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Interior cancels Arctic lease sales

Written by  Friday, 16 October 2015 15:59

The US Department of the Interior announced it will cancel two planned Arctic offshore lease sales under the US government’s current five-year plan for 2012-2017 due to Shell’s failed Arctic campaign and current market conditions, which left the last Gulf of Mexico lease sale a commercial disappointment.

“In light of Shell’s announcement, the amount of acreage already under lease and current market conditions, it does not make sense to prepare for lease sales in the Arctic in the next year and a half,” said Secretary of the Interior Sally Jewell (pictured, right).

US Senator for the state of Alaska Lisa Murkowski, a vocal proponent of drilling in the Arctic, issued a statement on Friday afternoon blasting the Interior Department’s decision today.

“This is a stunning, short-sighted move that betrays the Interior Department’s commitments to Alaska and the best interests of our nation’s long-term energy security,” she said. “Today’s decision is the latest in a destructive pattern of hostility toward energy production in our state that began the first day this administration took office, and continued ever since.”

Murkowski said she plans to push forward on legislation that would force the Interior Department to hold regular lease sales in the offshore Arctic. “The Energy Committee has already reported my OPENS (Offshore Production and Energizing National Security) Act to the full Senate for further consideration, and I will be looking at every possible opportunity to advance it into law.”

On 28 September, Shell announced that the results of its exploration well at the Burger J site in the Chukchi Sea did not warrant further exploration in the Burger prospect and that it would abandon its exploration plans. The company spent billions of dollars on the program and had passed many hurdles to be able to drill in Arctic waters including a damaged icebreaker vessels, an outpour of resistance from several activists, and federal limitations that were later revoked.

Under the government’s current five-year plan, Chukchi Sea Lease Sale 237 was scheduled for some time in 2016. The US Bureau of Ocean Energy Management (BOEM), which is under the umbrella of the US Department of the Interior, issued a call for information and nominations in September 2013, and the Interior Department said that it received no specific nominations from the oil and gas industry.

Similarly, Beaufort Sea Lease Sale 242 had been scheduled potentially for 1H 2017. BOEM published a call for information and nominations in July 2014, but only received one nomination, thereby raising concerns about the competitiveness of any such lease sale at this time, the Interior Department said.

The Interior had cause for concern. On 19 August, The Western Gulf of Mexico Lease Sale 246 attracted only US$22.7 million in bids. A total of five offshore energy companies submitted 33 bids on 33 tracts, covering about 190,080 acres. The BOEM, at the time, attributed the lukewarm response to current market conditions, but said that the bids it did receive showed the willingness of the industry to develop Gulf of Mexico resources.

In another blow for potential US Arctic development, 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.
Both requests were made to the agency back in early July, before Shell officially pulled the plug on its Arctic venture. However, BSEE cited Shell’s move to abandon drilling activities in the Chukchi or Beaufort Seas for “the foreseeable future” as a reason to deny the supermajor’s request.

Statoil had requested that the agency grant a suspension because of current regulations. According to BSEE’s memo about the rejection of the suspension request, “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.’” The request was denied because BSEE found that the Norwegian major failed to submit “a reasonable schedule of work leading to the commencement or restoration of the suspended activity.”

If the suspensions had been approved, they would have allowed the companies to retain the leases beyond their primary terms of 10 years, the Interior Department said. The leases will expire in 2017 (Beaufort) and 2020 (Chukchi).

“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, and then blames them for not moving forward,” said Sen. Murkowski, of the decision not to grant both Statoil and Shell’s requested suspensions. “There is not a lack of interest in the Arctic – if anything, what we are seeing is a lack of interest in working with the current leadership of the Interior Department.” 

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