September 30, 2003
"I'm pleased to announce the awarding of these three Susitna Basin Exploration Licenses," Governor Murkowski said. "I'm especially delighted to welcome a new independent to our state Clearflame Resources."
"Alaska's exploration licensing program has proven itself to be a viable way for independents to get a foothold in this state. With this action, five exploration licenses covering over 2.2 million acres will have been awarded to independents," said Murkowski. The other exploration licenses were awarded in the Nenana and Copper River Basins. No wells have yet been drilled as a result of exploration licensing.
Exploration licensing was created by the legislature in 1996 to specifically encourage oil and gas exploration in areas of the state outside of the known areas of production. An exploration license grants the licensee the exclusive right, for up to 10 years, to explore an area between 10,000 and 500,000 acres. Rather than requiring a bonus payment to the state, as with conventional leasing, the licensee must commit to spending money on exploration. The work commitment required can be seismic studies, exploratory wells and other evaluation techniques. Once the work commitment has been satisfied, the licensee then has an exclusive right to convert any portion of the licensed area into conventional oil and gas leases.
In April 2000, the Alaska Department of Natural Resources, Division of Oil and Gas (DNR) received two requests from Forcenergy Inc. (now Forest Oil Corp.) for exploration licenses in the Susitna basin. On May 25, 2000 the division issued a "Notice of Intent to Evaluate" the proposals and the public was given 60 days in which to comment. At the same time, additional proposals were solicited. As a result of this solicitation, the division received a second proposal, which was later withdrawn. After evaluating Forcenergy's two proposals the division decided to proceed with developing a best interest finding.
The division held a public meeting on October 17, 2000, at Su Valley High near Talkeetna to discuss the license proposals. On April 5, 2001, the preliminary best interest finding was released, followed by a 60-day public comment period that ended June 5, 2001. During this comment period the division's lease sales manager addressed the Talkeetna and Trapper Creek Community Councils. A second public meeting was held at Su Valley High on May 23, 2001. Display ads, noting the comment period and the public meeting were placed in the Anchorage Daily News, The Frontiersman, and the Talkeetna Good Times newspapers. In addition, the lease sale manager was a guest on a call-in program on KTNA, Talkeetna Community Radio, in which the public could ask questions and voice concerns.
Forest Oil revised its northernmost license area proposal to exclude townships of concern to the public and DNR deleted this acreage from the license and from the study area.
In April 2003, DNR received a request from Clearflame Resources LLC, of Denver, Colorado, for an exploration license within the study area. The license was located mainly to the south and west of Forest Oil's proposals. On May 13, 2003, the division issued a "Notice of Intent to Evaluate" the proposal and the public was given 30 days in which to comment. At the same time, additional proposals were solicited. The division did not receive any competing proposals. After evaluating Clearflame's proposal, the division decided that the license would be included in this finding because the location was within the original study area evaluated in the preliminary best interest finding.
The applicants were evaluated upon meeting the minimum qualifications, their proposed amount of financial investment, duration of license, and area of proposed exploration. In addition to the best interest finding process the exploration area received a full Alaska Coastal Management Program consistency review. The proposed activities are governed by both DNR regulations and the Alaska Oil and Gas Conservation Commission.
The areas covered by the exploration licenses include the subsurface estate under some private lands. In Alaska, the use of the surface by the subsurface estate owner cannot be denied by the surface estate owners. Before a licensee makes any improvements to the surface estate, the licensee must first file a plan of operations with DNR and provide a copy to the surface estate owner. There is also public notice and a public comment period during this review. Before DNR approves a plan of operations, the licensee is required to produce a surface use agreement with the surface estate owner. The licensee is guaranteed reasonable accommodation of surface use within normal industry standards. If a surface use agreement is not reached, a bond determination hearing will be held. A bond amount will be set to cover any damages the surface owner might have as a result of the licensee's activity. Companies would prefer to work where they can obtain surface use agreements.
DNR will require mitigation of impacts on resources before approving a plan of operations. The licensee must protect water and soil quality along with other environmental concerns. The licensee is required to meet stringent requirements that were created to protect the environment and minimize impacts of operations.
DNR collected and accounted for $890.5 million in oil and gas royalties, rentals and other settlements in 2002. Hopefully exploration licensing will result in future increased oil and gas production and subsequent jobs and royalty payments.
Information on these licenses, along with the best interest finding, is available on the Division of Oil and Gas website: www.dog.dnr.state.ak.us.
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