Performance Details

Department of Natural Resources - Oil & Gas Development

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Mission

The Division of Oil and Gas manages lands for oil, gas, and geothermal exploration and development in a fair and transparent manner to maximize prudent use of resources for the greatest benefit of all Alaskans, and facilitates safe and environmentally conscious operation and maintenance of common carrier pipelines.

Core Services

• Enforce exploration and development obligations of lease and unit agreements, weighing several factors including resource potential and conservation, environmental and economic impacts, and proposed work commitments.
• Ensure that exploration, leasehold, and unit-related operations are conducted in a timely and responsible manner. Provide for exploration of state land through geophysical exploration permits.
• Administer AS 38.35 leases; revenue collection, permitting, compliance and engineering oversight of construction, operation, maintenance and termination of pipelines. Coordinate with state and federal agencies to serve the state's best interests.

Mission Results	Core Services
A: Maximize financial benefit of oil, gas, and geothermal production to the state  Details > TARGET #1: Ensure the state receives the maximum rates and payments for oil and gas resources.	A1: Enforce exploration and development obligations of lease and unit agreements, weighing several factors including resource potential and conservation, environmental and economic impacts, and proposed work commitments.  Details > TARGET #1: Adjudicate all lease operation and unit actions (formation, expansion, contraction, termination, extension, participating area, tract allocation, & plans of exploration or development) as required by relevant regulation, lease, or unit agreements.
Mission Results	Core Services
B: Manage Alaska's oil, gas, and geothermal resources for responsible exploration and development for maximum benefit to the state.  Details > TARGET #1: Provide access to state lands for the purpose of responsible oil, gas, and geothermal exploration and development.	B1: Ensure that exploration, leasehold, and unit-related operations are conducted in a timely and responsible manner. Provide for exploration of state land through geophysical exploration permits.  Details > TARGET #1: Evaluate and issue 100% of plan authorizations within established timelines for each lease or unit plans of operation. TARGET #2: Issue permits for geophysical exploration within established timelines (100% Compliance)
Mission Results	Core Services
C: Ensure the design, construction, operation and maintenance of jurisdictional pipelines meet regulatory and environmental requirements.  Details > TARGET #1: Offer design criteria and safety information to the public to support best management practices for each lease.	C1: Administer AS 38.35 leases; revenue collection, permitting, compliance and engineering oversight of construction, operation, maintenance and termination of pipelines. Coordinate with state and federal agencies to serve the state's best interests.  Details > TARGET #1: Facilitate and improve regulatory and lease compliance monitoring of AS.38.35 pipelines.

Performance Detail

Target #1: Ensure the state receives the maximum rates and payments for oil and gas resources. Audit Collection of Royalty and Net Profit Share Lease Revenues Collected (in Millions) Fiscal Year $ Millions FY 2020 2.5 FY 2019 5.6 FY 2018 44.7 FY 2017 -0.1 Analysis of results and challenges: FY2020: The Audit Section issued seven audits over the past fiscal year representing claims of $3.6 million in royalty and net profit shared leases (NPSL) revenue. Audit collections were $2.5 million in royalty and NPSL revenue, not including interest. At the end of FY20, fourteen issued audits remained in appeals in the Commissioner's Office pending final resolution and represent claims of $0.2 million in royalty and $68.5 million in NPSL revenue. At the end of FY20, thirteen audits were in either Superior Court or arbitration for resolution and represent claims of $45.5 million. Audits focus on cases where recoveries are expected to be the largest. The audit staff increased its focus on net profit share audits in the past several years. The limited number of auditors performing audits subject to deadlines set by expiration of statute of limitations periods to audit requires careful selection of which leases and units are selected for audit. Lessees are frequently unwilling to agree to voluntarily extend the statute of limitations periods to conduct audits. Audit findings are not always collected when issued. Some audit decisions are appealed by lessees to the Commissioner's Office. Lessees can then appeal Commissioner Decisions to the Superior Court. The audit staff must also work the appeals and court cases, which reduces time available to perform audits. Net profit share audits have an appeals procedure prescribed by regulation. This procedure and robust net profit share regulations facilitate more timely resolution of audit issues and more timely collection of the additional revenues owed the state. Also, net profit share lessees must pay the audit claim in order to preserve their appeal rights if they choose to appeal the audit. FY2019: The Audit Section issued three audits over the past fiscal year representing claims of $14.8 million in royalty and net profit shared leases (NPSL) revenue. Audit collections were $5.6 million in royalty and NPSL revenue, not including interest. Twenty-seven issued audits remain in appeals pending final resolution and represent claims of $46.3 million in royalty and $68.5 million in NPSL revenue. FY2018: The Audit Section issued eight audits over the past fiscal year representing claims of $46.1 million in royalty and net profit shared leases (NPSL) revenue. Audit collections were $44.7 million in royalty and NPSL revenue, not including interest. Twenty issued audits remain in appeals pending final resolution, and represent claims of $22.1 million in royalty and $63.1 million in NPSL revenue. There are two unresolved audits that were remanded back to the division representing claims of $11.6 million in royalty revenue. Audits are focused on cases where recoveries are expected to be the largest. The audit staff has increased its focus on net profit share audits in the past several years. The limited number of auditors performing audits subject to deadlines set by expiration of statute of limitations periods to audit requires careful selection of which leases and units are selected for audit. Lessees are frequently unwilling to agree to voluntarily extend the statute of limitations periods to conduct audits. Audit findings are not always collected when issued. Some audit decisions are appealed by lessees to the Commissioner's Office. The audit staff must also work the appeals cases, which reduces time available to perform audits. Net profit share audits have an appeals procedure prescribed by regulation. This procedure and robust net profit share regulations facilitate more timely resolution of audit issues and more timely collection of the additional revenues owed the state. Also, net profit share lessees must pay the audit claim in order to preserve their appeal rights if they choose to appeal the audit. FY2017: The Audit Section issued two audits over the past fiscal year representing claims of $7.7 million in royalty and NPSL revenue. Audit collections were ($0.1) million in royalty and NPSL revenue, not including interest. Fourteen issued audits remain in appeals pending final resolution, and represent claims of $21.0 million in royalty and $22.1 million in NPSL revenue. There are two unresolved audits that were remanded back to the division representing claims of $11.6 million in royalty revenue.

Target #1: Adjudicate all lease operation and unit actions (formation, expansion, contraction, termination, extension, participating area, tract allocation, & plans of exploration or development) as required by relevant regulation, lease, or unit agreements. Methodology: Commencing 2019 graph combines contract administration adjudications and new contracts negotiated during the reporting year. Unit Adjudications & Contract Negotiations Fiscal Year Received/Issued FY 2020 73 -5.19% FY 2019 77 +1.32% FY 2018 76 -15.56% FY 2017 90 +15.38% Analysis of results and challenges: The Division of Oil and Gas unit managers negotiate and administer contracts related to units and adjudicate a variety of lease operation and unit actions to enforce the exploration and development obligations of lease and unit agreements. These actions include: unit formation, expansion, and contraction; unit termination; lease and unit plans of exploration or development; and unit participating area formation, expansion, contraction, and tract allocations Division geologists, geophysicists, and engineers provide technical expertise and the Division's economists provide commercial expertise. The number and type of decisions vary from year to year depending on operators' actions. FY 2020 Decisions: Plan of Exploration/Plan of Development: 46 Unit Revision (expansion/contraction): 7 Participating Area (formation/expansion/contraction/tract allocation redeterminations): 7 Unit Formation: 2 Unit Extension: 1 Default/Termination: 4 Miscellaneous Adjudications: 2 Contracts/contract amendments negotiated: 4 FY 2019 Decisions: Plan of Exploration/Plan of Development: 45 Unit Revision (expansion/contraction): 7 Participating Area (formation/expansion/contraction/tract allocation redeterminations): 11 Unit Formation: 0 Unit Extension: 0 Default/Termination: 5 Miscellaneous Adjudications: 2 Contracts/contract amendments negotiated: 7 FY 2018 Decisions: Plan of Exploration/Plan of Development: 47 Unit Revision (expansion/contraction): 9 Participating Area (formation/expansion/contraction/tract allocation redeterminations): 8 Unit Formation: 1 Unit Extension: 0 Default/Termination: 2 Miscellaneous: 7 FY 2017 Decisions: Plan of Exploration/Plan of Development: 53 Unit Revision (expansion/contraction): 14 Participating Area (formation/expansion/contraction/tract allocation redeterminations): 6 Unit Formation: 1 Unit Extension: 1 Default/Termination: 5 Miscellaneous: 8

Target #1: Provide access to state lands for the purpose of responsible oil, gas, and geothermal exploration and development. Acreage Under Lease or License Fiscal Year FY 2020 4,222,123 FY 2019 4,453,261 FY 2018 4,996,840 FY 2017 5,343,661 Analysis of results and challenges: Note that historical acreage reported may be slightly different from previous reports because of changes in reporting protocols. FY 2020: Acreage under lease or license 4,222,123 FY 2019: Acreage under lease or license 4,453,261 FY 2018: Acreage under lease or license 4,996,840 FY 2017: Acreage under lease or license 5,343,661

Target #1: Evaluate and issue 100% of plan authorizations within established timelines for each lease or unit plans of operation. Percent of Plan Authorizations Issued Within Timelines Fiscal Year YTD Total FY 2020 100% FY 2019 96% FY 2018 100% FY 2017 100% Analysis of results and challenges: FY2020: The Permitting Section reviewed 100% of the submitted Plan and Plan Amendment requests with 100% of the authorizations issued within expected timelines. Seven new Plans of Operation (four Lease Plans and three Units Plans of Operation), 48 General Permits and 51 Plan Amendments were reviewed. Seven of seven Lease and Unit Plans were approved, and all General Permits and Plan Amendments were approved as well. FY2019: The Permitting Section reviewed 100% of the submitted Plan and Plan Amendment requests with 96% of the authorizations issued within expected timelines. Five new Plans of Operation (two Lease Plans and three Unit Plans of Operation) and 68 Plan Amendments were reviewed. Five of five Lease and Unit Plans were approved. Sixty-five of 68 Plan Amendments were approved (note: one amendment was closed and processed under a different project and the issues for the other two amendments were negated by the language update in 2018). FY2018: The Permitting Section reviewed 100% of the submitted Plan and Plan Amendment requests with 100% of the authorizations issued within expected timelines. Four new Plans of Operation (two Lease Plans and two Unit Plans of Operation) and 146 Plan Amendments were reviewed. Four of four Lease and Unit Plans were approved. One hundred and forty-four of 146 Plan Amendments were approved; two Plan Amendment applications were closed due to application to the wrong agency. FY2017: The Permitting Section reviewed 100% of the submitted Plan and Plan Amendment requests with 100% of the authorizations issued within expected timelines. Nine new Plans of Operation (five Lease Plans and four Unit Plans of Operation) and 75 plan amendments were reviewed. Five of nine Lease and Unit Plans were approved; three applications were put on hold and one was closed at the applicants' request. Sixty-five of 75 Plan Amendments were approved; Ten Plan Amendment applications were closed or withdrawn.

Target #2: Issue permits for geophysical exploration within established timelines (100% Compliance) Number of Geophysical Exploration Permits Issued Fiscal Year FY 2020 4.0 FY 2019 4.0 FY 2018 3.0 FY 2017 2.0 Analysis of results and challenges: FY2020: Four geophysical permits were received and issued. FY2019: Four geophysical permits were issued; five applications were received; and one was withdrawn by the applicant. FY2018: Three geophysical permits were issued; five applications were received; one was put on hold; and one was withdrawn. FY2017: Two geophysical permits were issued; four applications were received; and two were withdrawn.

Target #1: Offer design criteria and safety information to the public to support best management practices for each lease. Methodology: Lease application details include: applications, amendments and transfers. Right-of-Way Lease Application Activity Fiscal Year Issued Active Withdrawn YTD Total FY 2020 10 -9.09% 19 0% 1 0% 30 0% FY 2019 11 +266.67% 19 0% 0 0% 30 +36.36% FY 2018 3 0% 19 +1800% 0 0% 22 +450% FY 2017 3 -72.73% 1 -50% 0 -100% 4 -75% Analysis of results and challenges: FY2020: The Pipeline Section (SPS) conducted reviews of several pipeline modification projects. These projects included reviewing the proposed modifications of pipelines and related facilities, pipeline integrity repairs, changes to service and temporary discontinuance of service. Technical reviews were completed to ensure that each proposal met safety and design criteria as outlined in specific code. Additionally, the section conducted engineering reviews of newly proposed pipelines and has made that information available to the public and industry by way of lease compliance and engineering reporting and Commissioner's decisions. FY2019: The Pipeline Section (SPS) conducted reviews of several pipeline modification projects. These projects included reviewing the proposed modifications of pipelines and related facilities, pipeline integrity repairs, changes to service and temporary discontinuance of service. Technical reviews were completed to ensure that each proposal met safety and design criteria as outlined in specific code. Additionally, the section conducted engineering reviews of newly proposed pipelines and has made that information available to the public and industry by way of lease compliance and engineering reporting and Commissioner's decisions. FY2018: The Pipeline Section (SPS) conducted reviews of several pipeline modification projects. These projects included reviewing the proposed modifications of pipelines and related facilities, pipeline integrity repairs, changes to service and temporary discontinuance of service. Technical reviews were completed to ensure that each proposal met safety and design criteria as outlined in specific code. Additionally, the section conducted engineering reviews of newly proposed pipelines and has made that information available to the public and industry by way of lease compliance and engineering reporting and Commissioner's decisions.

Target #1: Facilitate and improve regulatory and lease compliance monitoring of AS.38.35 pipelines. Methodology: Commencing 2019, decrease is a result of metrics consolidation. Compliance & Oversight Monitoring Actions of AS 38.35 Pipelines Fiscal Year YTD Total FY 2020 155 +8.39% FY 2019 143 -28.5% FY 2018 200 -28.83% FY 2017 281 -13.54% Analysis of results and challenges: The Pipeline Section (SPS) applied a systematic approach to lease compliance inspections based on lessee annual reports and proposed work plans. Each field inspection is conducted according to a project mission developed around lease stipulations and the lessee's work plans, or other lease related actions such as amendments, releases of interest, and renewals. SPS implemented a Geospatial Information System (GIS) platform for gathering field data and pipeline system data while conducting inspections. This GIS platform serves as a database by which pipeline, environmental, health, and safety data is aggregated and used to communicate concerns and progress to the lessees via inspection reports.

Current as of November 23, 2020