The Obama administration on Friday imposed more barriers to explore for oil and natural gas offshore Alaska, angering state officials, legislators and industry groups, but the Department of Interior indicated that it hasn't ruled out future exploration activity.
The decline in commodity prices, and hence activity, combined with "low industry interest," has led Interior to scrap two auctions scheduled for the Beaufort and Chukchi seas under the federal five-year program through 2017. The decision came less than a month after Royal Dutch Shell plc, the biggest leaseholder offshore Alaska, yanked exploration activity for the foreseeable future following disappointing results in the Chukchi (see Daily GPI, Sept. 28).
"In light of Shell's announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half," said Interior Secretary Sally Jewell.
Under the 2012-2017 federal leasing program, which is overseen by Interior's Bureau of Ocean Energy Management (BOEM), Chukchi Sea Lease Sale 237 was scheduled for 2016. BOEM issued a call for information and nominations two years ago, but industry "submitted no specific nominations," Jewell noted. Beaufort Sea Lease Sale 242, scheduled for the first half of 2017, received only one nomination when a call for nominations was published in July 2014, which raised "concerns about the competitiveness of any such lease sale at this time."
Interior dealt a further blow after the Bureau of Safety and Environmental Enforcement (BSEE) also on Friday denied requests by Shell and Statoil ASA to extend their leases. An extension would have allowed the lease terms to extend beyond the primary terms of 10 years. The Beaufort leases expire in 2017 and the Chukchi leases expire in 2020.
"Among other things, the companies did not demonstrate a reasonable schedule of work for exploration and development under the leases, a regulatory requirement necessary for BSEE to grant a suspension," Interior officials noted.
Shell responded, noting that "when it comes to frontier exploration in Alaska, one size does not fit all. We continue to believe the 10-year primary lease term needs to be extended." Shell and Statoil are considering appeals, but history isn't on their side. ConocoPhillips, another big leaseholder offshore Alaska, in 2013 filed a similar request to extend its leases, but it was rejected by BSEE; that appeal is pending.
Interior's decision to cancel lease sales for two years is not an indication that offshore Alaska won't be explored in the future. Interior Secretary Sally Jewell noted that Arctic lease sales are in the Outer Continental Shelf (OCS) leasing program now being finalized for 2017-2022. A draft version of the program issued earlier this year includes a lease sale for the Beaufort in 2020 and one for the Chukchi in 2022 (see Daily GPI, Jan. 27). The plan is scheduled to be completed early next year.
Alaska Gov. Bill Walker has asked Interior to accelerate the timetable for the 2017-2022 Arctic lease sales, Jewell said. Interior still is taking comments on the draft leasing plan and Walker's request "will be taken into consideration before the next iteration" of the plan is issued. Alaska depends on oil taxes for almost 90% of its budget revenues.
Industry supporters were quick to condemn the actions by the Obama administration.
Alaska Sen. Lisa Murkowski (R), who chairs the Energy and Natural Resources Committee, called the decision to cancel auctions "the latest in a destructive pattern of hostility toward energy production in our state that began the first day this administration took office and continued ever since." Strict regulations already have discouraged oil and gas development in the Arctic, she noted.
"It is absurd that Interior has created a regulatory environment where operators cannot have commercially viable exploration programs because so many requirements and hurdles have been put in place and then blames them for not moving forward," Murkowski said.
Alaska Oil and Gas Association President Kara Moriarty suggested that Interior's decision may have negative consequences on economic development.
"President Obama and his team are finally showing their true colors on resource development in the Arctic," Moriarty said. "Obviously, the president has no desire to see Shell succeed in Alaska and does not want to see any new companies succeed, either." Without industry support, "the opportunity for Arctic residents to develop ports, search and rescue operations and infrastructure is now much more difficult."
Franz Matzner, who directs the Natural Resources Defense Council's Beyond Oil initiative, said canceling the two lease sales "grants Arctic waters an essential reprieve." The next step "should be to take Arctic and Atlantic waters off the table to oil and gas drilling for good. That's one way to help speed our transition to a clean and safe energy future for America."
Shell and other operators still own leases in the Chukchi and Beaufort, but "no companies have existing plans to explore those leases, and it would be very difficult to do so in the time frame left," said Oceana's Michael LeVine. "This certainly moves us a lot closer to wiping the slate clean and starting over."
Conservation groups for years have bullied Shell from working offshore Alaska by filing dozens of lawsuits, with some going as far as boarding equipment and blockading equipment deliveries. The new target now is the Atlantic. The Obama administration already has given the green light to using sonic sensors and air guns to explore for resources, paving the way for drilling off the East Coast under the OCS 2017-2022 lease schedule (see Daily GPI, July 21, 2014).
The "conversation on offshore drilling has begun to shift, and we are hopeful that the administration will next take off the table any potential future lease sales in the Atlantic and the Arctic," said League of Conservation's Alex Taurel, deputy legislative director.