The quest to discover new oil and natural gas reserves resulted Wednesday in the most successful lease sale in Alaska, with producers offering a total of $2.7 billion to capture a share of drilling rights in the Chukchi Sea.
The bidding war in the Department of Interior's (DOI) Minerals Management Service (MMS) Chukchi Sea 193 Sale -- the first since 1991 -- topped the $2.1 billion generated by the 1982 lease sale in Alaska's Beaufort Sea and the $900 million bid in the 1969 lease sale at Prudhoe Bay, which led to intense exploration for oil in Alaska.
Companies submitted bids totaling nearly $3.4 billion, with high bids of close to $2.7 billion. Each high bid on a block now will be evaluated to ensure the public receives fair market value before a lease is awarded, MMS said. There were 667 bids on 488 blocks on the federal Outer Continental Shelf -- both record-setting numbers in the third MMS offshore lease sale in the Chukchi Sea. Tracts receiving bids were spread throughout the lease area, with the closest to land about 54 miles offshore.
MMS Director Randall Luthi called the results "historic." Alluding to the controversy over the lease sale -- by stakeholders living in the area and environmental groups -- Luthi noted that in the past 30 years, MMS has funded nearly $300 million for environmental studies in Alaska waters. Since 2000, we've conducted 30 to 40 active environmental studies each year offshore Alaska. We are committed to ensuring that all environmental concerns have been addressed while we move forward to supply energy to our nation."
The sale was heavily protested after another DOI agency, the U.S. Fish and Wildlife Service (FWS), said it was considering listing the polar bear as threatened or endangered under the Endangered Species Act (see Daily GPI, Jan. 18; Jan. 8). The bears, whose habitat includes the Chukchi Sea, apparently are threatened by melting sea ice; a decision on the listing by the FWS could come this month.
"We know that the Chukchi Sea is very important to the people who live along its coast and use its resources," Luthi said. "MMS will continue working closely with the state of Alaska, local communities, whalers and industry to help minimize any impacts of industry activity on subsistence hunting. In fact, leases issued from the sale will include stipulations for protection of biological resources, including marine mammals and migratory and other protected birds, and methods to minimize interference with subsistence hunting and other subsistence harvesting activities."
The sale was first proposed in the 2002-2007 Oil and Gas Leasing Program, but MMS delayed it to provide sufficient time to complete the environmental analysis. It was then incorporated into the 2007-2012 Leasing Program.
The sale area is located north of Point Barrow to northwest of Cape Lisburne, AK, and it contains more than 29 million acres. The sale area extends from about 25-50 miles from shore out to 200 miles offshore. Two sales have been held in the Chukchi Sea Planning Area. Sale 109 was held in 1988 with 351 leases issued, and Sale 126 was held in 1991 with 28 leases issued. Five exploration wells have been drilled. All of the leases were either relinquished or have expired.
The highest bid received for the sale was $105.3 million from Royal Dutch Shell.
"We are committed to exploration for new oil and gas in high-potential basins," said David Lawrence, Shell executive vice president for exploration. "Our entry into the Chukchi Sea, combined with our lease holdings in the Beaufort Sea, further solidifies our position in Alaska, which has the potential to become a new heartland for Shell. These new positions come on top of our previously announced plans for exploration investment in 2008."
Lawrence said "success in the Alaska offshore also carries with it great potential for the state, including new job opportunities and new oil for the Trans-Alaska Pipeline. We will continue to apply our experience and technology to safe and responsible exploration in the Alaska offshore. The results of this sale underscore Shell's commitment to benefit local communities while respecting their way of life."
ConocoPhillips was the second most active bidder, submitting 145 bids for $1.1 billion, including 98 high bids for more than $506.4 million. Repsol E&P USA Inc. submitted 104 total bids for $15.6 million, 93 of which were high bids for more than $14.4 million. Eni Petroleum U.S. Inc. submitted 74 total bids for nearly $35 million, 17 of which were high bids for nearly $8.9 million.
StatoilHydro USA E&P Inc., Iona Energy Co. (US) Ltd. and North American Civil Recoveries Arbitrage Corp. also submitted high bids, according to MMS.
More information on the sale is available at www.mms.gov/alaska.
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