Alaska’s Oil and Gas 101: The Best Interest Finding for Exploration Licenses

Since much of Alaska’s upcoming legislative session will be taken up with proposals to spur production of oil and gas, it seems appropriate to briefly review the State’s scheme for handling exploration licenses for state-owned oil and gas resources.  To give one an idea of what is at issue, the State’s November 7 oil and gas lease sales, which is another way the State handles exploration of its petroleum resources, resulted in high bids totaling $14.2 million for the three area wide leases: Beaufort Sea, North Slope and North Slope Foothills.

Besides holding these competitive lease sales, the State of Alaska also issues exploration licenses.  Exploration licenses are issued in those areas NOT covered by the State's leasing program.  An exploration license gives the licensee an exclusive right to explore a particular area for oil and gas (or gas only) for a term of 10 years or less.  AS 38.05.132(b)(1). An exploration license may be converted to a lease upon fulfillment of the work commitments contained in the exploration license.  AS 38.05.132(b)(2).

These licenses are also subject to public review.  AS 38.05.131(c ), AS 38.05.133(f), and AS 38.05.035(e) and (g).  The Department of Natural Resources (DNR) must provide the public with notice that it will consider a proposal for exploration license and provide an opportunity for comment on the proposal.  AS 38.05.133(d) and AS 38.05.945(a)(6).  The DNR considers the comments it receives, performs its own internal analysis, and makes a Preliminary Best Interest Findings.  AS 38.05.131(c).  These Preliminary Best Interest Findings are the agency’s way of explaining the basis for its preliminary (and then final) decision.  They must include and identify the applicable statutes and regulations, provide the facts and issues that are material to the determination, and address various other required factors.  AS 38.05.133(f), AS 38.05.035(e) and (g).  Once the Preliminary Best Interest Finding is submitted, the Finding is again made available to the public for comment.  AS 38.05.131(c) and AS 38.05.945(b).  Only then can the State can make a final Best Interest Finding.  AS 38.05.131(c) and AS 38.05.133(f).

Exploration licenses and DNR’s process were the subject of a lively discussion that took place on November 15th before the Alaska Supreme Court.  At issue was the exploration license the State issued to Holitna Energy Co. LLC.  The case is Native Village of Sleetmute v. State of Alaska, Alaska Supreme Court No. S-14501, Superior Court case 3-AN-07-08735CI.  The central issue in the Sleetmute case was whether DNR had engaged in reasoned decision making and provided legally adequate notice and opportunity to be heard.  DNR had reconsidered its first final Best Interest Finding, reached a different decision, and did not provide another opportunity for public comment.  The DNR argued that its actions were appropriate and the Native Village of Sleetmute argued the opposite. We will have to wait to see how the Alaska Supreme Court and the State Legislature deal with the issues before them in Sleetmute and whether the outcome of that case changes the exploration license process when DNR engages in reconsideration of a Best Interest Finding.