State nets $8 million in North Slope, Cook Inlet lease sales; new net-profits bidding in Inlet draws modest result

Alaska announced bids Dec. 13 on 48 oil and gas leases sold in competitive online lease offerings. The results, for lands on the North Slope and Cook Inlet, were modest but indicate continuing interest in the state, which is positive, state officials said.

Bids were solicited for unleased state-owned land in five regions of the state but only three areas attracted offers: The North Slope; the Alaska Beaufort Sea offshore the slope and in Cook Inlet.

All three regions have seen exploration and are now producing.

For the North Slope onshore, the apparent high bidders on leases are companies that are existing explorers: Brooks Range Petroleum, subsidiary of U.K. -based Pantheon Resources with high bids on 46 leases in the new sale; Langniappe Alaska, subsidiary of Colorado-based Armstrong Oil and Gas, won 17 leases; Oil Search, a subsidiary of Santo, Ltd. of Australia won 14 leases, and Alaska independent Finnex won three leases and Strong Resources, another independent won one lease.

In the Alaskan Beaufort Sea offshore the North Slope, Langniappe Alaska won three leases; Savant Alaska, a Denver-base independent that developed the small Badami oil field east of Prudhoe Bay, won two leases. E&E Partners, an independent bidding group, won seven leases.

The aggressive bidding by Brooks Range, for a 46 tracts, indicates the company’s confidence in new discoveries being made in the central area of the slope where it is exploring.

Similarly, bids on 17 tracts indicates its confidence. The company is planning six exploration wells on acreage it now holds, three wells this winter and three next year,

In Cook Inlet, there were six tracts bid on, with three leases won by Hilcorp Alaska, a major independent that is the Inlet’s major oil and gas producer, and three by HEX LLC, an Alaska-based independent that owns and operates the small Kitchen Lights gas field.

There were no offers for leases in two remote Alaska areas where bids were solicited, the Alaska Peninsula and the North Slope foothills area south of the Prudhoe Bay and other large producing fields on the slope.

The combined sales brought in an estimated $8 million in “cash bonuses” for the State of Alaska, an increase over 2022. More than 224,000 acres on 110 tracts received bids across all of the lease sales.

Alaska Gov. Mike Dunleavy said he was satisfied that existing explorers and producers in the state are confident enough to expand holdings. In Cook Inlet, it was also promising to see two Alaska-focused companies make offers, the governor said, “but the lack of large new bidders emphasizes the need for Alaska to take action to stimulate more natural gas production in the Inlet.”

Natural gas production in the Inlet is declining, a major concern for Dunleavy because gas produced in the region fuels space heating snd power generation in Southcentral Alaska, the state’s major population center.

“I’ll be introducing a proposal in the upcoming legislative session to offer new incentives. We need to ensure we are doing everything we can to make our natural resources available for affordable, secure energy,” Dunleavy said in a statement.

In the lease sale just concluded the state had offered a net-profits bid variable for Cook Inlet. “The net profit share enables a producer to recover costs more quickly and then share profits with the State once the development costs are recouped, the governor said, explaining the incentive.

“This could help attract investors and make marginal projects more economically viable.” Dunleavy said.

However, only two companies, Hilcorp and HEX, took up the offer. Both are existing producers in the Inlet. Bids for 5.7 percent and 11 percent net profits shares were submitted by the Hilcorp and HEX.

The Division offered 2.9 million acres on 720 tracts in Cook Inlet with the new net profit terms.

The cash bonus per acre for these leases was fixed and a net profit share – where the state receives a portion of profits once a development becomes profitable – was the bid variable.

These leases do not feature a set royalty rate on production, which has historically been included in leases in Alaska. Terms also include a low per-acre rental and short primary term of only five years, designed to encourage aggressive exploration and development.

The net profit share also enables a producer to recover costs more quickly, and then share profits with the State once the development costs are recouped. This could help attract investors and make marginal projects more economically viable.

“Taking an innovative approach with these new Cook Inlet lease terms is one of the levers that DNR can pull to help make oil and gas production more attractive, so we hope it will gather increasing interest as producers have more time to evaluate this opportunity. We will continue to pull every lever we can, and to advance the Governor’s proposed legislation and other initiatives, to help meet our in-state energy needs,” said DNR Commissioner John Boyle.

“We are also very encouraged with the North Slope and Beaufort Sea results, and see the new leases as consistent with major programs and exploration plans that are being pursued by multiple companies. This is very good news for the North Slope and for Alaska.” Boyle said.

The North Slope lease sale received 94 bids on 92 tracts comprising 173,000 acres. North Slope cash bonus ($6,169,735) and acres sold (173,145) exceeded both 2022 results ($4,491,188 and 120,015 acres) and the five-year average of results ($4,910,487 and 119,848 acres), respectively.

The Beaufort Sea region had 13 bids on 12 tracts over 36,000 acres. Beaufort Sea cash bonus ($1,302,791) and acres sold (36,170) also exceeded both 2022 results ($555,702 and 16,772 acres) and the five-year average of results ($657,447 and 21,360 acres), respectively.