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DNR approves first lease extensions under new statutory provisions

(Anchorage, AK) – The Alaska Department of Natural Resources announced today it has approved the first one-time lease extensions – under new oil and gas leasing provisions passed by the Alaska Legislature earlier this year – on five leases set to expire in July and August. The company applying for the extension, Repsol E&P USA Inc., has spent over $200 million to date on exploration in the area of the leases, including drilling four exploration wells.  Arctic Slope Regional Corp. joined the state in extending leases on the jointly-managed lands.

DNR granted the company an extension of two years on five of its North Slope leases, but in return, Repsol must drill at least one new well within two years and post a $100,000 performance bond.

Bill Barron, director of DNR’s Division of Oil and Gas, said, “There are times when a lessee, having invested significant funds and work in a shorter-term lease, needs just a little more time to bring the lease into production. A one-time extension can buy the operator that extra time, but they have to show they’ve been diligently working to explore and develop the lease, they have to be willing to commit to completing additional work to prove up the lease, and they may have to be willing to post a performance bond.”

House Bill 198, sponsored by Rep. Kurt Olson of Kenai, allows DNR to grant a one-time extension for the primary term of an oil and gas lease if the commissioner finds the extension is in the best interest of the state, and if the initial term of the lease is shorter than ten years. DNR must consider the funds expended to explore and develop the lease, the types of work completed by the lessee, and other relevant information. If approved, DNR may require a work commitment and a bond, and may set rental as high as $250 per acre.

“This new tool is already helping to drive exploration and development, just as intended,” Barron said.  “It’s a win-win.  It accommodates short drilling windows, allows the state to require work programs during the primary term of the lease, encourages ongoing work to be completed, and increases the probability of bringing leases to production.”

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