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Federal NPR-A lease sale nets a pittance compared to state offering

Alex DeMarban

A federal mineral lease sale in the nation's petroleum reserve atop Alaska -- a 23-million-acre chunk of tundra with plenty of oil that's never been produced -- saw just two companies bidding less than $1 million for 14 tracts.

Anchorage-based NordAq Energy was the lone bidder on twelve of those tracts as part of a long-term gamble to find oil and tie into pipelines that might one day be built across the National Petroleum Reserve-Alaska (NPR-A).

Of course, NordAq hopes its much larger peers, such as Royal Dutch Shell, strike it big in the Beaufort or Chukchi seas off Alaska's coast and build those pipelines.

The other bidder in the federal lease sale, held by the Bureau of Land Management, was Woodstone Resources. The Houston, Tex.-based firm bid just under $150,000 on two tracts near existing acreage it previously leased in the reserve's southeastern region.

The total lease sale took in just $898,000 and covered 160,000 acres. The state receives half of that, or $449,450.

The bid-opening didn't last long. Ted Murphy, BLM's associate director in Alaska, said it wouldn’t take more than five minutes to tally up the bids,and he was right. The bids ranged between $58,500, offered by NordAq, and the $74,100 offered by Woodstone at $6.51 an acre.

The state held its own lease sale earlier in the day, attracting more than $14 million in bids for about 310,000 acres in the North Slope, North Slope Foothills and Beaufort Sea areas. The state received 132 bids on 122 tracts from 13 different bidding groups in a lease sale that saw renewed interest in the North Slope Foothills area.

Significant difference

The difference in the amount brought in by the two lease sales was telling, said Robert Dillon, Sen. Lisa Murkowski's Senate energy committee spokesman.

The Bureau of Land Management is in the middle of trying to approve a management plan laying out new land-use restrictions in the reserve. That could be finalized as early as December, a decision that will be made by Interior Secretary Ken Salazar.

That management plan, and struggles faced by other companies trying to develop on federal land or waters, such as Shell or ConocoPhillips, has left businesses uncertain whether they'll be able to access their investments, said Dillon.

"It's not that there are not resources in NPR-A. It's that the added federal burdens and lack of infrastructure make them more difficult to get to," he said.

The U.S. Geological Survey estimates the reserve holds 900 million barrels of technically recoverable oil, plus 53 trillion cubic feet of natural gas.

Murphy said many of the areas in NPR-A with the highest potential for an oil discovery are already under lease. Other such areas are restricted from leasing because they have significant ecological value, such the important nesting area for migrating birds around Teshukpuk Lake.

This year's NPR-A lease sale offered up 398 tracts at 4.5 million acres. It was the second in less than a year, after President Obama last in May 2011 called for annual lease sales. The BLM offered fewer acres for mineral leasing last December: 283 tracts and 3 million acres. Then, 17 winning bids covered about 120,000 acres.

Before last December, lease sales in NPR-A had been held every two years since 1999.

NordAq present at both sales

As for NordAq and its plans in the NPR-A, the company was the lone bidder on six tracts about 40 miles southwest of Harrison Bay, where the company plans to build an ice island for drilling in six feet of water.

The company's plans also put it at the state's lease sale. There, NordAq was the high bidder on about 70,000 acres, an amount that will bring to 130,000 acres the area it's leasing in the bay southeast of Barrow.

In total, NordAq committed to spending about $2 million at the state and federal lease sales on Wednesday, said Bob Warthen, NordAq president. It hopes to start drilling by 2014.

The company, incorporated in Delaware in 2009 and employing fewer than 20 Alaskans plus subcontractors, also was the high bidder on six federal tracts at the northwestern edge of NPR-A. A discovery in that area could position NordAq to tie into a possible pipeline heading south from the Chukchi Sea, if Shell or other companies gets lucky and begin moving oil from there.

"This year gives us a little bit of a path as to how we see progress being made in NPR-A from the standpoint of future pipeline, infrastructure and that sort of thing," said Warthen after the sale.

As for the state's lease sale, the Department of Natural Resources reported in a press release that total winning bids reached $14.2 million, with $11.5 million of that coming from the North Slope sale.

That amount, DNR notes, makes the North Slope area lease sale the fourth largest by dollar amount since area-wide lease sales began in 1998. The Beaufort Sea area sale netted the state close to $1.8 million in bids, making it the fifth largest by dollar amount in that area. After going bidless over the past three years, the state announced, the North Slope Foothills area recieved eight bids on Wednesday. The area has seen sporadic exploration in recent decades, some of that resulting in the identification of several large prospects. Wednesday's total was the fourth best result ever by bonus bids for that area.

“We are encouraged to see bidding in the Foothills region as well as the potentially gas-prone area in the southern part of the North Slope sale area, which may have an associated oil play,” said Division of Oil and Gas Director Bill Barron in the statement."

Contact Alex DeMarban at alex(at)alaskadispatch.com

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