State gives Italian oil giant six more months to make $2.7M rent payment on Alaska leases

An above-ground section of the Trans-Alaska Pipeline System near the Toolik Lake Research Station in the North Slope Borough. (Photo by Rashah McChesney/Alaska's Energy Desk)
An above-ground section of the Trans-Alaska Pipeline System near the Toolik Field Station in the North Slope Borough. (Photo by Rashah McChesney/Alaska’s Energy Desk)

The state Department of Natural Resources is giving Italian oil giant ENI a six-month break on a nearly $3 million rent payment for oil and gas leases on the North Slope.

It’s the third time DNR has granted such an extension in the past three months, citing the coronavirus pandemic’s impact on the oil industry.

Sean Clifton, a policy and program specialist with the state Division of Oil and Gas, said he’s not aware of the department ever allowing similar extensions for oil and gas leases before this year.

“But,” he said, “these are pretty extraordinary times.”

Falling demand driven the pandemic, paired with an oil-price war earlier this year, led to a glut of oil on the market. Crude prices tanked, and oil companies cut spending and suspended drilling across the globe, including in Alaska. Hundreds of oil field service workers lost their jobs in the state.

In a letter on May 21 to Natural Resources Commissioner Corri Feige, ENI asked for a one-year extension on its payments for 110 exploration leases encompassing about 275,000 acres southeast of Prudhoe Bay. ENI said the economic impact of the pandemic and the unforeseen drop in crude prices “significantly curtailed” its cash reserves. The company said it needed time to budget and reevaluate its business plans for the leases.

Oil companies must make annual rent payments to the state on their oil and gas leases. Under state law, Feige has authority to grant extensions if she finds “reason of war, riots, or acts of God” have prevented them from paying.

ENI’s bill for the exploration leases was originally due by Aug. 1. Now, the company has until Feb. 1 to pay about $2.7 million, Division of Oil and Gas Director Tom Stokes said in a response to ENI in early June.

Stokes said President Donald Trump and Gov. Mike Dunleavy have declared states of emergency over the pandemic. The restrictions, he said, “have placed an unanticipated burden on Alaskan businesses that justifies an extension of time within which to make payments.”

In May, DNR also granted months-long extensions to Accumulate Energy Alaska and Burgundy Xploration for about $4.6 million in rent payments on leases. And, in late April, it granted an extension for nearly $90,000 in lease payments for the struggling Mustang oil project.

At the federal level, the Trump administration has cut the amount oil and natural gas companies must pay for access to US-government-owned land.

Clifton underscored that, in Alaska, the state will still collect the companies’ lease payments in the current fiscal year — it’s not lost revenue — and “has the upside of keeping our North Slope oil producers in business during these unprecedented times.”