deputy Commissioner
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-presented a PowerPoint regarding HB 194
and provided a brief summary of the bill.
RYAN FITZPATRICK, Commercial Manager
Division of Oil & Gas
Department of Natural Resources
Anchorage, Alaska
POSITION STATEMENT: Co-presented a PowerPoint regarding HB 194.
CASEY SULLIVAN, Government and Public Affairs Manager
Marathon Petroleum
Anchorage, Alaska
POSITION STATEMENT: Testified in support of HB 194.
ACTION NARRATIVE
1:37:02 PM
CO-CHAIR BURKE called the House Resources Standing Committee
meeting to order at 1:37 p.m. Representatives Coulombe,
Rauscher, Hall, Mears, Elam, and Burke were present at the call
to order. Representatives Fields, Saddler, and Dibert arrived
as the meeting was in progress.
HB 194-APPROVE MARATHON PETRO ROYALTY OIL SALE
1:37:45 PM
CO-CHAIR BURKE announced that the only order of business would
be HOUSE BILL NO. 194, "An Act approving and ratifying the sale
of royalty oil by the State of Alaska to Marathon Petroleum
Supply and Trading Company LLC; and providing for an effective
date."
1:38:02 PM
JOHN CROWTHER, Deputy Commissioner, Department of Natural
Resources (DNR), co-presented a PowerPoint titled "House Bill
pending introduction Approve Marathon Royalty Oil Sale House
Resources Committee" [hard copy included in the committee
packet] and provided a brief summary regarding the purpose of HB
194. He explained that it was an authorization to enter into a
contract which was a continuation of a long-standing process the
state of Alaska has had to dispose of its royalty in-kind oil
(RIK). This agreement supports in-state refining and leads to
revenue for the state.
1:38:42 PM
RYAN FITZPATRICK, Commercial Manager, Division of Oil & Gas,
Department of Natural Resources, co-presented a PowerPoint,
titled "House Bill pending introduction Approve Marathon
Royalty Oil Sale House Resources Committee." He showed slide 2,
titled "What is 'Royalty In-Kind'?" which read as follows
[original punctuation provided]:
Oil and gas leases issued by the State reserve a
"royalty share" to the State a portion of production
that the State receives as owner of the resource.
The State has the option to take its royalty oil and
gas in-value (RIV) or in-kind (RIK).
• RIV: Lessees market the royalty oil or gas
alongside their own production; the State receives the
proceeds from the sale of its royalty oil, subject to
fair market value
• RIK: Lessees provide royalty oil or gas of
sales quality to the State; the State is responsible
for marketing its royalty oil or gas
Department of Natural Resources (DNR) has statutory
processes for receiving royalty:
• Alaska Statute (AS) 38.05.182 requires DNR to
make best interest findings for RIV and RIK
determinations, and requires the commissioner report
annually to the Legislature about these elections
• AS 38.05.183 guides DNR in the sales of RIK and
requires that contracts meet a number of statutory
criteria and, in certain cases, receive legislative
approval before being entered into
• AS 38.06 establishes the Alaska Royalty Oil and
Gas Development Advisory Board, which reviews royalty-
in-kind actions by DNR
1:40:02 PM
MR. FITZPATRICK moved to slide 3, titled "Royalty A Core Lease
Term," which showed an example of the type of lease addressed by
HB 194. The lease dated 2002 served as an example of the state
reserving royalty shares to the state, where the royalty shares
serve as compensation for the lease of state oil and gas lands.
He proceeded to slide 4 which showed a map of North Slope oil
and gas leases, including leases which are in production and
leases which are under exploration and not producing yet. The
oil being taken as royalty-in-kind (RIK) has been predominately
from the North Slope.
1:41:16 PM
MR. FITZPATRICK moved to slide 5, titled "Royalty In-Kind
Contract History," which read as follows [original punctuation
provided]:
• The State has historically selected to receive
royalty oil both in-kind and in-value
About 97 percent of the State's royalty oil in-kind
selections have been for North Slope oil
• The amount of RIK oil that the State sells varies
and depends many factors:
• Alaska North Slope (ANS) oil production from
state-owned lands
• Royalty rates for State oil and gas leases
• State's selection of the fields from which to
choose RIK oil
• Quantity of crude oil sought by in-state
refineries or other potential buyers
• Competitiveness of ANS royalty oil versus other
sources of crude oil for instate refineries or other
potential buyers
Slide 5 also showed a graph, titled "Historical North Slope
royalty oil January 1980 - November 2024," which compared the
RIK oil and the royalty in-value (RIV) oil. He discussed the
volumes of oil and how and why the percentages varied.
1:42:08 PM
MR. FITZPATRICK proceeded to slide 6, titled "Royalty In-Kind
Contract History," which read as follows [original punctuation
provided]:
• Almost all the nearly one billion barrels sold to
date have been sold via non-competitive sales
• Less than 5 percent has been sold via competitive
sales
• The large majority of RIK oil sold to date has been
to in-state entities, with a few historical cases
where RIK oil was sold for export outside of Alaska
A graph on slide 6 showed RIK sales from 1979 through 2024. It
detailed purchasers, types of contracts, and volumes of oil,
pointing out contracts with Petro Star and Tesoro/Marathon which
supported the Nikiski refinery. The Tesoro/Marathon contract
was set to expire in 2025, and HB 194 would replace the expiring
contract.
1:43:06 PM
MR. CROWTHER explained that the legislature had laid out a
process for DNR to follow when entering into this type of
contract. He showed slide 7, titled "Processes and Legislative
Approval," which read as follows [original punctuation
provided]:
RIK contract development and execution involves
several significant steps:
• DNR commissioner follows a statutory process to
negotiate a proposed sale; then DNR publishes a
proposed finding describing the terms and reasons for
the sale
• DNR must brief the Alaska Royalty Oil and Gas
Development Advisory Board (AS 38.06) on the proposed
sale and receive the Board's review and approval
• After receiving public comment on the proposed
findings, DNR publishes a final best interest finding
• AS 38.06.055 requires authorization by the
Legislature before a contract can be executed
There are limited exceptions to this process, such
contracts to relieve storage or market conditions with
a duration of one year or less, and contracts for
sales of 400 barrels per day or less. These exceptions
do not apply to the Marathon contract now under
consideration.
He explained that the advisory board recommended adopting the
contract. The recommendation, resolution in support of the
contract, and a best interest finding were included in the
committee packet.
1:44:08 PM
MR. CROWTHER proceeded to slide 8, titled "Royalty Board
Review," which read as follows [original punctuation provided]:
AS 38.06.050 requires the Alaska Royalty Oil and Gas
Development Advisory Board:
• To provide a written recommendation of the board on
the proposed sale, submitted to the Legislature at the
time a bill approving the proposed sale is introduced,
and
• To provide a report on the criteria used to evaluate
the proposed sale
The slide included screenshots of the resolution provided by the
board. The information on slide 8 regarding the royalty board
review was further supported by the statutory criteria detailed
on slide 9, titled "Royalty Board Review Criteria," which read
as follows [original punctuation provided]:
Sec. 38.06.070. Criteria. (a) In the exercise of its
powers under AS 38.06.040(a) and 38.06.050 the board
shall consider
(1) the revenue needs and projected fiscal condition
of the state;
(2) the existence and extent of present and projected
local and regional needs for oil and gas products and
by-products, the effect of state or federal commodity
allocation requirements which might be applicable to
those products and by-products, and the priorities
among competing needs;
(3) the desirability of localized capital investment,
increased payroll, secondary development and other
possible effects of the sale, exchange, or other
disposition of oil and gas or both;
(4) the projected social impacts of the transaction;
(5) the projected additional costs and
responsibilities which could be imposed upon the state
and affected political subdivisions by development
related to the transaction;
(6) the existence of specific local or regional labor
or consumption markets or both which should be met by
the transaction;
(7) the projected positive and negative environmental
effects related to the transaction; and
(8) the projected effects of the proposed transaction
upon existing private commercial enterprise and
patterns of investments.
(b) When it is economically feasible and in the public
interest, the board may recommend to the commissioner
of natural resources, as a condition of the sale of
oil or gas obtained by the state as royalty, that
(1) the oil or gas be refined or processed in the
state;
(2) the purchaser be a refiner who supplies
products to the Alaska market with price or supply
benefits to state citizens; or
(3) the purchaser construct a processing or
refining facility in the state.
The board shall make a full report to the legislature
on each criterion specified in (a) or (b) of this
section for any disposition of royalty oil or gas that
requires legislative approval. The board's report
shall be submitted for legislative review at the time
a bill for legislative approval of a proposed
disposition of royalty oil or gas is introduced in the
legislature.
1:44:52 PM
MR. FITZPATRICK turned to slide 10, titled "Recent RIK
Contracts." The graph provided contract details including who
the contract is with, the time period, the royalty barrels for
sale, the royalty board review, and the status of legislative
approval. He referred to the lower section of the chart which
included information regarding the contract proposed in HB 194.
He explained that the last two contracts with Marathon and Petro
Star were renegotiated in 2022. The Marathon contract was a
three-year contract, which explained the need for renegotiation.
He pointed out the specification of a three-year primary term
which could extend to ten years if all parties were in
agreement, a difference from previous contracts.
1:47:12 PM
MR. FITZPATRICK moved to slide 10, titled "Competitive vs. Non-
Competitive Sales," which detailed statutory directives and read
as follows [original punctuation provided]:
• AS 38.05.183 requires the sale of royalty oil be by
competitive bid, unless determined that the best
interest of the State does not require it or no
competition exists
• A non-competitive sale requires a written finding by
DNR; for the Marathon contract, a Final Best Interest
Finding was published on April 14, 2025
• How does DNR decide between a competitive and non-
competitive sale?
• DNR publishes a "Solicitation of Interest" letter
with the goal of gauging the interest of the market
• In this letter, DNR establishes its preferred method
of sale (i.e., competitive disposition) with non-
binding parameters for such sale
• Interested parties are invited to comment on their
willingness to buy RIK oil and their preferred terms
• DNR analyzes those responses and makes a written
determination of the method of sale that is in the
best interest of the State
When awarding a royalty sale the commissioner shall
consider:
• The cash value offered;
• The projected effects of the sale, exchange, or
other disposal on the economy of the state;
• The projected benefits of refining or processing the
oil or gas in the state;
• The ability of the prospective buyer to provide
refined products or by-products for distribution and
sale in the state with price or supply benefits to the
citizens of the state; and
• The criteria listed in AS 38.06.070(a)
There have been very limited competitive sales in the
past:
• Competitive sales of RIK oil only occurred in 1981,
1985, and 1986
• Less than 5 percent of RIK oil (46 million barrels
of approximately one billion overall barrels) sold to
date has been via competitive sales
1:48:26 PM
MR. FITZPATRICK showed slide 12, titled "RIK's In-State
Priority," which read as follows [original punctuation
provided]:
DNR is statutorily directed to give a priority to in-
state RIK sales
Sec. 38.05.183. Sale of royalty.
d) Oil or gas taken in kind by the state as its
royalty share or gas delivered to the state under AS
43.55.014(b) may not be sold or otherwise disposed of
for export from the state until the commissioner
determines that the oil or gas is surplus to the
present and projected intrastate domestic and
industrial needs.
He pointed out that the statute directed DNR to give a priority
to in-state refining. The only RIK contracts at the time of the
presentation were with Marathon and Petro Star.
1:49:15 PM
MR. FITZPATRICK proceeded to slide 13, titled "The Historical
Premium for RIK Sales." A chart labeled "Premium of RIK Price
over RIV Price for ANS Royalty Oil January 2008 - November 2024"
showed that the state has consistently received a premium above
the average of the (RIV). He stated that the higher average
was, in part, due to the sales within the state. The slide
summarized information regarding RIK sales and read as follows
[original punctuation provided]:
• 11 Alaska Administrative Code 03.026(b) states that
the RIK price should be at least equal to the RIV
price
• From 2008 - 2023 the average RIK price was $1.25/bbl
higher than that RIV price
• The State sold over 173 million barrels of royalty
oil during this period
• RIK sales proceeds were $12.99 billion
• The State made over $188 million in revenue compared
to taking the royalty barrels in-value
Continuing with slide 14, titled "RIK Process Overview," he
touched briefly on the steps of the RIK contract process and
moved to slide 15, titled "Recent RIK Contract Key Terms," which
reviewed key contract terms. He highlighted the pricing term in
the most recent contract, the RIK differential. He described it
as a contractual item negotiated between the parties, explaining
that in the past the state negotiated a fixed value for the RIK
differential and providing details regarding how the costs were
calculated. Recently, the Department of Revenue (DOR) received
all the contracts for in-state sales of oil and published a
volume-weighted average of the location differential for all the
contracts in the state. This year, instead of negotiating a
fixed dollar value for the RIK differential, the RIK
differential was pegged to the volume-weighted average published
by the DOR. He described the premium negotiated for the state
and how that effected the value received for the state's RIK
oil.
1:52:42 PM
MR. FITZPATRICK moved to slide 16, titled "Why RIK?" which
showed value calculations of the producers selling oil outside
Alaska compared to when producers sell oil in the state. He
proceeded to slide 17, titled "RIK Pricing Formula," which
summarized the calculations for determining the RIK price. He
showed slide 18, titled "Contract Terms for Marathon Using DOR
Location Differential," which read as follows [original
punctuation provided]:
Proposed RIK differential = DOR Location Differential
minus 24 cents/bbl
• Difference between marine deduction and RIK
differential largely drives RIK premium over RIV
• New methodology allows for dynamic RIK differential
deduction over contract term
• DNR estimates $1.08/bbl RIK premium
• This would result in approximately $4.9 million
incremental revenue per year of the contract over RIV
if Marathon purchases an average of 12.5 thousand
barrels of oil per day (mbopd)
He explained that the graph illustrated costs of marine
transportation. He discussed how the location differential was
analogous to marine transportation, pointing out the RIK
differential and the DOR location differential.
1:55:09 PM
MR. FITZPATRICK presented slide 19, titled "Maximum Benefit to
Alaskans," which read as follows [original punctuation
provided]:
As required by AS 38.05.183(e), the Marathon RIK
contract maximizes the benefits to the State:
• The sale results in royalty premiums to the State
compared to the average RIV values
• Incremental increase in State revenue by $4 to
$6 million per year
• In-state refining supports Alaskan jobs
• Marathon provides 220 full-time positions at
its Nikiski refinery, over 60 contracted positions and
40 positions at Anchorage and North Pole terminals
• Producing refined products in Alaska reduces the
costs to Alaskans
• Fuel security is economic security
• Marathon's Kenai refinery produces 55,000
barrels of refined product per day
• 30 percent is jet fuel supplied to Ted Stevens
Anchorage International Airport nearly half the
airport's demand
• 27 percent is gasoline, which is consumed in
state
• 43 percent is a combination of liquid petroleum
gas, fuel oil, asphalt and other products
He said the Marathon RIK contract would generate 4-6 million
dollars per year in additional state revenue as well as
supporting refinery activities and the maximum benefit of the
resources for Alaska.
1:56:29 PM
MR. FITZPATRICK responded to a question from Representative
Saddler by explaining that the RIK contracts were renegotiated
on a periodic basis and were subject to commercial negotiations
between the state and counter parties. The new pricing
mechanism would likely be proposed in future negotiations.
1:57:35 PM
Mr. CROWTHER responded to Representative Saddler's suggestion
that the pricing mechanism could be one of the terms of the
contract negotiations, saying that could be a possibility if it
was beneficial to the state.
1:58:00 PM
REPRESENTATIVE RAUSCHER said that on slide 13, what happens when
the dot is below zero.
MR. FITZPATRICK, in response to a question from Representative
Rauscher, explained that the dots on slide 13 represented the
premiums received for RIK. When they were above zero, it meant
a premium for RFK sales, but when they dropped below zero, those
contracts resulted in sales that were less than the equivalent
of RIV. He noted that sales consistently stayed above zero and
that the lower sales were rare.
1:59:13 PM
MR. CROWTHER, in response to questions from Representative
Rauscher and Representative Coulombe, pointed out that the RIK
process for the Marathon sale was on slide ll. He explained
that an approval of the contract would include extensions, so
DNR wouldn't have to return to the legislature each year. The
department would assess whether that extension year to year was
in the state's interest.
2:00:02 PM
MR. FITZPATRICK addressed a question posed by Representative
Elam, noting that slide 10 showed the volumes of oil produced
under Petro Star and Marathon contracts and referring to in-
state demand for refined fuels. He also described situations in
which the companies purchased oil from other sources.
2:02:43 PM
CO-CHAIR BURKE opened public testimony on HB 194.
2:02:00 PM
CASEY SULLIVAN, Government and Public Affairs Manager, Marathon
Petroleum, spoke in support of HB 194 and referred to the letter
of support in the committee packets. He explained that the
contract provided availability, flexibility, and stability and
would have a positive impact on the company's ability to
optimize operations at the Marathon Kenai refinery. He talked
about the refinery's production numbers, emphasizing how
Marathon supported Alaskans and the Alaska economy. He pointed
out that the oil purchased under the contract would remain in
state, creating a win-win for Alaska. At the same time,
Marathon would get a stable supply of Alaska North Slope crude
while giving flexibility to accommodate for seasonal
fluctuations in demand.
2:04:57 PM
CO-CHAIR BURKE closed public testimony on HB 194.
2:05:06 PM
CO-CHAIR DIBERT moved to report HB 194, work order 34-GH1086\A
out of committee with individual recommendations and the
accompanying zero fiscal notes. There being no objections, HB
194 moved out of committee.
2:06:02 PM
ADJOURNMENT
There being no further business before the committee, the House
Resources Standing Committee meeting was adjourned at 2:06 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| HB 194 Alaska Royalty Board Legislative Report_Marathon 2025.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HB 194 Alaska Royalty Board Resolution 2025-1.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HB 194 DNR Final Best Int Finding Marathon RIK 4-14-25.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HB 194-Marathon RIK-DNR presentation HRES 4-16-25.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HJR 18 Sponsor Statement ver. I.pdf |
HRES 4/16/2025 1:00:00 PM |
|
| MPC HB194 Support HRES.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| Alaska Chamber HB194 Support Letter HRES 4.15.2025.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HB 194 DNR Briefing Paper 4-15-25.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HB194 Transmittal Letter.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |
| HB 194 DNR Sectional Analysis.pdf |
HRES 4/16/2025 1:00:00 PM |
HB 194 |