House Resources Committee advances bill to sell state royalty oil to Marathon Petroleum

ANCHORAGE, Alaska — The House Resources Committee on Wednesday voted to advance House Bill 194, a Department of Natural Resources proposal that would authorize continued sale of the state’s royalty-in-kind oil to Marathon Petroleum and replace a contract that expires in August.

The bill was moved out of committee without objection after a DNR presentation and a brief period of public testimony. "This contract will provide us with that stable supply of Alaska North Slope crude, while also giving us the flexibility to accommodate seasonal fluctuations in demand," Casey Sullivan, government and public affairs manager for Marathon Petroleum, said during public testimony.

The Department of Natural Resources’ commercial manager, Ryan Fitzpatrick, told the committee the state may take its royalty either in value (where producers sell oil and remit proceeds to the state) or in kind (where the state takes physical oil and sells it). "We have the option to take that oil either in value ... or in kind, which is where we actually take physical possession of the oil and then sell the oil ourselves," Fitzpatrick said. The proposed contract would allow the state to deliver RIK oil to Marathon’s Kenai/Nikiski refinery for in-state refining and sale.

DNR described the contract’s key terms: a three-year primary term with seven one-year extension options (for a total potential 10-year duration if both parties agree), a volume range in the contract of about 10,000 to 15,000 barrels per day, and a pricing mechanism that pegs the RIK differential to the Department of Revenue’s volume-weighted location differential index with a 24¢ subtraction in the state’s favor. Fitzpatrick said the department expects the contract to generate between $4,000,000 and $6,000,000 per year in additional state revenue compared with taking the equivalent oil in value.

Fitzpatrick and Deputy Commissioner John Crother described the administrative process DNR followed: solicitation of interest, a best-interest-finding with public comment, and review by the state’s royalty board, which recommended adoption. Crother noted the statute directs the department to give priority to in-state refining when deciding RIK sales and to document statutory criteria in its review.

Committee members asked technical and policy questions during the presentation. Representative Sadler asked whether the new dynamic pricing mechanism would follow market prices more closely; Fitzpatrick said such contract terms are subject to negotiation and could be proposed in future negotiations. Representative Elam asked about volumes and whether they adequately support the Nikiski refinery; Fitzpatrick said the contract provides a base level of support but Marathon sources oil from other supplies as needed for refinery operations and blending requirements.

Marathon’s Sullivan, speaking in support, emphasized in-state fuel production and jobs: "We produce up to 68,000 barrels per day ... All of that barrel that comes to that refinery is used somewhere, to help support Alaskans and the Alaskan economy," he said. DNR materials noted the contract supports production of jet fuel used at Ted Stevens International Airport, gasoline and ultra-low sulfur diesel consumed in Alaska, and other refined products.

After public testimony closed, Co-chair Deibert moved House Bill 194 from committee with an attached fiscal note as referenced in the committee packet; there was no objection and the motion passed. The committee did not provide a roll-call tally on the record and indicated it will send the bill to the floor for further legislative consideration.

The House Resources Committee adjourned the hearing and noted the next scheduled meeting for April 23, 2025, at 1 p.m.