US Interior approves auctioning oil leases in Alaska's Arctic National Wildlife Refuge

Anchorage — The US Interior Department approved a long-delayed Record of Decision Aug. 17 to allow oil and natural gas leasing in the Arctic National Wildlife Refuge, setting the stage for a possible lease sale by December.

"Congress directed us to hold lease sales in the ANWR Coastal Plain, and we have taken a significant step in meeting our obligations by determining where and under what conditions the oil and gas development program will occur," said Interior Secretary David Bernhardt in a statement Aug. 17. "Our program meets the legal mandate that Coastal Plain leaseholders get the necessary rights of way, easements and land areas for production and support facilities they need to find and develop these important Arctic oil and gas resources."

US environmental groups are expected to file lawsuits to block the sale, and it's uncertain what appetite the oil and industry will have to bid for acreage with any drilling certain to be drawn-out litigation delays, particularly at a time of depressed oil prices.

There's also the prospect that President Donald Trump may not be reelected in November, which could change any plans for a lease sale. Presumption Democratic presidential candidate Joe Biden selected Senator Kamala Harris of California as his vice presidential running mate and she has advocates ending fossil fuel leasing on public lands.

Congress set a requirement for an ANWR lease sale in the Tax Cuts and Jobs Act of 2017, with the first sale to be held by the end of 2021. Sales would be within a 1.56 million-acre coastal plain section of the Arctic refuge, which totals 19.3 million acres. US Geological Survey and state of Alaska geologists have said that the coastal plain has potential for large oil and gas discoveries based on the region's prospective geology and limited seismic data from a geophysical survey in the 1980s.

One exploration well has been drilled in the area, the KIC No. 1 well drilled by Chevron and BP in a private land within the refuge owned by Arctic Slope Regional Corp., an Alaska Native development corporation. Results of the KIC well are still held confidential, but BP's rights to the well data have now passed to Hilcorp Energy following that company's acquisition of BP's Alaska assets in July.

LAWSUITS COULD DELAY ACTIVITY

Alaska leaders were enthusiastic over Bernhardt's announcement.

"Today's announcement marks a milestone in Alaska's forty-year journey to responsibly develop our state and our nation's new energy frontier - the 1002 Area (ANWR coastal plain), Governor Michael Dunleavy said. "The Record of Decision is a definitive step in the right direction to developing this area's energy potential - between 4.3 and 11.8 billion barrels of technically recoverable oil reserves."

US Senator Lisa Murkowski, who played a key role in the legislation to authorize ANWR exploration, called the Interior Department move a "capstone moment in our decades-long push to allow for the responsible development of a small part of Alaska's 1002 Area."

"While the industry has been hard hit by the recent pandemic and low prices, it is critical that the government continue to meet its leasing obligations," said Kara Moriarty, Alaska Oil and Gas Association president and CEO.

"Development in a small fraction of ANWR has long been supported by Alaskans; especially by those who live in the region," Moriarity said in a statement. "Alaska's oil and gas industry has a long history of safe and environmentally responsible development in the Arctic, and it will continue to deploy new technology and techniques to safely and responsibly develop any leased areas in ANWR."

One issue in any litigation will be on protection of polar bears under the federal Endangered Species Act. The coastal plain is a known denning area for polar bears and the ability of seismic operators and companies building ice roads to support exploration to detect female bears and cubs in snow-covered dens has been challenged.

The Tax Cuts and Jobs Act of 2017 directs the Interior secretary, acting through the Bureau of Land Management, to conduct at least two area-wide lease sales of not less than 400,000 acres each within the coastal plain. The first lease sale must take place before Dec. 22, 2021, and the second sale before Dec. 22, 2024.

The act also requires Interior to grant rights of way and easements necessary for successful development of the oil and gas resources, and to authorize up to 2,000 surface acres to be covered by gravel to support production and support facilities.

If the lease sales withstand challenges and exploration is done that results in discoveries, a second federal Environmental Impact Statement would be required for any development of surface production facilities, Interior officials have said.

POLITICAL BARRIERS

The biggest factor affecting ANWR bidding may be its political radioactivity. Conservation groups have worked for decades to wall off the refuge from development and have recently courted major banks and investment groups to say they will not help finance ANWR development.

Gina McCarthy, president of the Natural Resources Defense Council, Is blunt about ANWR.

"The Trump administration never stops pushing to drill in the Arctic Refuge--and we will never stop suing them. America has safeguarded the refuge for decades, and we will not allow the administration to strip that protection away now," she said in a statement.

Extended litigation in ANWR will add costs and uncertainty.

The Wilderness Society's Alaska director, Karlin Itchoak, said, "After five of America's six largest banks have announced that they will no longer finance new oil drilling in the Arctic Refuge--and under the cover of a global public health crisis and economic turmoil--the BLM (U.S. Bureau of Land Management) has issued a bad Record of Decision resulting from a fundamentally flawed final environmental impact statement."

"The financial industry is sending a loud, clear message to industry: Drilling in the Arctic Refuge is bad business, and it would take the United States--and the rest of the world--in the wrong direction as we confront the crisis of climate change," Itchoak said.

The banks could change their tune if there's a major discovery but for now the published statements could chill the appetite for spending money, particularly among smaller or mid-sized firms.

For big, public companies the deterrent is possible reputation damage that could result if they bid and win leases, and then have to put up with demonstrators at shareholder meetings and outside corporate offices. Shell faced this kind of international pressure when it attempted to drill in the Chukchi Sea, off Alaska's northwest coast.

The company dropped its exploration after the first well was unsuccessful but heavy pressure from conservation groups and adverse publicity played a major role in the decision, Shell executives said later.

A possible Alaska tax increase may also act as a disincentive for oil and gas companies, Moriarty said.

"The biggest risk to producing in future areas in Alaska, regardless of this lease sale, is a [pending state] ballot measure that would significantly raise taxes on production, including from future production in ANWR," she said.

Ballot Measure 1, which will be on the state general election ballot in November, would effectively double state taxes on fields producing more than 40,000 b/d. Any development in ANWR would likely have to be of that size or larger.

GEOLOGICAL CONCERNS

Despite ANWR's relatively proximity to oil and gas discoveries and infrastructure on nearby state lands there are mixed feelings about prospects in the refuge among companies.

Richard Garrard, a veteran exploration geologist who does work for companies in Alaska, has said he was not impressed with the geology of the coastal plain. Other geologists believe the area may be more prone to natural gas than oil, as is the case across much of the southern North Slope.

Garrard has done work on offshore prospects in state-owned waters north of ANWR and as a part of that followed the geologic trends onshore into the refuge. He didn't see any basis for the kind of large oil and gas reservoir traps that are found to the west, near Prudhoe Bay.

The Barrow Arch, a broad east-west geologic structure along Alaska's coast that forms the traps where Prudhoe, Kuparuk River and other large fields were found, is missing in ANWR, Gerrard said in an interview earlier this year.

What's also notable is the apparent lack of interest in ANWR by major oil and gas companies who have the deep pockets to ride out litigation and to build major infrastructure. BP and Chevron were interested enough in the 1980s to drill the KIC exploration well but have shown little interest since.

ExxonMobil has a major land position and a large gas and condensate discovery at Point Thomson, near the eastern boundary of state lands and ANWR's western border, but the company has also expressed relatively little interest.

These companies could just be playing their cards close, but ever since Congress opened the area the lack of talk about ANWR within the industry in Alaska is striking.

Other companies now engaged in North Slope exploration like ConocoPhillips, Oil Search and Repsol, may be interested but also may have their hands full with discoveries in the National Petroleum Reserve-Alaska and on state lands near the NPR-A.