Alaska to sell royalty oil to Petro Star

The state of Alaska will sell some of the oil obtained through in-kind royalty payments to Petro Star, Inc, a petroleum products company that specializes in aviation fuel with refineries in North Pole and Valdez.

According to an Alaska Department of Natural Resources announcement released Friday, the Alaska Royalty Oil and Gas Development Board voted on Aug. 31 for two sales agreements with Petro Star, one lasting one year and the other lasting four years.

The one-year contract can be enacted without legislative approval — allowed for agreements lasting a year or less, or selling less than 400 barrels per day — while the four-year contract will need to be approved during the 2017 legislative session.

The state takes some of its royalty payments from oil and gas production in product rather than dollars, to sell later in a competitive bid or in an agreement made in the best interest of the state. According to the DNR announcement, the two contracts with Petro Star would be worth $29 million to $37 million more than taking royalty in value.

The announcement notes that Petro Star is a wholly-owned subsidiary of the Alaska-based fuel refiner and marketer Arctic Slope Regional Corp. It is one of two commercial fuel refiners in Alaska — the other is the Texas-based Tesoro Corporation, which specializes in gasoline and also has a contract to buy royalty oil from the state.

Tesoro’s royalty oil contract, which allows it to buy up to 25,000 barrels a day for its Nikiski refinery, was signed by Governor Bill Walker in April 2016 and is good for five years. Tesoro was also a royalty oil buyer for two years before that, after signing a previous agreement in 2013 for up to 15,000 barrels per day.

PetroStar didn’t participate in the 2013 royalty oil sale and was declined in the April sale because Tesoro accepted a higher price differential.

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