CHAPTER 15 MINERAL EXPLORATION AGREEMENTS ON ALASKAN NATIVE LANDS

• Jurisdiction: United States

Alaska Mineral Development
(Sep 1978)
CHAPTER 15
MINERAL EXPLORATION AGREEMENTS ON ALASKAN NATIVE LANDS
John H. Silcox
General Manager, Exploration Western Region Chevron U.S.A. Inc.
San Francisco, California

Introduction

Chevron is one of several oil and gas companies which has entered into mineral exploration agreements with Alaska Regional Native Corporations incorporated under the 1971 Alaska Native Claims Settlement Act (ANCSA).

Details of the contractual terms of various exploration agreements are not widely known. However, it is assumed that the contractual provisions of these exploration agreements vary from one oil company to another; thus, the consideration and specifics of Chevron's exploration agreements may vary from other company agreements. Generally, these exploration agreements allowed the exploration and leasing of lands designated for selection by native villages and corporations. Chevron's goal in developing its native exploration agreements was to assure that in light of the geological risks, the petroleum potential, and exploration work required, an agreement could be reached which was fair and equitable to both the native regional corporation and the company. Inherent in this was our objective of evaluating native lands early enough to provide assistance to the natives in making their selections of potential oil and gas lands. Because of the importance of early evaluation, the company began negotiations early in 1972. While the exploration agreements by the various companies may differ between different native regional corporations, Chevron has attempted to keep its three native exploration agreements generally comparable.

Under ANCSA, approximately 70,000 resident Alaskan natives were required to establish themselves within the framework of 12 regional corporations — defined along geographic and tribal lines — and 225 village corporations. Superimposed upon this difficult organizational task was a provision for the villages to make their approximate 20 million acre land selections within 3 years and the regional corporations to make their land and subsurface selections in 4 years. In addition, other special land selection programs were needed that related specifically to historical sites, cemeteries, and native groups not qualifying as villages.

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History

In order to understand Chevron's incentive and willingness to commit large capital sums to undertake the valuation of these nearly totally unexplored lands, we must consider the historical perspective.

Since 1970, U.S. domestic oil and gas production, as well as the reserves supporting this production, has been steadily declining for most oil companies, including Chevron. While many factors are responsible for this decline, perhaps the most significant has been the lack of substantial new public land offerings possessing substantial oil and gas potential. This has been the case since the late 1960s, and especially applies to the Alaskan lands and adjoining offshore areas. With the federal government holding title to nearly all the frontier oil and gas basins in Alaska, no U.S. oil and gas leases have been issued in Alaska since December 1966 when the U.S. Department of the Interior implemented an internal policy of not issuing leases on applications pending resolutions of native claims. This was formalized by Public Land Order No. 4582 in January 1969 which withdrew all unreserved federal land in Alaska from mineral leasing. This withdrawal was perpetuated by ANCSA in 1971. The Prudhoe Bay field discovery in 1968, and the decline in domestic production and reserves, helped provide a new environment for exploration. Unfortunately, at the same time, essentially no land offerings in Alaska were available.

Although Chevron's exploration history in Alaska, including the North Slope, dates back many years, Chevron did not have a significant lease holding in the Prudhoe Bay field at the time of discovery. The bulk of its lease interest in Prudhoe Bay was acquired subsequently at a very high cost in the 1969 State of Alaska 23rd Competitive Lease Sale. Generally, it is only possible to acquire a large reserve position in an oil province if lands are acquired before a discovery. Obviously, once a discovery is made in a basin, the ensuing competitor interest causes the acreage price to soar, thereby tending to limit any one company from acquiring substantial new reserves or production. This was especially true in the Prudhoe Bay field. With this perspective, Chevron initiated, in the late 1960s, a long range program dedicated to acquiring an early land position in the generally unexplored but potentially attractive sedimentary basins of Alaska.

During the period 1970-1972, Chevron undertook an aggressive geological and geophysical reconnaissance program in many of the untested sedimentary basins of Alaska. In this two-year period Chevron outfitted special shallow water seismic crews and explored the lowlands of Western Alaska from the Kobuk River south to the Kuskokwim River. Chevron also conducted extensive geological field programs, gravity, and aeromagnetic surveys in the same area.

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Together with another company...