Interior department suspends Arctic O&G exploration lease sales (USA)

The Obama administration has cancelled the Arctic Lease Sales for the Beaufort Sea and the Chukchi Sea oil and gas exploration in the current five-year oil and gas program.

The U.S. Department of the Interior Friday said that, in light of current market conditions and low industry interest, it would cancel the two potential Arctic offshore lease sales scheduled under the current five-year offshore oil and gas leasing program for 2012-2017.

According to the Department of the Interior, the decision follows Shell’s withdrawal from its Chukchi Sea exploration campaign in Alaska after disappointing results of its Burger J well.

The Anglo/Dutch oil and gas major said in September that the discovered traces of oil and gas at its offshore Alaska exploration well were not sufficient to warrant further exploration in the Burger prospect, and that it would not be returning to drilling in the Alaskan waters any time soon. It also cited an uncertain regulatory environment in the U.S. as one of the reasons for its withdrawal from the Arctic.

“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 on Friday.

Under the current Five-Year Program, Chukchi Sea Lease Sale 237 was scheduled potentially for 2016. The Bureau of Ocean Energy Management (BOEM) issued a Call for Information and Nominations in September 2013, in response to which industry submitted no specific nominations.

Similarly, Beaufort Sea Lease Sale 242 had been scheduled potentially for the first half of 2017. BOEM published a Call for Information and Nominations in July 2014, but only received one nomination. The Interior said that this raised concerns about the competitiveness of any such lease sale at this time.

Shell, Statoil denied lease suspensions

On Friday, the Bureau of Safety and Environmental Enforcement (BSEE) also denied requests from Shell and Statoil for lease suspensions, which would have allowed the companies to retain the leases beyond their primary terms of ten years. The leases will expire in 2017 (Beaufort) and 2020 (Chukchi).

Among other things, the BSEE said the companies did not demonstrate a reasonable schedule of work for exploration and development under the leases, a regulatory requirement necessary for a suspension to be granted.

Shell and Statoil can submit Suspension of Operation requests before their leases in the Chukchi Sea or the Beaufort Sea expire if the facts and circumstances relevant to the regulatory grounds for suspension change, the BSEE added.

Win for Arctic wildlife

Environmentalists have welcomed the lease sale cancellation announcement. Miyoko Sakashita with the Center for Biological Diversity said that it was a huge win for Arctic wildlife and the climate.

She said: “Americans have spoken time and again about the perils of Arctic drilling. It’s gratifying to see these leases finally canceled and now it’s time to declare the Arctic off-limits to drilling forever.”

Keep Arctic oil in the ground – Miyoko Sakashita

“Arctic drilling never made sense,” Sakashita added. “We’re happy to see Shell walk away and now to have these two lease sales canceled. It can’t stop here, though: It’s time to take the next step and pledge to keep this oil in the ground and transition quickly to energy sources that are safer, smarter and better for all of us.”

Unpredictable and Uncertain system

The American Petroleum Institute (API) Director of Upstream Erik Milito on Friday said that strong interest in developing U.S.’s vast offshore oil and natural gas resources in Alaska was undermined years ago when the administration began implementing a system of regulatory and permitting unpredictability and uncertainty.

Lease extensions were clearly justified under the circumstances” – Erik Milito

Milito said that investment decisions have been directly thwarted by the policy decisions of the administration related to Alaskan Outer Continental Shelf development. He also said that lease extensions were clearly justified under the circumstances.

“While it is not surprising that Interior canceled the remaining lease sales because there was an absence of nominations, it is the significant regulatory uncertainty that has created the reluctance on the part of our industry. Still, America’s oil and natural gas industry remains firmly committed to the long-term development of offshore Alaska resources.”

Arctic oil represents potential for energy security, jobs and revenue for the government.” – Erik Milito

Milito said Arctic oil and natural gas represented an incredible potential for American energy security, jobs and revenue for the government.

“Access to the region’s oil and natural gas resources will remain necessary to provide energy supplies to meet the world’s growing demand and vital to keeping America’s status as a world leader in energy,” he added.

Alaska’s Governor disappointed

Governor of Alaska Bill Walker expressed his disappointment: “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.”

Rejection of Shell’s request short-sited move

U.S. Senator Lisa Murkowski on Friday that the Department of the Interior’s rejection of Shell’s request to extend its leases offshore Alaska and the cancelation of future leases sales in the region was a stunning, short-sighted move that betrays the Interior Department’s commitments to Alaska and the best interests of U.S.’s long-term energy security.

“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,” Murkowski said on Friday.

“Less than a year ago, Interior announced it was locking up millions of acres of the nation’s richest oil and natural gas prospects on the Arctic coastal plain. Interior has also taken more than 11 million acres of the National Petroleum Reserve-Alaska off the table.”

“It had made it nearly impossible for companies to navigate the permitting process, which dramatically limited Shell’s ability to drill to just 163 out of more than 2,800 days,” Murkowski said.

There is not a lack of interest in the Arctic” – U.S. Senator Lisa Murkowski

“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.”

The U.S. Senator from Alaska said that, instead of seeking to shut down Alaska, Interior should remember that the North Slope was nearly abandoned after 14 dry holes were drilled.

She said: “The opportunity to keep going led to not only the discovery of Prudhoe Bay but also the production of more than 17 billion barrels of oil and a generation of opportunity for Alaska.”

“I will certainly remember that fact as I continue to push legislation that will force Interior to hold regular lease sales in the offshore Arctic. The Energy Committee has already reported my OPENS Act to the full Senate for further consideration, and I will be looking at every possible opportunity to advance it into law.”

In July, Murkowski, chairman of the Senate Energy and Natural Resources Committee, advanced the Offshore Production and Energizing National Security (OPENS) Act to ensure that Alaska receives a fair share of the revenue from development in the federal waters off its shores. The OPENS Act also requires annual leases sales in offshore Alaska, including in the near-shore Beaufort Sea.

Offshore Energy Today Staff

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