Royal Dutch Shell Plc  .com Rotating Header Image

Petroleum News: MMS Beaufort Sea sale set for March 28

Two zones, near existing infrastructure and more distant, determine minimum bid amounts, royalty suspension volumes

Kristen Nelson
Petroleum News
Week of November 05, 2006

The Minerals Management Service has information out for its next oil and gas lease sale in the Beaufort Sea off Alaska’s North Slope. Bids for Beaufort Sea Sale 202 will be read in Anchorage March 28, beginning at 9 a.m. at the Wilda Marston Theatre in the Loussac Library.

MMS has 180 active leases in the Beaufort Sea, 117 of which date from Sale 195 in March 2005, which was dominated by Shell’s re-entry into Alaska with some $44 million of $46 million in high bids at the sale. Of 367,546 hectares currently under lease by MMS in the Beaufort, 245,760 hectares were taken at the 2005 sale. In addition to Shell, MMS Beaufort Sea tracts (or interests in tracts) are held by BP Exploration (Alaska), Murphy Exploration (Alaska), ConocoPhillips, Anadarko Petroleum, Forest Oil and Eni Petroleum Exploration.

BP holds the oldest blocks, dating from sales in December 1979 and June 1991, and is working toward development of its Liberty project, which would be the first entirely federal production in the Beaufort.

Sale includes some 9.7 million acres

The Sale 202 area includes some 1,877 blocks encompassing about 9.7 million acres offshore the North Slope from the Canadian border on the east to near Barrow on the west. MMS said the sale area excludes offshore areas near Barrow and Kaktovik used by the Inupiat for bowhead whale subsistence hunts. MMS also said that throughout the sale area it “will require that any offshore oil and gas activity be coordinated with the Inupiat whalers during their subsistence hunt.”

The blocks in Sale 202 have been subdivided into two zones: Zone A is nearest to existing infrastructure; Zone B more distant. The minimum bid amount for Zone A blocks is $37.50 per hectare; the minimum bid for Zone B blocks is $25 per hectare. (A hectare is 2.47 acres.)

Approximately 99 percent of the sale area is in less than 200 feet of water; a small portion of the outer limits of the sale area north of Harrison Bay drops to approximately 3,000 feet. The range of water depths is 25 to 3,000 feet. Blocks are from three miles to 60 nautical miles from shore. The initial lease period is 10 years and a royalty rate of 12.5 percent applies to all blocks.

MMS noted that the United States claims exclusive maritime resource jurisdiction over the area in the sale, but Canada claims such jurisdiction over the four easternmost blocks.

Royalty suspensions apply

MMS said royalty suspensions apply to all blocks in the sale area and are prorated by lease acreage and subject to price thresholds. The minimum royalty rate is $13 per hectare.

The royalty suspension provisions apply to first oil production and are on oil and condensate, prorated by lease acreage and subject to price thresholds. In Zone A, royalty suspension volumes are: 10 million barrels for less than 771 hectares; 20 million barrels for 771 to less than 1,541 hectares; and 30 million barrels for 1,541 hectares or more. In Zone B the royalty suspension volumes are: 15 million barrels for less than 771 hectares; 30 million barrels for 771 to less than 1,541 hectares; and 45 million barrels for 1,541 hectares or more.

Royalties must be paid for production that might otherwise receive royalty relief for any calendar year in which the actual Nymex annual price of oil exceeds the ceiling price threshold. The ceiling price threshold is determined by inflating the base year 2004 oil price of $39 per barrel by the percentage change in the implicit price deflator as reported by the U.S. Department of Commerce, Bureau of Economic Analysis.

If the actual Nymex quarterly price of oil is at or below the fixed floor price threshold of $21 (the price will not be adjusted for inflation) in any calendar quarter, “then oil produced during that calendar quarter would be royalty free” and also would not count against the lease’s remaining royalty suspension volume, unless the royalty suspension volume has been fully used. and its sister websites,,,,, and are all owned by John Donovan. There is also a Wikipedia article.

0 Comments on “Petroleum News: MMS Beaufort Sea sale set for March 28”

Leave a Comment

%d bloggers like this: