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Vol. 12, No. 2 Week of January 14, 2007
Providing coverage of Alaska and northern Canada's oil and gas industry

Bush lifts moratorium

Bristol Bay will probably be part of MMS 2007-2012 lease sale schedule

Alan Bailey

Petroleum News

In a not entirely unexpected move on Jan. 9 President Bush lifted the moratorium on oil and gas leasing in the North Aleutian planning area, an area that includes the outer continental shelf of Alaska’s Bristol Bay and the southeastern corner of the Bering Sea. The president’s action should enable the U.S. Minerals Management Service to include two North Aleutian lease sales in its 2007 to 2012 leasing program.

The president also lifted the moratorium on leasing in the central Gulf of Mexico. The federal government is increasing the royalty rate for most new offshore deepwater federal oil and gas leases outside Alaska to 16.7 percent.

“Together, these actions will enhance America’s energy security by improving opportunities for domestic energy production, and will also increase the revenues that the federal government collects from oil and gas companies on behalf of American taxpayers,” said Interior Secretary Dirk Kempthorne.

Last sale in 1988

The last North Aleutian lease sale occurred in 1988. But in the wake of the Exxon Valdez oil spill in Prince William Sound and amid concerns about potential impacts on the prolific Bristol Bay salmon fishery, the federal government bought back the leases.

In 1998 President Bill Clinton withdrew several offshore regions, including the North Aleutian and central Gulf of Mexico areas, from consideration for oil and gas leasing until 2012.

Starting in the early 1980s Congress included language in the annual Department of the Interior appropriations bill that prevented the department from conducting leasing in areas under federal moratorium. President Bush signed legislation in 2003 that removed the U.S. Congress objections to oil and gas drilling in the federal waters of Alaska’s Bristol Bay. However, the presidential moratorium on Bristol Bay leasing remained in effect at that time.

President Bush’s Jan. 9 action has modified President Clinton’s 1998 withdrawal, to release the North Aleutian and central Gulf of Mexico areas from the moratorium.

Prospective basin

The North Aleutian basin, also known as the Bristol Bay basin, that lies under the area now targeted for an MMS lease sale contains somewhat similar geology to the petroleum province of the neighboring upper Cook Inlet. The Bristol Bay basin shows a high potential for the discovery of natural gas, with the potential for some oil resources in the deeper sections.

In a 2006 assessment of the offshore components of the basin MMS geologists estimated the possibility of 753 million barrels of technically recoverable oil and condensate, and 8.6 trillion cubic feet of technically recoverable natural gas in the basin.

Decline in fishery

Since the placement of the federal moratorium on Bristol Bay oil and gas leasing, the salmon fishery in the region has declined. And the need to generate new income has caused the Bristol Bay communities to take a renewed interest in the potential for an oil and gas industry in the region. But the importance of fishing both to the cash economy of the region and to the traditional subsistence way of life caused continued opposition to offshore development. Communities have, however, favored onshore development.

In October 2005 the State of Alaska held an areawide lease sale onshore the Alaska Peninsula and in state waters on the north side of the peninsula, along the south side of Bristol Bay. At that sale Shell and Hewitt Mineral Corp. purchased some leases near Port Moller, adjacent to the deepest part of the Bristol Bay basin.

And since the sale Shell has expressed an interest in offshore exploration in the Bristol Bay area (MMS has also indicated that several other companies are interested in the area).

“One area that could provide relatively direct access to the U.S. and Asia-Pacific LNG market is Bristol Bay,” said Rob Ryan, Shell Exploration and Production’s vice president for corporate affairs, in January 2006. “We look forward to the opportunity to one day acquire seismic and explore in the shallow ice-free waters of this prospective basin. We believe it can be done with no adverse impact on the fisheries or the marine mammals.”

In February 2006 MMS announced that it would include a study of the North Aleutian basin in its draft 2007-2012 outer continental shelf leasing plan. And, in response to requests from Bristol Bay communities, the agency subsequently agreed to reduce the area that would be available for leasing from the 33 million acres of the complete North Aleutian planning area to an area of about 5.6 million acres northwest of Port Moller. That reduced area includes the deepest and most prospective part of the Bristol Bay basin.

Guarded local support

And communities close to the area that would be open for leasing seem to support the lease sale plan, albeit with some strong caveats about protecting the environment and the fisheries. Bob Juettner, administrator for the Aleutians East Borough, has told Petroleum News that the reduction in the proposed sale area is a key factor in local support for oil and gas leasing.

“This is a wonderful opportunity for us to stabilize our economy and bring jobs to the region,” Juettner said in a press release from the borough. “But keep in mind our families have centered their lives around commercial and subsistence fisheries for thousands of years. We can’t let anything threaten our traditional way of life. Our assembly has been very clear that it will withdraw support if it doesn’t feel confident that things will be done right.”

In a November resolution, the Aleutians East Borough set out its expectations for safe offshore petroleum development. Those expectations include items such as no offshore loading of tankers, and the prevention of “conflicts with local commercial, subsistence and sport harvest activities.”

Juettner also told Petroleum News that the Aleutians East Borough, the Bristol Bay Borough and the Lake and Peninsula Borough are in the process of establishing a memorandum of understanding, setting out the requirements of the three boroughs.

“We want an active engagement in the process,” Juettner said Jeff Currier, borough manager for the Lake and Peninsula Borough, told Petroleum News that his borough also guardedly supports offshore leasing. Currier said, however, that his borough prefers onshore development, because of the potential for increased tax revenues and local employment. Onshore development would also eliminate the possibility of an on-water oil spill.

“We strongly support onshore development,” Currier said. “We are guardedly optimistic that offshore development may be doable. … We remain open minded. We want to see this thing progress.”

Currier said that the good environmental record of the Cook Inlet oil industry, even using 40-year-old technology, demonstrated that the oil industry can co-exist with fishing. But the borough wants to see what is determined in a Bristol Bay environmental impact statement, he said.

Palin support

Alaska Gov. Sarah Palin’s comments on the lifting of the moratorium also included a caveat about protecting the Bristol Bay fisheries.

“It is gratifying that the federal government is again looking north to Alaska to provide the energy our nation needs,” Palin said. “Development in the Bristol Bay region could provide the jobs, economic diversification and energy the people of this region need. If we can be sure it will not threaten the fisheries that are the foundation of the region’s economy and way of life, I’m all for it.”

“We think that it’s a very positive move for Alaska and the whole energy picture in the United States,” said Judy Brady, executive directory of the Alaska Oil and Gas Association. Brady cited the Cook Inlet, the Gulf of Mexico and offshore Norway as areas where the oil industry has successfully co-existed with the fishing industry. It is possible for Alaska to say yes to both fisheries and oil, Brady said.

But Brady also commented on the importance of the Bristol Bay fishery and pointed out that the lifting of the moratorium marks the beginning of a long environmental process, and that during that process much would be learned about the impact of a lease sale.

Storm of criticism

The president’s action has met with a storm of criticism from environmental groups. In addition to Bristol Bay’s fish habitat, the region supports marine mammals such as the walrus, harbor seal and sea otter, as well as endangered species including stellar sea lions, humpback whales, fin whales and right whales.

“I am very disappointed with the president’s action today,” said Bill Eichbaum, managing director and vice president of the marine portfolio at World Wildlife Fund. “Bristol Bay should be off the table for drilling. World Wildlife Fund will now work with Congress to override the president’s action and re-instate the Congressional moratorium on oil and gas development in Bristol Bay which was allowed to expire in 2004.”

“Opening Bristol Bay to offshore oil and gas development could have devastating impacts to the marine environment and coastal economies,” said Eric Sly, executive director of the Alaska Marine Conservation Council.

Environmental process

MMS spokesman Gary Strasburg told Petroleum News Jan. 10 that the agency has involved local communities, as well as local, state and federal politicians in its decision making process.

“We will do whatever is required in the environmental process,” Strasburg said. “… We’re aware of those concerns.”

Strasburg said that MMS would shortly issue a final proposal for its five-year leasing program, including a proposal for North Aleutians lease sales in 2010 and 2012.

“We’ll do a final proposal and that should be done fairly soon,” Strasburg said. “It will sit for 60 days before Congress and then providing they don’t take any actions it will go into effect on July 1 of this year.”

A lease sale in the North Aleutian planning area will require an environmental impact statement specific to that sale. Strasburg also confirmed that any pre-sale seismic surveying in the area would have to at least go through an environmental assessment.

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