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Vol. 13, No. 30 Week of July 27, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Final finding out for ANS sales

Oil and gas leasing continues with 2nd round of areawide sales, annual over most prospective areas

By Kristen Nelson

Petroleum News

Finding oil and gas on Alaska’s North Slope isn’t getting any easier. The expectation is that the big oil and gas fields have been found, so remaining onshore acreage isn’t likely to yield another Prudhoe Bay or Kuparuk River field, but smaller more economically challenging fields.

While the state can’t change the geology, it took steps more than 10 years ago to make the oil and gas leasing step easier by offering regular areawide lease sales — sales covering broad areas, like the North Slope.

Previously the Alaska Department of Natural Resources Division of Oil and Gas offered irregular lease sales in response to industry interest in an area, complicating the process of assembling acreage over an exploration prospect.

That changed with the establishment of areawide leasing, facilitated by 1996 passage of legislation establishing that a best interest finding for a lease sale would be valid for 10 years, instead of only five. Areawide sales began on the North Slope; other areawide sale areas followed — Cook Inlet, the Beaufort Sea, the North Slope Foothills and the Alaska Peninsula.

Once a finding is written, the division can hold sales in an area for 10 years without doing a new finding. The department solicits information from the public prior to each sale and makes a determination as to whether substantial new information has become available, requiring a supplement to the most recent finding.

State began holding North Slope areawide lease sales in 1998

The change seems to have worked well for the state on the North Slope. The state completed a North Slope best interest finding in March 1998 and began holding annual areawide North Slope oil and gas lease sales that year.

In the 10 years preceding the beginning of areawide sales the state held 13 North Slope oil and gas lease sales, some quite small, bringing in $59.7 million and leasing some 1.79 million acres.

In the 10 years since, the state has held 10 areawide sales, bringing in $102.3 million and resulting in the leasing of 2.99 million acres. While increasing oil prices certainly played a role, there were big sales in the late 1990s when bidders were probably responding to increased access to acreage. The upward surge in oil prices is relatively recent, with the average price of Alaska North Slope crude oil only crossing the $30-a-barrel mark in 2004, a climb in prices which has continued with 2007 ANS prices on the West Coast averaging $71.76. The ANS West Coast price on July 23 was $127.25 a barrel, as prices come down from record-breaking highs above $145 a barrel.

Final finding out

The state has completed work on a new best interest finding, addressing North Slope areawide sales from 2008 to 2017, covering the lease sale area of some 5.1 million acres.

The final finding includes the division’s response to comments it received after the preliminary best interest finding was issued in April 2007.

The Alaska Eskimo Whaling Commission requested inclusion of effects of vessel traffic on bowhead whales, noting that effects occur not just from offshore development but also from vessel traffic in support of onshore development.

The division added information on the effects of vessel traffic on bowhead whales to the finding.

The North Slope Borough’s comments included a request for consistency in mitigation measures across state and federal leases, and requested that the state conduct a thorough analysis of its mitigation measures and the U.S. Department of the Interior Bureau of Land Management’s mitigation measures for the National Petroleum Reserve-Alaska and align those mitigation measures where possible without sacrificing any protections — and adopt the more stringent of the mitigation measures where alignment is not possible.

The division said it was willing to consider alignment of state and federal mitigation measures but believes that the North Slope Borough, “as the requesting agency, should conduct the analysis and present specific proposals to BLM and the division for consideration.”

Borough has health concerns

The borough also wanted the best interest finding to address a number of public health issues, including diabetes, cancer, alcohol abuse, drug abuse, suicide, domestic violence and injury rates.

“Research suggests that social pathology and other health problems may be related to the rapid cultural changes that have occurred in rural Alaska,” the division said. “However, it is difficult to attribute these changes directly to oil and gas development as they also occur in many rural parts of Alaska not exposed to oil and gas development.”

The borough also asked for a number of lessee-funded health studies to mitigate potential health impacts. The division said the state is developing a coordinated policy for addressing health impacts of large resource extraction projects, and said the borough received a $1.67 million grant from NPR-A impact funds to do a health impact assessment.

Until that assessment and the state’s interagency process have been completed, it would be “premature to develop and impose mitigation measures,” and once the state and borough have completed their work, impacts can be considered in the call for substantial new information issued each year, the division said.

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Substantial new info for Beaufort sale

Alaska Commissioner of Natural Resources Tom Irwin said in a July 15 decision that the U.S. Fish and Wildlife Service May 15 final rule listing the polar bear as a threatened species under the Endangered Species Act constitutes substantial new information justifying a supplement to the most recent best interest finding for the Beaufort Sea areawide oil and gas lease sale.

“However, no new mitigation measure or lessee advisories are proposed,” Irwin said, as existing mitigation measures and lessee advisories in the Beaufort Sea areawide 1999 oil and gas lease sale final finding “adequately address polar bears.”

The supplement to the Beaufort Sea 1999 areawide finding notes the listing of the polar bear as a threatened species based on the loss of sea ice.

DNR notes that the State of Alaska has challenged the listing, maintaining that there is insufficient evidence to support a listing of the polar bear as threatened for any reason at this time. DNR has also requested information for a 2009 10-year rewrite of the Beaufort Sea areawide best interest finding.

ConocoPhillips Alaska Inc. told DNR in its comments that it supports regularly scheduled and predictable lease sales and recommended no decrease in the surface extent of sales.

The North Slope Borough asked that DNR closely consult with the borough as it develops the new best interest finding and also requested that DNR permanently remove all areas currently deferred from leasing.

—Kristen Nelson