Alaska's DNR extends first leases under new provision

Alaska's Department of Natural Resources extended oil and gas leases for the first time on Aug. 1 under authority the state's legislature gave it earlier this year. The leaseholder, Repsol E&P USA Inc., spent more than $200 million on the leases, including drilling four exploration wells, DNR noted.

It granted the Repsol SA subsidiary a 2-year extension on five of its North Slope leases. In return, Repsol E&P USA must drill at least one new well within 2 years and post a $100,000 performance bond.

"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," said Bill Barron, who directs the Alaska DNR's oil and gas division.

"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," he explained.

House Bill 198, sponsored by Rep. Kurt Olson (R-Kenai), allows DNR to grant a one-time extension for an oil and gas lease's primary term if the commissioner it is in the state's best interest, and if the lease's initial term is less than 10 years.

The department 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/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."