LEASES, TERMINATED AND TRANSFERRED?
The Alaska Department of Natural Resources commissioner has been dealing with a certain lease that has been terminated, and what to do with it.
Everything involving the oil patch is complicated, but this question is not complicated at all:
Should the department do what the Division of Oil and Gas usually does, which is to take terminated leases back and put them out to bid, or do what the governor says to do, which is to let the leaseholder sell the leases directly to another company?
The implications are enormous.
The answer is: The leases in question go back into the pool for independent bidding.
Outgoing Commissioner Marty Rutherford thought so, anyway. Former Commissioner Mark Myers thought so. And Parnell Administration Commissioner Joe Balash, who started the process, also probably thought so.
But Gov. Bill Walker has other plans. No one seems to know why except his Deputy Chief of Staff Marcia Davis.
At the time that DNR took action to terminate these leases, sales on the North Slope were the biggest in history.
The leases are not junk, according to our sources. Not junk at all. They are in the same geography where Armstrong and Repsol found oil. The leases could be soaked in oil and competitively bid at millions, perhaps tens of millions of dollars.
When the leaseholder (we’ll call them XYZ) hit financial challenges, the State began the lengthy termination process. That was under Commissioner Balash in 2014.
Today, the State could surely use the money and by state constitution, the State is required to get the most money it can for it.
XYZ, in an effort to get some value from the leases to satisfy debt, wanted to sell the leases to another company, one we’ll call ABC.
That would have been a usual practice if the leases were active, and if such a lease sale was approved by the Division of Oil and Gas.
But once leases are inactive, it’s a whole other ball game. They get re-bid.
This, we are told, is one of the ethical challenges over which Commissioner Rutherford had to stare down the governor.
Marcia Davis got in the middle of it, trying to steer the leases to the second company. Rutherford, already facing other dilemmas with this governor, had to make a decision to stay or go. She had won the battle, but lost the war, because there were even bigger ethical challenges just on the horizon.
SIDELINED ANYWAY, OVER AK-LNG
Rutherford, once part of the inner circle of Gov. Bill Walker, had found herself in outer orbit for the past few months. It was widely thought that since she came in with Mark Myers, former commissioner, the two would also leave together. They worked together to keep Walker from going off the rails continually. And leaving together is how it is shaping up. Mark left in March. Marty in June, at the end of a very difficult fiscal year, and the beginning of an even worse one.
This Wednesday, the State Senate Natural Resources Committee will convene to hear its scheduled update on the AK-LNG project, the $55 billion gasline for which the Alaska Gasline Development Corporation is representing the State’s interests.
Giving testimony all by himself will be the new head of the AGDC, Keith Meyers, who has been on the job for a few short weeks.
Sitting on the side but not participating will be Rutherford, who will know more than anyone in the room about the project, and her replacement, Andy Mack, who becomes DNR commissioner upon her departure Thursday afternoon. Andy comes from PT Capital, an investment firm. He will need to come up to speed before taking the microphone in a Senate hearing.
GASLINE PARTNERSHIP FALLING APART?
Currently, AGDC, BP, ConocoPhillips, and ExxonMobil are partners in the AK-LNG Project, which is in the preliminary front-end engineering and design phase. To advance to the next stage, the partners must each commit $500 million.
But that’s not likely to happen soon. The industry partners have told the governor they are too strapped to commit.
ConocoPhillips’ Natalie Lowman told a reporter last week that the governor through AGDC “has proposed a state-controlled project, and conversations to better understand that proposal are under way.”
Conversations are indeed being had all across the oil patch regarding the governor’s proposals. He’ll have to move carefully now that everyone is watching him, and conversing about him.