The sale area is located in Alaska's Cook Inlet in federal waters between three and 30 nautical miles offshore. The area covers about two million acres extending from just south of Kalgin Island to just northwest of Shuyak Island, in water depths ranging from about 30 to 650 feet. Shelikof Strait is not included in the proposed sale area. MMS removed from the sale proposal a band of blocks offshore the lower Kenai Peninsula and the Barren Islands, which include critical habitat for the endangered Stellar sea lion, and areas identified as special by the Kenai Peninsula Borough. These areas are also used for subsistence by the residents of Port Graham, Nanwalek, Seldovia and others.
MMS carries out a comprehensive regulatory program which covers all aspects of the industry's drilling procedures. Several requirements are attached to the sale to supplement these rules, including provisions for protection of fisheries, biological resources, and use of pipelines to transport any discovered production. The fishing stipulation requires companies to work with local fishing groups to avoid conflicts between exploration equipment and fishing gear.
The sale also offers, for the first time in the federal waters of Cook Inlet, a package of economic incentives for industry activity. These include a longer primary term of eight years, lower minimum bids of $25 per hectare ($10 per acre), annual rental rates of $5 per hectare ($2 per acre), and royalty suspension volumes. The RSV's would relieve royalty payments on a producing lease up to the first 30 million barrels of oil equivalent. The suspension applies to both oil and natural gas, and includes price floor and ceiling thresholds for oil. There is no ceiling or floor for gas at this time.
The south-central area of Alaska continues to grow and its demand for natural gas is rising. Cook Inlet has the potential to supply natural gas to the area. Industries within the Kenai Peninsula Borough rely heavily on oil and gas reserves, and are an important source of employment and municipal revenues for the region. Likewise Anchorage depends on Cook Inlet gas for much of its home heating and electricity generation.
The State of Alaska holds annual sales onshore in this area, where oil and gas companies are now exploring. MMS estimates that the offshore potential could exceed one trillion cubic feet of conventionally recoverable natural gas. These reserves can contribute an additional option for a long-term natural gas supply for the south-central region. Exploratory drilling in Cook Inlet also supports the President's National Energy Policy to expand the search for and development of new sources of energy for the nation while protecting the environment.
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