On Oct. 16 the U.S. Department of the Interior announced that it was cancelling two future oil and gas lease sales in the Arctic offshore, one for the federal waters of the Chukchi Sea and one for the Beaufort Sea. Interior said that the decision follows Shell’s announcement that it will cease exploration activities in the Alaska offshore for the foreseeable future. The Bureau of Ocean Energy Management has also commented that it had received no expressions of interest in the Chukchi Sea lease sale, proposed for 2016, and only one nomination for the Beaufort Sea sale slated for 2017.
On Sept. 27 Shell announced that it was pulling out of its Arctic Alaska offshore exploration program.
“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 Secretary of the Interior Sally Jewell. “I am proud of the performance of Interior’s Bureau of Ocean Energy Management and Bureau of Safety and Environmental Enforcement, the U.S. Coast Guard and others in ensuring that Shell’s program this past season was conducted in accordance with the highest safety and environmental standards.”
BSEE has also denied requests from Shell and Statoil for the suspension of existing leases in the Chukchi and Beaufort seas. The suspensions would have enabled the companies to retain the leases beyond their primary 10-year terms. The Beaufort Sea leases expire in 2017 and the Chukchi Sea leases in 2020. Among other things, the companies had not demonstrated a reasonable schedule of exploration and development work for the leases, BSEE said.
Lack of nominations
In BOEM’s current outer continental shelf lease sale program covering the years 2012 to 2017, the agency has moved from an areawide approach for the Chukchi and Beaufort seas, instead using an approach in which, before holding a sale, the agency asks industry to nominate areas of interest for leasing. Nominated areas would then be offered in a public lease sale. The agency has also excluded some regions of high environmental sensitivity from potential leasing.
Essentially, in its Oct. 16 announcement Interior has said that BOEM has received no industry nominations for its planned Chukchi Sea sale and only one nomination for the Beaufort Sea sale. Consequently, and taking into account Shell’s decision, the agency has decided to cancel the sales.
The issue relating to lease suspensions relates to applications at various times from Shell, ConocoPhillips and Statoil, the three companies that have been active in Arctic outer continental shelf exploration, for extensions to the terms of their oil and gas leases, given delays that the companies have experienced in moving ahead with their exploration programs. BSEE had already turned down an application from ConocoPhillips and has now turned down similar applications from Shell and Statoil.
All three companies had conducted seismic and geotechnical surveys in some of their leases, while Shell has spent billions of dollars on its exploration program, including the carrying out of two drilling programs.
In denying Statoil’s application, BSEE said that the company had not provided a schedule or plan for commencing any leaseholder operations on its leases. In response to Shell’s application, the agency said that Shell has publicly stated that the company does not plan any further exploratory drilling in its leases for the foreseeable future, and that the company had not provided a schedule or plan for commencing or resuming leaseholding operations.
State officials respond
“I am disappointed by this announcement,” said Alaska Gov. Bill Walker in response to Interior’s statement about the lease sale cancellations and denial of lease extensions. “Alaska must be able to responsibly explore and develop our rich natural resources both onshore and offshore. Any action that limits our ability to explore for more oil - to increase much-needed oil production through the trans-Alaska oil pipeline - creates unnecessary uncertainty and burden on our economy.”
Alaska’s Congressional delegation has reacted by accusing the Obama administration of opposing Alaska energy development.
“This is a stunning, short-sighted move that betrays the Interior Department’s commitments to Alaska and the best interests of our nation’s long-term energy security,” said Sen. Lisa Murkowski. “Today’s decision is 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. … 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. There is not a lack of interest in the Arctic - if anything, what we are seeing is a lack of interest in working with the current leadership of the Interior Department.”
“Today’s announcement is yet another sign that the Obama administration has caved to the demands of extreme environmentalists by locking up our country’s vast Arctic resources, regardless of the fact that such resources would provide much-needed jobs and energy security for our country,” said Sen. Dan Sullivan. “The administration cites lack of commercial interest and lack of a plan for development, but that justification is duplicitous at best. First the administration creates regulatory obstacles under which success for any company would be nearly impossible. And then it cites lack of commercial interest as justification for locking up the resources. It’s an affront to the process, to Alaskans, and to the country.”
Sullivan said that, in the absence of oil development in the Alaska Arctic, countries that pay scant regard to environmental protections would undertake development elsewhere in the Arctic.
Environmentalists pleased
Environmental organizations, already jubilant over what they view as a victory in seeing the end of Shell’s Arctic offshore exploration, have praised the Obama administration for decisions which seem set to put a halt to further exploration in federal waters of the region for years to come.
“This is great news for the Arctic and our climate future,” said Cindy Shogan, executive director, Alaska Wilderness League. “President Obama has made it clear that drilling has no place in America’s Arctic Ocean. The president understands the risks of drilling in such a remote and dangerous ecosystem, as well as the dangers of climate change and that drilling in the Arctic Ocean will only make it worse.”
“For years, people around the world have been demanding President Obama protect the Alaskan Arctic from catastrophic oil drilling, and today he’s taken a major step,” said Greenpeace spokesman Travis Nichols. “This is the right move for President Obama to secure his climate legacy through one of the most vulnerable places on Earth, but he can still do more by using his authority to withdraw the Arctic Ocean from future offshore oil drilling.”
