Murkowski calls for easing MMS lease sale restrictions

Gov. Frank Murkowski has recommended the U.S. Minerals Management Service continue evaluating the option of dropping restrictions against joint bidding by oil and gas exploration companies in Cook Inlet and elsewhere in Alaska's federally controlled Outer Continental Shelf.

The governor delivered his opinion in an Oct. 10 letter to R.M. "Johnnie" Burton, MMS' Five-Year Program manager with the U.S. Department of the Interior, in response to MMS' call for comments on a draft five-year leasing program (2007-12).

"Given the lack of participation in recent (Cook Inlet) lease sales, opportunities to reduce or eliminate potential barriers to bidding should be explored," Murkowski said.

Robin Cacy, public affairs officer at MMS' Alaska office, said restrictions against joint bidding are meant to ensure against unfair competition, for instance, preventing major oil and gas companies from locking up lease acreage at the expense of smaller companies.

But low prices have been cited as among the reasons the oil and gas industry passed on lease sales during the current five-year program, leading MMS canceled Lease Sale 191 in 2004 outright, and this year, to delay Lease Sale 199 (scheduled for 2005) until July 2007. It is thought that the current elevated price of crude oil may encourage industry participation by that time.

In his letter, Murkowski also noted that while exploration and development in the OCS benefits Alaskans with jobs and infrastructure, the state only receives revenue from production occurring in a three-mile wide zone from three to six miles offshore. That zone should be broader, he said.

"I support changes to current federal law that would provide states and coastal communities with a fair percentage of direct revenues from royalties, bonus bids and rental fees derived from all OCS activities off their coasts," he wrote.

Cacy said states and coastal communities do incur costs associated with exploration and production in the OCS, but only see federal dollars from the three-mile zone, called the "8G" area, which refers to the relevant section of the law.

"There are impacts on infrastructure, and then there is the time needed to review environmental impact statements and permits," she said.

Bill Popp, the Kenai Peninsula Borough's liaison to the oil and gas industry, pointed out that the Energy Policy Act of 2005 signed into law by President George W. Bush on Aug. 8 actually includes a complex formula by which states and its coastal political subdivisions will share in revenues from OCS activities beyond the 8G boundary.

Popp said the peninsula would be in line for some of that revenue from OCS leases in lower Cook Inlet.

As to what features the next five-year federal lease program might incorporate, Cacy noted MMS has been reviewing a list of possible incentives to encourage industry participation in future lease sales. The current lease program includes such incentives as an extension of the primary lease term from five to eight years, lower minimum bid requirements and lower rental rates.

Also offered is a suspension of royalty payments on the first 30 million barrels produced, Cacy said. Normally, royalties are charged against all producing wells.

Cacy said she did not know if those items, or the possibility of lifting restrictions on joint bidding, were on the table for discussion.

"There are so many ideas going around at this point," she said.

Murkowski told MMS officials that Alaska's offshore waters could help the nation meet its future energy needs, especially in light of the current diminished production capability of the Gulf Coast Region. The state's OCS region have been estimated to hold undiscovered reserves totaling 25 million barrels of oil and 127 trillion cubic feet of natural gas.

The governor also said he supported lease sale efforts ongoing in other parts of Alaska OCS region, including in the Beaufort Sea, Chukchi Sea, Hope and Norton basins, as well as the North Aleutian Basin Planning Area, which currently is subject to a presidential withdrawal from leasing through June 2012.

A state sale in an adjoining the North Aleutian Basin area (the first Alaska Peninsula area oil and gas lease sale) is scheduled for Oct. 26. Murkowski said discovery of commercial quantities of oil and gas there could stimulate local and regional economies. He added that discoveries in the neighboring federal waters could help make state leases more attractive because "combined production would significantly improve the economics for developing infrastructure."

Murkowski said he hoped public comment on the 2007-12 program draft would lead to a decision to lift the current withdrawal and allow a North Aleutian Basin federal sale during the five-year period.