Skip to main Content
Energy

If the Arctic Ocean is reopened to drilling, will the industry come?

The Kulluk conical drilling unit works in the Beaufort Sea at a Shell Alaska prospect in 2012 offshore from the North Slope. (Courtesy Shell Alaska)

On Thursday, conservation groups hammered the Trump administration's proposal to put the U.S. Arctic Ocean back on the table for future leasing, but history suggests that oil exploration there will proceed cautiously, if at all.

Roger Marks, a private petroleum economist in Anchorage, said two major rounds of exploratory drilling in the region, one in the 1980s and another in more recent years, led to a string of failures and uneconomic discoveries.

"Unless they find a new prospect or reinterpret the seismic data they have, it's unclear to me (whether) there would be a lot of zeal for going back in there," Marks said.

Oil companies punched more than 30 wells into the region starting in the 1980s, primarily in the Beaufort Sea. And about a decade ago, Shell launched a massive Arctic Ocean exploration program, after snatching up more than $2 billion in federal leases in the Beaufort and Chukchi seas.

But after drilling a single, unsuccessful exploration well in the Chukchi, and spending $7 billion, the oil giant abandoned the program in 2015.

Other companies that held leases in the region, such as ConocoPhillips and Statoil, also backed out after Shell's failure. Oil prices had crashed, putting costly projects out of the picture.

"It doesn't look like they were real happy about the geology there," Marks said of industry's departure.

The draft proposed plan announced Thursday by the Interior Department calls for 19 lease sales off Alaska coasts over a five-year period starting in 2019. It's part of a nationwide plan to boost offshore energy development. Three sales each would be held in the Beaufort and Chukchi seas.

In 2015 and 2016, former President Barack Obama removed nearly the entire region from leasing. The new plan, if implemented, would undo those decisions.

The Bureau of Ocean Energy Management estimates the Beaufort region holds 9 billion barrels, while the Chukchi holds 15 billion barrels. The giant Prudhoe Bay field was originally thought to contain 9.6 billion barrels, though it has blown past that estimate after four decades of continued production.

Kate MacGregor, a deputy assistant secretary in the Interior Department, said Thursday that companies such as Shell have shown strong interest in the past, and will do so again.

"I think you will see folks that are very interested in the vast array of different potential plays and different areas offshore Alaska," she said.

Gunnar Knapp, professor emeritus of economics at the Institute of Social and Economic Research in Anchorage, said the "stars will need to align" before oil companies take a strong interest in drilling the region.

To that end, some factors have improved, he said.

Oil prices are well below their roughly $100-a-barrel perch in early 2008. That's when Shell plunked down more than $2 billion in a massive lease sale in the Chukchi Sea.

But oil prices have risen steadily, exceeding $65 lately, far above the lows of recent years.

Another meaningful change is the Trump administration's "gung-ho" attitude for expanding oil and gas opportunities, a reversal from the Obama era, Knapp said.

But a key hurdle remains: the long development schedule. It's generally expected that oil won't flow in the remote region for at least eight years, he said.

That creates political uncertainty, since a new president and Congress could replace the restrictions.

"A question for an oil company is 'How durable is that policy?' " Knapp said.

Oil companies have shown that Arctic exploration is too risky and will cause an oil spill, said Christy Goldfuss of the left-leaning Center for American Progress.

Shell's program suffered when the Kulluk drill rig ran aground during a stormy transport through the Gulf of Alaska on Dec. 31, 2012. No oil spilled, but Shell determined the rig was too damaged to repair and canceled its 2013 drilling plans.

Kara Moriarty, president of the Alaska Oil and Gas Association, said the industry supports the effort to open new areas.

She said plenty of uncertainties exist about the level of industry interest.

But one thing is certain: "You can't have development without access," she said.

Local news matters.

Support independent, local journalism in Alaska.

Comments