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Why the Big Rush to Sell Arctic Oil Leases?

Big oil companies have abandoned $2.5 billion in drilling rights in the U.S. Arctic Ocean. In light of this, it is hard to find a compelling reason to sell more leases, writes Michael LeVine, Pacific senior counsel at Oceana.

Written by Michael LeVine Published on Read time Approx. 3 minutes
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The Shell oil drilling rig Kulluk ran aground off the southern coast of Alaska on New Year's Eve 2012.U.S. Air Force/SSgt. Aaron M. Johnson

The lure of potentially valuable oil and gas reservoirs under the U.S. Arctic Ocean led oil companies to spend billions of dollars to purchase leases and drill exploration wells in federal waters in the Chukchi and Beaufort seas in the 1980s and 1990s. When they were largely unsuccessful, the companies gave up almost all of those leases and left the Arctic Ocean.

Then, beginning in 2003, the cycle started again. Once again, oil and gas companies spent billions of dollars to purchase leases and pursue exploration. Those pursuits led to significant controversy, expense and extreme risk in one of the most remote, dangerous and important places on earth. Most famously, Shell’s drill rig, the Kulluk, ran aground near Kodiak and was eventually scrapped.

We now appear to be nearing the end of this second big oil boom-and-bust in the U.S. Arctic Ocean. Shell, ConocoPhillips, Eni and Iona Energy have relinquished all but one of the 378 oil and gas leases they held in the U.S. Chukchi Sea. Shell is retaining one lease – the one on which it drilled unsuccessfully in 2015 – apparently because doing so allows the company to keep confidential the data it has gathered. Statoil had previously relinquished its Chukchi Sea leases. All told, more than 2.2 million of the nearly 2.8 million acres of leases sold in 2008 in the Chukchi Sea have been given up. The Spanish energy company Repsol is the only major holder left.

A similar exodus is occurring in the Beaufort Sea. ConocoPhillips, Encana, Armstrong and Total have all left. Roughly 360,000 acres of leases remain from the more than 1.3 million acres sold.

Against this backdrop, the federal government is preparing the next five-year leasing program in which it will decide whether to schedule additional lease sales in the Arctic Ocean. Especially in light of the recent departures, it is hard to find a compelling reason to sell more leases. Not only is there limited interest in difficult and expensive projects like Arctic Ocean operations, but Shell’s problems showed clearly that companies simply are not ready to operate safely and responsibly in the Arctic Ocean.

Rather than seeking to jump-start what could be a third failed cycle of investment, risk and controversy, we should pause and create a plan for the Arctic region. We can have affordable energy and a healthy environment but not without planning, science and precaution. Selling more leases before companies prove they can respond to a spill in icy conditions – or before we have established a plan to transition to sustainable sources of energy and take meaningful steps to address climate change – is putting the cart before the horse. There is no rush. If there is oil under the Arctic Ocean, it’s been there for hundreds of thousands of years and will be there for at least that much longer.

The potential for short-term economic gain is not worth the risk. As an Alaskan, I worry every day about our state’s dire fiscal situation. The state budget is closely tied to the oil and gas industry and we now face a shortfall of more than $4 billion, which threatens every aspect of our state’s future. But leases in the Chukchi Sea were not going to help close that gap. The leases were in federal waters and the state would receive no direct benefit from their continued existence.

We might one day have seen revenue from oil transported through the Trans-Alaska Pipeline, if production ever occurred. But that’s a big if. Companies would have had to find oil – which, despite looking for nearly 40 years, they’ve been unable to do – then find a way to construct approximately 110 kilometers (70 miles) of subsea pipeline to get it to shore and construct a new pipeline from there across the National Petroleum Reserve-Alaska, and then to the Trans-Alaska Pipeline. All of that would have taken decades and billions of dollars, neither of which the state nor companies have.

At the end of the day, I hope that we can put to rest the last 15 years of controversy about drilling in the Arctic Ocean. We need to stop fighting old fights, put aside ideologies and work together toward a sustainable future for the Arctic region and all of Alaska.

The views expressed in this article belong to the author and do not necessarily reflect those of Arctic Deeply.

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