Alaska DNR negotiates in-state oil sales with Marathon and PetroStar refineries

In a recent meeting of the Alaska Senate Resources Committee, officials discussed the state's ongoing efforts to manage its crude oil sales, particularly focusing on the in-state refining sector. The meeting, held on April 23, 2025, highlighted the importance of satisfying local demand before considering out-of-state sales, as mandated by Alaska statute 38.05.183(d). Currently, the state's refining needs are primarily met by two facilities: Marathon and PetroStar.

The Department of Natural Resources (DNR) is actively negotiating contracts for the sale of oil as royalty in kind (RIK), a method that allows the state to sell its oil directly rather than receiving payment based on market value. This approach aims to secure a premium for the state, which has historically been successful, with most months since 2008 showing a premium over the equivalent royalty in value.

During the meeting, officials presented data illustrating the state's historical performance in RIK sales, noting that while there have been fluctuations due to market conditions—such as disruptions in 2020—the overall trend has been positive. The DNR is currently in the legislative approval phase for a new contract with Marathon, which is expected to commence later this year when the existing agreement expires.

A significant change in this contract negotiation is the pricing mechanism for the RIK differential. Instead of a fixed price, the DNR is now referencing a market index published by the Department of Revenue, which reflects the prevailing location differential for oil sales in Alaska. This adjustment is anticipated to enhance the state's revenue by ensuring that the pricing remains competitive over the contract's potential ten-year term.

As the meeting concluded, officials expressed optimism about the future of Alaska's oil sales strategy, emphasizing the importance of local demand and the potential for increased revenue through strategic contract negotiations. The discussions underscored the state's commitment to balancing local needs with market opportunities, setting the stage for a robust oil sales framework in the years to come.