Analysts: Alaska may open up again for oil leasing, but gain must outweigh expense

IN THIS JAN. 7, 2013, FILE PHOTO, a U.S. Army helicopter flies over the Kulluk, the Shell floating drilling barge off Kodiak Island in Alaska's Kiliuda Bay, as salvage teams assess its seaworthiness. Citing disappointing results from an exploratory well in 2015, and challenging an unpredictable federal regulatory environment, Shell abandoned drilling in U.S. Arctic waters. The Trump administration is pursuing petroleum lease sales in Arctic waters but an analyst says potential bidders may find other areas more attractive.

ANCHORAGE, Alaska (AP)— President Donald Trump's plan to open America's oceans to petroleum drilling drew condemnation from West Coast and Florida governors but was welcomed in the state where most lease sales could be held.

Alaska Gov. Bill Walker, an independent facing re-election this year, embraced Interior Secretary Ryan Zinke's proposed 19 lease sales in the state, including six in the potentially oil rich but environmentally sensitive Arctic Ocean waters.

"The Department of Interior's draft five-year offshore leasing plan is an important step toward allowing Alaskans to responsibly develop our natural resources as we see fit," he said Thursday.

But the big question is whether oil companies will commit the substantial resources it would take to invest in a frontier area where the cost of drilling is extremely high compared with other regions — and simultaneously face the wrath of environmental groups fiercely opposed to Arctic offshore drilling.

Royal Dutch Shell spent $2.1 billion on Chukchi Sea leases in 2008, invested another $5 billion overall in U.S. Arctic waters, and pulled out after drilling a dry hole in 2015. Oil companies closely watched Shell's experience, said Mark Barteau, director of the University of Michigan Energy Institute.

"There's lower hanging fruit elsewhere," Barteau said. "It's all about going after the easy stuff first."

Shell has no current plans to pursue future offshore Alaska exploration, said Shell spokesman Curtis Smith in an email. It was too early to know how Trump's draft five-year plan would play into future portfolio decisions.

"Given the desire to keep pace with natural field decline and the inherent uncertainty associated with exploration, more options are always preferable when it comes to potential lease acreage — both on- and offshore," he said.

The Beaufort Sea, off Alaska's north coast, holds an estimated 8.9 billion barrels of oil, and the Chukchi, off Alaska's northwest coast, holds an estimated 15.4 billion barrels.

Arctic waters also provide habitat for threatened polar bears, walruses and bowhead whales and are the home of Inupiat villages. Hanging over any Arctic water sales is the question of whether spills — which drilling critics say are inevitable — can be cleaned up in ice-choked or ice-covered water along coastline with negligible infrastructure compared with the Gulf of Mexico and other drilling regions. Alaska's bitter cold, fierce storms and darkness in winter add to the challenge.

"With an oil spill impossible to contain or clean up in these remote waters, today's decision needlessly places in harm's way the wildlife, cultures and communities that have long called this region home," said Brad Ack, the World Wildlife Fund's senior vice president for oceans.

Environmental groups delayed Shell's exploratory drilling with successful lawsuits challenging the federal government's inadequate environmental review of Arctic waters preceding the 2008 sale.

Two years later, after the Deepwater Horizon spill in the Gulf of Mexico, federal regulators negotiated strict Arctic operating rules to prevent a similar disaster off Alaska.

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