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US BSEE approves plan to combine Beaufort Sea leases; could renew exploration

Anchorage — A federal agency has approved a plan to unitize, or combine, former Shell leases in Alaska's Beaufort Sea that are now held by a subsidiary of an Alaska Native-owned corporation, the first step toward resumed exploration in the area, officials said Monday.

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The area is in the US Outer Continental Shelf, about 15 to 20 miles off the northern Alaska coast.

Mark Fesmire, Alaska director of the US Bureau of Safety and Environmental Enforcement, said ASRC Exploration Inc., a subsidiary of Arctic Slope Regional Corp., now has an approved unit and has also applied for a Suspension of Operations on the former Shell leases. This is an action that temporarily halts the pending expiration of the lease terms, Fesmire said.

If granted, the suspension would allow ASRC Exploration to conduct exploration, and if a discovery is made, the leases are automatically extended.

ASRC purchased Shell's Beaufort Sea lease holdings in late 2016 after Shell withdrew from active Arctic exploration the previous year.

"The unit approval includes 20 Outer Continental Shelf leases that will now be grouped and administered as one unit. The advantage of unitization is that it allows an operator to do work on one lease and have that count as a development action in holding the entire group," Fesmire said.

An additional tract ASRC had requested was not included in the approved unit because insufficient seismic data was submitted to justify the inclusion, Fesmire said.

Many of the Beaufort Sea leases, which include two prospects Shell explored, Sivulliq and Torpedo, are set to expire beginning in 2018.

If the suspensions are granted, which will be decided by this December, ASRC Exploration will be required to submit an exploration operations plan and a work schedule, Fesmire said.

Approval requires a definitive plan for further work. Such a commitment was lacking when BSEE denied a similar request from Shell to suspend the lease termination of its Chukchi Sea leases, Fesmire said.

The area is near Camden Bay, which is offshore the boundaries of state-owned onshore lands and the federally owned Arctic National Wildlife Refuge. Oil and gas have been discovered onshore, and the large Point Thomson gas and condensate field is now in production.

A small oil deposit, Sourdough, has also been discovered, although it is not producing. Arctic refuge lands to the east are thought to have considerable oil and gas potential.

The offshore Sivulliq prospect is a known oil deposit. Previously named Hammerhead, it was originally drilled in the 1980s by Unocal Corp. Previous reports indicated Unocal found 100 million to 200 million barrels of resources, but it was not considered economic at the time.

Unocal subsequently dropped the federal leases and Shell acquired new leases in the area in OCS lease sales in 2005 and 2007.

Shell brought the conical drilling vessel Kulluk, which was designed for Arctic drilling, to the Beaufort Sea in 2012 and partially drilled one well -- federal agencies at the time did not allow the well to be drilled to potential oil-bearing reservoirs.

After the Kulluk was damaged in a Gulf of Alaska storm in December 2012, Shell did not return to further explore the Beaufort Sea prospects, instead focusing its efforts on the Chukchi Sea. That effort was unsuccessful.

Arctic Slope Regional Corp. is owned by 13,000 Inupiat shareholders who live in five small villages in the northernmost region of Alaska.

ASRC owns about 5 million acres of onshore lands on the North Slope, including 91,000 acres of private holdings in the Arctic National Wildlife Refuge, and is a royalty owner in the Alpine field, on state lands in the Colville River delta.

ASRC is also engaged in development of state-owned onshore leases in the central North Slope, where it has made discoveries.

--Tim Bradner,
--Edited by Annie Siebert,