Parnell asks lawmakers to extend Tesoro contract


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Wednesday in Juneau Gov. Sean Parnell introduced a bill to extend the state’s contract with Tesoro Refining and Marketing Company for the sale of royalty oil.

The bill proposes an extension of royalty oil supply negotiated between the state and Tesoro from Jan. 31, 2015 to Jan. 31, 2016. The state will sell between 5,000 and 15,000 barrels of its royalty oil per day to Tesoro, according to the contract.

Kevin Banks, petroleum market analyst with the Alaska Department of Natural Resources Division of Oil and Gas said the state entered a contract in October 2013 with Tesoro, for the company to buy oil from the state for one year.

“As the rules go, we can sell oil for a year or less, but if we need to sell oil for a year or more, that requires legislative approval,” Banks said.

After the deal was finalized last year, he said, Tesoro approached the state asking to extend the contract.

“I think they were interested in securing a longer term supply with us,” he said.

Tesoro’s Nikiski refinery produces two to three million gallons of refined petroleum products per day and is the largest taxpayer in the Kenai Peninsula Borough, according to a letter from Parnell to legislators.

“Across the state, Alaska and many of our industries are impacted daily by the production of gasoline and other fuels from the Kenai refinery,” Parnell said, according to a media release. “This extension will help make sure employment in the Kenai Peninsula region stays strong, while also ensuring a robust economy for all Alaskans.”

In his letter, Parnell calls Tesoro a “key economic engine” in Alaska, especially on the Kenai Peninsula, noting that the company employs 200 Alaskans in full-time, high paying positions. He wrote that Tesoro’s Nikiski products are mostly consumed in Alaska.

The royalty oil would be sold at a price equal to or exceeding what the state would get if it was taken in-value and sold by producers instead of taken in-kind and sold by the state to Tesoro, according to Parnell’s letter.

According to the ADOG website, the state can choose to take its royalty share of oil and gas produced on lands leased to producers either in-kind or in-value. However, state statute requires the Commissioner of Natural Resources to take oil and gas royalty in-kind unless it is determined that taking royalty in-value is in the best interest of the state.

In-kind means the state takes possession of its royalty share produced by the lessee and sells it and in-value is when the lessee takes possession of the royalty share and pays the state for it.

Kaylee Osowski can be reached at kaylee.osowski@peninsulaclarion.com.

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