An Interior Department proposal would result in a transfer of virtually all the best tracts in a prospective Alaska oil field to native groups backed by major oil companies, according to an analysis by Alaska mineral officials.
The analysis, prepared by the Alaska Division of Oil and Gas, concludes that the proposed land exchange in the Arctic National Wildlife Refuge could cost state and federal treasuries "billions of dollars" in foregone royalties if significant discoveries are made.
The document is likely to stoke a controversy over oil development in the arctic refuge, on the Beaufort Sea in extreme northeast Alaska. The analysis was provided to The Washington Post in advance of a hearing on the issue Tuesday by House Interior and Merchant Marine subcommittees.
The Interior Department recommended earlier this year that the arctic refuge be opened to oil development, contending that it is the best prospect for major new domestic supplies. Conservation groups are strongly opposed, arguing that development would irreparably damage the coastal refuge and its population of caribou, musk oxen and other arctic wildlife.
Congress has yet to determine whether the refuge should be leased or left untouched.
Nonetheless, the Interior Department proposed last summer to exchange 166,000 acres in the arctic refuge for 891,000 acres held by native corporations in other Alaska refuges. The native corporations, in turn, have arranged leasing contracts with major oil firms. The exchange was negotiated in secret last July, and it was put on hold after public disclosure raised an outcry.
Department officials maintain, however, that the proposed trade is fair. The department values the oil and gas tracts at $543.8 million, about the same as the wildlife refuge lands it would receive in exchange.
According to the department, the native groups selected 73 tracts, only 34 of them on potential oil and gas structures as defined by Interior Department geologists. More than 80 percent of the 1.53 million-acre refuge would still be available for competitive bidding, department officials said.
Alaska officials, analyzing the same data, said every one of the 73 tracts lies over a high-potential area. "The selection pattern and our independent mapping indicate that . . . all the best structures . . . have been selected already by the exchange participants," their assessment said. "To focus on the relative number of acres conveyed through exchanges, as DOI does, is very misleading."
The distribution of oil rights in the arctic refuge, should drilling be permitted, is of critical importance to Alaska. If the land is leased competitively under federal law, the state receives 90 percent of bonus bids and rental and royalty revenues. If the oil rights are transferred to native groups, the state gets nothing.
"The value of the royalty interest alone, should significant discoveries occur, potentially may be measured in the billions of dollars," the assessment said.
State officials said the contract arrangements between native groups and oil firms strongly suggest that the Interior Department has undervalued the tracts it is seeking to trade.
In its proposed contract with Texaco Inc., for example, the Old Harbor Native Corp. would receive $45.7 million in cash, exactly the value of its traded land. However, Old Harbor also would receive royalties of 14 percent on any oil production from its 58,000 acres of arctic refuge tracts and 1.5 percent on any other oil Texaco produces in the refuge, whether on Old Harbor tracts or not.
The Interior Department is seeking to limit royalties on federal leases in the arctic refuge to 12.5 percent.
The agreement between the Chevron and Phillips Petroleum companies and the Koniag Native Corp. provides for royalties of 20 percent, with provisions to convert that into as much as 40 percent of net profit. The Koniag group essentially selected one tract in the arctic refuge, about 3,200 acres, which Chevron/Phillips would lease for a payment up front of $58.3 million.
The hefty price is considered significant because Chevron is the only oil firm with any concrete clue of what may lie beneath the tundra in the arctic refuge. It drilled a 15,000-foot exploratory well there two years ago, on land held by two native corporations, but has kept the results tightly under wraps.
Assistant Interior Secretary William P. Horn said he has not looked at the native corporations' contracts, but is confident that the department fairly estimated values in the arctic refuge.
"The models were set up to err on the upside, not on the downside," he said. "We feel pretty solid that the numbers are good."
But Rep. George Miller (D-Calif.), chairman of the House Interior subcommittee on water and power resources, said the state's analysis is "deeply troubling."
"At the same time we're being told that we need cutbacks of millions of dollars in programs for children and the elderly and the poor, we see the Department of the Interior engaged in the disposal of valuable resources in a manner that could cost the Treasury billions of dollars," he said.
The department has defended the proposed exchange as an "unequaled opportunity" to add high-quality wildlife habitat to the national refuge system. The native lands include brown bear habitat on Kodiak Island and waterfowl nesting areas in the Yukon Delta.
But critics contend that the refuges would still be vulnerable to development because native corporations would continue to hold mineral rights.