Energy

2 oil companies quietly spent $10 million to exit Arctic Refuge leases

ANWR coastal plain in summer

When the federal government auctioned off oil leases in the Arctic National Wildlife Refuge last year, no major firms bid, in a result that disappointed drilling proponents.

Now, in another sign of the industry’s disinterest in the refuge’s prospects, two petroleum companies have terminated pre-existing oil leases for a small tract of Alaska Native corporation-owned land within the refuge’s boundaries — paying $10 million to Arctic Slope Regional Corp. to free themselves from the lease’s obligations.

Oil companies Chevron and BP had previously paid $22.5 million to ASRC to maintain the leases after the U.S. Congress opened the refuge’s 1.6-million-acre coastal plain to oil development in 2017. The transaction covered some 92,000 subsurface acres south of Kaktovik along the coastal plain that ASRC’s 13,000 Alaska Native shareholders obtained in a land trade with the federal government decades ago.

Chevron and Hilcorp, which inherited its lease when it bought BP’s Alaska assets in 2020, ended the deal last year, according to ASRC’s newly published annual report, which called the $10 million payment a “breakage fee.”

Veterans of the state’s oil industry said the decision is the latest example of how companies appear to be disinterested in development in the refuge and, instead, are more focused on development in the National Petroleum Reserve-Alaska.

While the Biden administration has suspended the active oil leases in the refuge pending new environmental reviews, several major discoveries have been announced in the reserve, also known as NPR-A, in recent years.

That area is closer to existing infrastructure. It also faces less political and activist opposition to development.

“I have great faith in the Alaska industry, that they could do ANWR in the right way,” said Janet Weiss, who retired as BP’s top executive in Alaska. But, she added: “I think NPR-A is the priority.”

Hilcorp declined to comment. Chevron, the lease operator, said in a prepared statement that the company signed a formal agreement in October and that the transaction was finalized earlier this year.

“Chevron’s decision to formally relinquish its legacy lease position was driven by the goal of prioritizing and focusing our exploration capital in a disciplined manner and in the context of our entire portfolio of opportunities,” said spokeswoman Deena McMullen.

ASRC, in its own prepared statement, said it’s disappointed that “the current political environment” forced the companies to give up their leases.

“ASRC remains committed to the development of our lands in the 1002 Area,” the statement said, using another term for the coastal plain. “We will continue to work with the residents in Kaktovik — the only community in ANWR — and our strategic partners to safeguard the economic future of our communities.”

ASRC’s leases were not widely publicized in the refuge debate, which instead has centered on the 1.6 million acres of federally owned land on the coastal plain.

ANWR_coastal_plain

The entire 19-million-acre refuge covers ancestral lands of Alaska’s Indigenous Iñupiaq and Gwich’in people. But it’s owned by the federal government, which first set the area aside as the Arctic National Wildlife Range in 1960.

In 1971, Congress passed the Alaska Native Claims Settlement Act, which allowed newly formed Native corporations to take possession of 44 million of the state’s 365 million acres of land. But because the federal government had already set aside NPR-A and the refuge, ASRC was barred from claiming potential oil-bearing lands there.

The corporation only secured its 92,000 acres of refuge lands, near Kaktovik, in a 1983 exchange with the federal government for 100,000 acres of ASRC land in Gates of the Arctic National Park.

A year later, ASRC agreed to its lease with BP and Chevron. Soon after that, the oil companies drilled the only test well in the refuge’s history — the results of which have never been publicly released.

Aside from that test well, though, oil development was barred on ASRC’s land before Congress opened the coastal plain to drilling in its 2017 vote. ASRC, which is heavily invested in the oil and gas industry, lobbied in support of the refuge’s opening, and development on its lands by Hilcorp and Chevron could have brought jobs and income to the corporation.

But with the decision by the two companies to end their lease, the likelihood of any drilling in the refuge appears increasingly uncertain.

Nearly all the winning bids in last year’s lease sale came from Alaska’s state-owned economic development corporation, which has yet to conduct any on-the-ground activities.

Conservation, tribal groups and states also sued to invalidate the Trump administration’s environmental reviews for its oil development program in the refuge before the Biden administration suspended the leases there. And activists have waged a successful campaign to push banks and insurers to stop investing in Arctic oil.

“There may be oil in ANWR. There may be a lot of it,” Brad Keithley, a retired Alaska oil and gas attorney, said in a written message Friday. “But no one has faith that the federal government reliably will let it be developed and produced. So, why put any investment in?”

Nathaniel Herz

Nathaniel Herz is a contributor and former reporter for the Anchorage Daily News. He’s been a reporter in Alaska for nearly a decade, with stints at ADN and Alaska Public Media. He’s reported around the state and loves cross-country skiing.

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