Statoil is saying goodbye to Alaska exploration and has decided to exit its leases in the Chukchi Sea following recent results in nearby leases, in addition to finding the leases no longer competitive.
Map of Alaskan leases Statoil is exiting. From Statoil.
Statoil will leave behind 16 operated leases, in addition to stake in 50 leases that are operated by Houston-based ConocoPhillips that are all located in the Chukchi Sea, and were awarded in the 2008 lease sale in Alaska, with expiration dates in 2020.
“The leases in the Chukchi Sea are no longer considered competitive within Statoil’s global portfolio, so the decision has been made to exit the leases and close the office in Anchorage, Alaska,” Statoil said in a statement.
The Chukchi Sea, located offshore Alaska northwest of Prudhoe Bay, has an area comprised of 5354 blocks, approximately 5609 acres, and is in water depths ranging from 20-80m. The Chukchi Sea is estimated to hold about 15 billion bbl of recoverable oil, and about 76 Tcf of recoverable natural gas.
Statoil’s awarded leases are located 37mi north of Shell’s Burger gas discovery, which the UK supermajor abandoned in late September.
As a result of departing Alaska, the Norwegian giant is committed to optimizing its portfolio, strengthening its financial performance, and positioning for long-term value.
“Since 2008 we have worked to progress our options in Alaska. Solid work has been carried out, but given the current outlook we could not support continued efforts to mature these opportunities,” says Tim Dodson, executive vice president for exploration in Statoil.
The Alaska acreage is not a total loss for Statoil. The company has conducted several studies, in addition to research and activities in the region, which Statoil says has given the company significant skills and expertise that can be leveraged in other opportunities in northern environments in the future.
“Our understanding of the challenges and opportunities has increased considerably over the last years. This gives Statoil a unique position and experience which the company will continue to apply going forward,” says Dodson.
Arctic lease suspension denied
US senator Lisa Murkowski, who is pushing to end the federal government’s overreaching regulations, which are hurting Alaskans across the state, stressed her concern about Statoil's exit due to the uncertainty of the federal government's support.
“I am very concerned that, for the second time in as many months, a major company has decided to walk away from Alaska because of the uncertainty surrounding our federal government’s support for Arctic development,” Murkowski said. “Low oil prices may have contributed to Statoil’s decision, but the real project killer was this administration’s refusal to grant lease extensions; its imposition of a complicated, drawn-out, and ever-changing regulatory process; and its cancellation of future lease sales that have stifled energy production in Alaska. These actions threaten to undermine Alaska’s economy, our security, and our environment.”
One month ago, the Bureau of Safety and Environmental Enforcement (BSEE) denied requests from Statoil and Shell for lease suspensions. The Interior Department said that both companies failed to demonstrate a “reasonable schedule of work” for exploration and development, which is a requirement in order for BSEE to grant a suspension request.
Statoil had previously requested that it be granted a suspension because of current regulations.
In its memo concerning the rejection of the suspension request, BSEE said “Statoil claims that the Department of the Interior’s issuance of proposed regulations applicable to Arctic exploratory drilling has ‘made it impossible for Statoil to explore and begin production on its leases in the term remaining on its primary lease terms.’”
However, the request was ultimately denied due to the fact that BSEE found that the Norwegian major failed to submit “a reasonable schedule of work leading to the commencement or restoration of the suspended activity.”
“It is absurd that Interior has created a regulatory environment where operators cannot have commercially viable exploration programs, because so many requirements and hurdles have been put in place,” Murkowski has previously said.
Also in October, the DOI canceled two Arctic offshore leases under the US government’s current five-year plan for 2012-2017 due to Shell’s failed Arctic campaign and current market conditions.
Randall Luthi, NOIA president, found Statoil's decision to exit Alaska a disappointment, yet understandable given current tough economic and regulatory conditions.
"These are challenging times for the oil and gas industry with continued low commodity prices making for hard choices, and I know this was a difficult one for Statoil. The company has a substantial investment in the US Arctic and had hoped to become a producer of both energy and economic growth there for Alaskans and for our nation. Hopefully, another company will step in to fill the void left by Statoil, but given the harsh economic climate and the difficulty obtaining lease extensions, the outlook is rather bleak,” Luthi said.
Shell exits Alaska
In late September, UK supermajor Shell decided to cease further exploration offshore Alaska for the foreseeable future, after the Burger J’s (located in the Chukchi Sea) oil and gas indications were found to not be sufficient to warrant additional efforts.
“This decision reflects both the Burger J well result, the high costs associated with the project, and the challenging and unpredictable federal regulatory environment in offshore Alaska,” Shell said in September.
With the failed well, Shell expects to take on substantial financial charges. Its carrying value of its Alaskan assets is about US$3 billion, with an additional $1.1 billion of future contractual commitments.