Royalty Oil

  • Royalty Oil

    When the State takes its royalty share of the oil as royalty in kind, it assumes ownership of the oil, and the DNR commissioner is authorized to dispose RIK through sale procedures set forth in statute and regulation. The statute "default" requires that RIK be sold through a competitive process. After first determining that an RIK sale is in the best interest of the state, the commissioner then establishes the terms, conditions, and methods of disposition of the State's royalty oil that is taken in-kind. The RIK contract must be awarded to the prospective buyer whose proposal offers maximum benefits to the citizens of the State. The statutes and regulation list criteria that DNR is required to follow. Significantly, DNR must sell RIK for no less than-and when selling to outside customers, more than-the amount the state would received if the state takes royalty in value.

    Under certain conditions RIK may be sold under "non-competitive" procedures, if the commissioner determines that the best interest of the State will be served by a non-competitive sale.

    Since North Slope production began in 1977, the State has sold nearly half of its royalty oil share to in-state refineries and, during the 1980's, occasionally auctioned royalty oil to customers in the Lower 48. Currently, only Flint Hills Resources Alaska buys RIK oil for its refinery at North Pole. FHR is currently buys an average of about 30,000 barrels per day from the state under a ten-year contract whose term will expire in 2014. The other in-state refineries at North Pole, Valdez, and Nikiski are supplied directly by North Slope producers;the Nikiski refinery is also supplied by oil producers in the Cook Inlet.