Alex DeMarban | Dec 07, 2011
State officials called Alaska’s much-awaited oil and gas lease sale a qualified success on Wednesday, noting that 19 groups spent $21 million.
Still, the state must keep working to roughly double the flow of oil in the trans-Alaska pipeline and meet Gov. Sean Parnell’s goal of 1 million barrels a day, said Dan Sullivan, Natural Resources commissioner.
According to Sullivan, good news from Wednesday’s state lease sale includes:
• Shell Oil snatched up 80,000 acres in state waters of the Beaufort Sea, some 60 miles west of their closest federal lease. If commercial quantities of oil and gas are found in that area in Harrison Bay, Shell might be able to build “synergies” by developing both state and federal areas, said Curtis Smith, spokesman for the oil giant in Alaska.
• Tracts on the North Slope generated $14 million in lease sales, the sixth-largest amount ever for that area.
• Some bidding groups faced competition, and some tracts leased for up to $900 an acre.
• New companies leased tracts that could lead to shale-oil development in the southern portion of the North Slope, where Great Bear Petroleum is exploring this winter. Royale Energy Inc. of California was among the new firms.
• ConocoPhillips expanded its holdings to the east.
For its annual lease sale, the state’s Division of Oil and Gas offered 14.7 million acres of state land in three areas — the North Slope, the North Slope foothills, and in state waters along the Beaufort Sea.
A federal lease sale was held a few hours after the state sale for the National Petroleum Reserve-Alaska. That sale earned $3.6 million.
As for the state sale, no tracts were leased in the foothills, a hard-to-access area with terrain that could be costly to develop with gravel roads and other infrastructure.
Lois Epstein, Arctic program director for The Wilderness Society’s Alaska office, said Shell’s new interest in Harrison Bay is a worry, given the company’s limited ability to respond to an oil spill in the area, the lack of response infrastructure on the North Slope, and the limited understanding of the area’s ecology.
“How are you going to have a cleanup when booms will be destroyed by ice? When you have skimmer systems that won’t work well if you have any significant ice? Spill cleanup is not something that can be done well even in temperate conditions, but when you’re talking about Alaska Arctic conditions, it adds another level of difficulty,” she said.
“I’m not saying we should not do any (development), but if we’re going to protect these areas, let’s not move forward until we’re ready,” she said.
Shell hopes to begin exploring its federal leases in the Beaufort Sea starting next year.
Smith said Shell has a long history of drilling in remote areas and spent hundreds of millions of dollars to assemble an unprecedented offshore spill-response fleet because it cannot call on the U.S. Coast Guard, which has no Arctic base, to help in the event of a spill. That includes spending $350 million on two new icebreakers and a capping and containment system modeled after the technology that stopped the Macondo blowout in the Gulf of Mexico last year, Smith said.
“Shell will track in real time every inch of every well drilled at our real-time operations centers in Houston, New Orleans and Anchorage. This real-time data will also be available via satellite to anyone in the world who has access,” Smith said in an email to Alaska Dispatch.
Smith said Shell’s Alaska experience has largely occurred in state waters, rather than federal waters, including pioneering development in Cook Inlet, one of the top oil provinces in the U.S. decades ago.
For Epstein, the sale confirmed strong interest in oil development on state land, which is not as fragile as federal areas like the potentially oil-rich but environmentally sensitive Teshukpuk Lake region in the National Petroleum Reserve-Alaska.
The Department of Natural Resources called the lease sale the largest since a $37 million sale in 2008.
The increased bidding in the Alaska sale comes in part because the state has taken “relentless” steps to generate interest in Alaska petroleum opportunities, including making “cold calls” to companies to provide them with engineering data and other information, Sullivan said.
On the down side, some companies the state expected to show did not. Sullivan would not identify the companies. Their lack of interest may be related to concerns about the cost of development, including the state’s high marginal tax rate, said Sullivan. Or perhaps the state didn’t pitch the opportunities to these companies quickly enough, he added.
The North Slope is estimated to contain as much as 40 billion barrels of conventional oil and 236 trillion cubic feet of conventional gas. That estimate by federal agencies does not include billions of barrels of what’s considered unconventional oil, such as that found in shale.
The state plans to release preliminary results of the lease sale later this week on the division’s website.
Here’s a list of the successful bidders in the state sale:
William Crawford; Sam Cade; Daniel Donkel (25 percent) and Sam Cade (75 percent); Andrew Bachner (90 percent) and Keith Forsgren (10 percent); CPAI (50 percent) and Exxon (50 percent); Conoco-Phillips Alaska; North-South Connections; AVCG LLC; Pioneer Natural Resources Alaska; Repsol E&P USA; Alfred Fairbanks; Shell Offshore Inc.; NordAq Energy; Woodstone Resources; Royale Energy, Inc.; Alaska LLC (50 percent) and Paul Gavora (50 percent); Great Bear Petroleum LLC; 70 & 148 LLC; Savant Alaska.
Three of those bidders, ConocoPhillips, 70 & 148 LLC of Colorado, and Woodstone Resources of Houston, were also successful bidders in the federal sale.
[Update: Nineteen groups succesfully bid on tracts, not 17 as the Dispatch originally published. Also, a statement published in an earlier version of this article, that a North Slope lease sale hasn’t netted more than $10 million since 2006, was incorrect.]
Contact Alex DeMarban at alex(at)alaskadispatch.com
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