Shared Drilling Approved in Alaska

The U.S. Interior Department on Thursday approved final rules to allow energy companies to share the costs and revenues from drilling for oil and natural gas on leased tracts in Alaska's National Petroleum Reserve. By permitting development on leases without regard to property boundaries, the department's so-called "unitization" policy would reduce the number of wells that would have to be drilled in the reserve and leave more of the pristine wilderness undisturbed. The policy does not affect the nearby Arctic National Wildlife Refuge, which is closed to drilling, but the Senate will soon decide whether oil firms should have access to the area. The new rules take effect on June 10, according to a notice the department published in Thursday's Federal Register.

The National Petroleum Reserve, set up in 1923 for the U.S. Navy, consists of 23 million acres (9.2 million-hectares). The Interior Department authorized leasing in October 1998 on up to 4 million acres (1.6 million hectares) in the northeast quadrant of the reserve near Barrow, Alaska, bordering the Arctic Ocean.

Under the new policy, energy companies would also be given waivers or reductions in the federal royalties they pay on their oil and gas discoveries in the reserve, if the firms could demonstrate they would not be able to successfully operate the leases without the financial relief. The government requires firms to a pay a royalty fee generally ranging from 12.5 percent to 16.66 percent on the value of their oil finds. Firms would also have to lease tracts in the reserve for 10 years. Current regulations had allowed for a shorter lease term. The Interior Department's prior estimate said that if crude oil prices were in the $18 to $30 range - compared with the current level of about $25 per barrel - the northeast quadrant could profitably produce anywhere from 500 million barrels to 2.2 billion recoverable barrels of oil. The department had no estimate of the land's natural gas reserves.

The department will release later this spring updated projections on the amount of oil and natural gas that could be recovered from the reserve. The size of the estimated reserves is expected to increase because of improved drilling technology.

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