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Vol. 17, No. 28 Week of July 08, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

Three Alaska sales included

Interior’s 5-year OCS program proposes sales in Beaufort, Chukchi and Cook Inlet

Eric Lidji

For Petroleum News

The U.S. Department of the Interior plans to hold three lease sales in the federal waters off the coast of Alaska by 2017, according to a proposed final program unveiled June 28.

The five-year program includes lease sales in the Chukchi Sea and the Cook Inlet in 2016 and the Beaufort Sea in 2017. In addition to Alaska, the program calls for a dozen lease sales across the three planning regions of the Gulf of Mexico between now and 2017.

“This is a good plan. It is a smart plan. It’s an aggressive one,” Interior Secretary Ken Salazar told reporters. “It will make all of the highest resource areas that are currently accessible in the U.S. Outer Continental Shelf available for oil and gas leasing.”

The program contains two surprises.

First, while the Beaufort and Chukchi continue to be seen as some of the last remaining undeveloped giants in North America, the Cook Inlet sale is an unexpected addition.

Second, the Interior Department pushed back the Beaufort sale by two years, to 2017, in order to have more time to decide what acreage it will offer. The analysis is part of a “targeted leasing” strategy that aims to balance resource potential and environmental stewardship by pinpointing precise regions for leasing rather than an areawide model.

“Essentially, the areawide leasing model that works for the Gulf, where there is a long and consistent history of offshore exploration and development, was not designed for the conditions of the Arctic. The Arctic is a new energy frontier, and we must move cautiously with a different approach for the region,” Salazar said. “Our goal is to maximize the availability of oil and gas resources in those areas that we are making available for leasing, while minimizing potential conflicts with environmentally sensitive areas and the native Alaskan communities that rely on the ocean for subsistence use.”

The proposed five-year leasing program also includes heightened safety requirements crafted in the wake of the Deepwater Horizon oil spill in the spring and summer of 2010.

The program does not include sales in the Atlantic or Pacific planning areas.

Interest in the inlet

The original draft of the five-year plan included a Cook Inlet lease sale as a “placeholder,” but this spring the Interior Department asked companies to express specific interests in the region. “We got response from industry that said, ‘We’re interested in particular areas in the Cook Inlet planning area as well as the area as a whole,’” Bureau of Ocean Energy Management Director Tommy Beaudreau said.

Although the reason for that interest remains confidential, the announcement suggests a re-evaluation of the federal waters extending roughly from Kalgin Island to Kodiak. That region hasn’t excited industry recently. Or, as Beaudreau put it more bluntly, “In the past we’ve scheduled potential sales in the Cook Inlet and, honestly, nobody showed up.”

The BOEM currently estimates the Cook Inlet planning area contains 1 billion barrels of technically recoverable oil and 1 trillion cubic feet of technically recoverable gas, around 7.7 percent and 3.4 percent of the estimates for the Beaufort and Chukchi, respectively.

Any sale in Cook Inlet would also proceed under the new “targeted leasing” strategy promoted for the Beaufort and Chukchi. A sale in the Cook Inlet area would require a consideration of endangered species, particularly the Beluga whale, Beaudreau noted.

Arctic buffers, studies

To visualize its “targeted leasing” strategy, the Interior Department produced maps showing where the highest resource potential, most critical species habitat and most important subsistence areas do and don’t overlap in the Chukchi and Beaufort seas.

The goal, Beaudreau said, is to continually refine these maps, not only through independent studies, but also through the results of exploration work, such as the five-well program Shell intends to conduct this year, should it get government approval.

Currently, the plan maintains a 25-mile buffer along the Chukchi coast, as well as an area north of Barrow believed to be lower in resource potential than it is higher in subsistence value. The plan also excludes two subsistence whale areas in the Beaufort Sea near Barrow and Kaktovik. It also focuses a critical eye on the Hanna Shoal, an environmentally important region in the Chukchi currently involved in federal studies.

The Interior Department hopes this targeted approach reduces lawsuits in the region.

Beaudreau noted that the Interior Department has extended some leases and could extend others in the Arctic OCS to accommodate for delays caused by litigation in the region.

Program “falls short”

The program drew immediate criticism from Sen. Lisa. Murkowski.

“The leasing plan released today falls far short of what’s needed to get America’s faltering economy back on track. It removes nearly 90 percent of the acreage previously available for energy exploration,” Murkowski said in a statement. “While it offers the possibility of two lease sales in the Arctic, it substantially delays them and raises the possibility that they might not happen at all. The final plan unilaterally takes millions of acres in the Arctic off the table, in the form of buffer zones and so-called ‘study areas.’”

She also criticized the Interior Department for not scheduling a lease sale in the Atlantic, despite local support in Virginia and South Carolina. “While the administration resists opening any new acreage, nearly every country bordering our waters is showing no such hesitation. Cuba, Mexico, the Bahamas, Canada and Russia are all moving ahead. It’s time to roll up our sleeves and put Americans back to work producing the energy we need to be competitive. Hesitation and delay will not right our economy,” Murkowski said.

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