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Terms set for May 16 Cook Inlet oil and gas lease sale


(Anchorage, AK) – The Division of Oil and Gas today announced the date and terms of its annual Cook Inlet and Alaska Peninsula Oil and Gas lease sales.

Bid opening will start at 9 a.m. on Wednesday, May 16, 2012, at the Dena’ina Civic and Convention Center in Anchorage, Alaska. The bid opening is open to the public.

To promote a shorter time from lease sale to production, the Department of Natural Resources (DNR) is offering leases for the Cook Inlet sale under terms that differ from previous years.

“Over the past year, we’ve seen a renaissance of oil and gas activity in Cook Inlet,” said DNR Commissioner Dan Sullivan. “The terms of this lease sale are meant to encourage diligent operators who are interested in producing off their leases,” he said.

DNR officials have made it a top priority to inform potential oil and gas investors of state leasing opportunities during the past year. In 2011, the state had its best Cook Inlet lease sale results in decades and a robust North Slope lease sale that attracted a diverse group of companies.

All Cook Inlet leases will have a ten-year primary term. The lease rental rate for all Cook Inlet tracts will be $10.00 per acre through year seven, and $250.00 per acre in years eight through ten. If a lessee can demonstrate reasonable diligence to explore and develop the lease, DNR may allow the rental rate to remain at $10.00 per acre in the last three years of the primary term. Royalty rates will remain at the minimum level of 12.5 percent, and minimum bid is set at $25 per acre. Together, the primary lease term and rental schedule provide the lessee with a decision point in year seven to produce, pay higher rents, or relinquish the lease.

To incentivize new exploration and production in the state’s four-million acre Cook Inlet lease sale area, the state offers tax credits for new exploration and production wells, and for seismic work. Operators pay a reduced royalty for the first ten years on any new discovery in Cook Inlet, and they pay no production tax on oil.

The rental schedule for the Cook Inlet lease sale mirrors the terms used in DNR’s 2011 North Slope lease sale, and it is intended to encourage timely production under reasonable and achievable timelines.

Cook Inlet has been producing hydrocarbons since the early 1960s. At the end of 2011, approximately 1.3 billion barrels of oil and 10.8 trillion cubic feet of gas had been produced from the region.

Terms for the Alaska Peninsula lease sale will remain unchanged from previous years. The minimum bid is set at $5.00 per acre and the royalty rate of 12.5 percent is the lowest allowed by statute. Rental rates start at $1.00 per acre and rise by 50 cents every year until the fifth year, after which the rate stays at $3.00 per acre for the rest of the primary ten-year term.

Bidding instructions, bid forms, and detailed terms and conditions are available on the division’s website at http://dog.dnr.alaska.gov/Leasing/LeaseSales.htm#announced.

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