Big Oil Abandons $2.5B in US Arctic Drilling Rights
The rash of relinquishments means "we are an important step closer to a sustainable future for the Arctic Ocean," said Michael LeVine, Pacific senior counsel for Oceana, which opposed government decisions to authorize oil development in the area and wants science to guide industrial development there. "Hopefully, today marks the end of the risk, litigation and expense caused by the push to drill in the Arctic Ocean."
Now, only 535,586 acres remain locked up in the Chukchi Sea. Besides Shell’s one lease there, the tracts are in the hands of just one oil producer: Spain’s Repsol SA. Spokesmen for the company did not return requests for comment.
The news was a blow to political leaders in Alaska, which derives much of its revenue from oil development. Democratic Governor Bill Walker said in a statement that Arctic oil and gas "represent incredible potential for American energy security, jobs and revenue for the government." But tapping those resources requires a stable permitting and regulatory regime that gives certainty to would-be investors, he said.
Next Auction
It could be years - if ever - before oil companies get another chance to buy drilling rights in the region. The U.S. could turn around and resell the forfeited leases if any companies actually wanted to buy them, but the Interior Department canceled upcoming lease sales amid low industry interest last year.
The Interior Department is considering selling leases in the Beaufort Sea in 2020 and the Chukchi Sea two years later, but those auctions are far from certain, and environmentalists are pushing the Obama administration to rule them out entirely. Oceana’s LeVine said oil companies’ decision to forfeit Arctic drilling rights shows "there is no compelling reason to schedule new lease sales."
Cindy Shogan, executive director of the Alaska Wilderness League, said the lease forfeiture illustrates that "no oil company should drill in America’s Arctic Ocean" and should convince President Barack Obama to cancel potential sales there.
Even beyond the U.S., there are strong headwinds discouraging oil companies from sending drill bits spinning below Arctic waters. Last month, Shell withdrew an application for a drilling license in Norway’s share of the Arctic Ocean.
The high costs of working in the area mean it is generally attractive only to large oil companies with big balance sheets. But evolving regulatory environments in the U.S. Arctic can discourage those businesses, said Richard Ranger, a senior policy analyst with the American Petroleum Institute.
"There are only so many companies that are going to be interested in the Arctic," he said by phone. "To the extent they are, they can look at other jurisdictions. With regulatory uncertainty and price uncertainty, you start looking at other opportunities -- and you re-rank what your longer term, more frontier prospects look like. That’s what’s happening."
To contact the reporter on this story: Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net To contact the editors responsible for this story: Jon Morgan at jmorgan97@bloomberg.net Elizabeth Wasserman
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