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Reuters: Shell bids heavily for Alaska oil leases

By Yereth Rosen

ANCHORAGE, Alaska (Reuters) – Shell Oil (RDSa.L: Quote) spent about $39 million for rights to explore for oil in relatively distant waters of the Beaufort Sea off northern Alaska, dominating a federal oil and gas lease sale that brought in more than $42.1 million in high bids Wednesday, according to preliminary results.

“The lease sale was more lucrative than anticipated,” said John Goll, Alaska regional director for the U.S. Minerals Management Service. “It exceeded my own personal expectations.”

Shell — operating under its unit Shell Gulf of Mexico Inc. — bid heaviest for tracts that were just north of its offshore Sivulliq prospect, the location where the company plans exploration drilling this summer. Shell put up $14.1 million for a single lease in that area.

“The company must think there’s something of interest to look at,” Goll said.

Also dominating the lease sale was Total S.A. (TOTF.PA: Quote) unit Total Exploration and Production Inc., which made many of its bids in the same general area that Shell did. Total offered about $2 million for the leases, according to preliminary results.

“It appears that they are interested, at least, in trying to inventory what they might see,” Goll said of Total.

Most of the tracts that received bids were 20 to 30 miles offshore, much more distant from the Arctic Alaska coastline than oil companies have ventured in recent years. That is an area that is considered more expensive and physically challenging, Goll said.

“Once you get past a certain distance, you’re working there with a seasonal ice pack,” he said. When exploring closer to shore, companies are able to work in the winter from ice, but exploration farther from shore might have to be conducted during the brief open-water season, he said.

Another lease sale participant was Italian-based Eni Petroleum (ENI.MI: Quote), apparent winner of seven leases. Eni recently acquired Kerr-McGee’s 70 percent interest in the offshore Nikaitchuq prospect north of the Kuparuk oil field and is poised to become the prospect’s operator if it proceeds to development.

ConocoPhillips (COP.N: Quote) unit ConocoPhillips Alaska Inc. acquired one lease near other leases it holds in the western Beaufort, and BP (BP.L: Quote) unit BP Exploration (Alaska) Inc. acquired a small lease next to its Liberty prospect. A private investor acquired two other leases in the distant offshore, according to preliminary results.

State officials were watching the federal lease sale with interest, said Tom Irwin, commissioner of the Alaska Department of Natural Resources. The heavy bidding contradicts some oil company claims that Alaska is a “bad place to do business,” Irwin said at a Juneau news conference.

“This is a good place, and these people are voting with their pocketbooks,” he said.

The lease sale was controversial. The area’s Inupiat Eskimos and Alaska environmentalists argued that new oil and gas leases in that area posed risks to whales and other wildlife, as well as to the traditional hunts upon which the local people depend.

The North Slope Borough, the local government for northern Alaska, and the Alaska Eskimo Whaling Commission, the Native organization that oversees traditional subsistence whale hunts, sued the MMS in an unsuccessful attempt to postpone the sale.

Wed Apr 18, 2007 5:08 PM EDT  

© Reuters 2007. All Rights Reserved.

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