THE LINK: OCTOBER 2023 33 A great Safety Award or Retirement Gift! AVAILABLE IN BOTH HARDBOUND AND SOFT COVER EDITIONS (907) 223-4704 | judypatrickphotography.com Also available in bulk quantities! A COFFEE TABLE PHOTO BOOK OF ALASKA’S NORTH SLOPE OIL PATCH ON SALE NOW! Hilcorp Energy, a Houston-based major independent, is now the major producer in Cook Inlet but Hilcorp has advised utility customers in the region that existing supply contracts cannot be renewed as they expire because of the reserve depletion. Despite natural gas prices of $8 per mcf, some of the nation’s highest, Cook Inlet is still a high cost area to explore and develop discoveries, and there has been very low interest in recent state sales, the most recent being with one bidder near existing producing leases. Removal of a gross royalty and substitution of the net profits share will help economically marginal prospects because the gross royalty, which is paid off the top, based on the prevailing resource value at the wellhead, with no allowance for capital and operating costs. That becomes a major economic burden, Crowther said. A net profit share, in contrast, is paid after operating and costs and removes risk for the explorer, although it has the state assume more risk. Alaska is familiar with net profits administration after switching its production tax system in 2006 to net profits taxes from taxes paid on gross values, and although there were complications the system has generally worked well in spurring continued industry activity in low oil price cycles, state revenue officials have said. Net profits bidding in lease sales, however, has had problems in the few times it has been done in Alaska for oil on the North Slope. That was mainly because it sometimes encouraged aggressive bidding by companies which resulted in uneconomic lease fiscal terms that later had to be renegotiated. However, the state now believes it is worth another try to stimulate more interest in Cook Inlet, Crowther said, particularly for natural gas. Southcentral Alaska utilities are exploring importing LNG from British Columbia, which will be costly and is something state officials would rather avoid if more gas can be found in the region. — Tim Bradner Alaska holds areawide sales of unleased lands yearly in different parts of the state including Cook Inlet, and cash-bonus bidding and fixed royalty, usually 12.5% of gross revenues, is the norm.
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