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Interior Department cancels lease sales in Alaska's Arctic waters, citing low interest

WASHINGTON -- The Interior Department is canceling several lease sales for offshore Arctic drilling for the 2012-17 period, citing diminished interest.

At the same time, Interior's Bureau of Safety and Environmental Enforcement told Shell and Statoil that they won't be able to suspend and thereby extend their leases. They will still expire in 2017 in the Beaufort Sea and in 2020 in the Chukchi Sea.

"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," Interior Secretary Sally Jewell said in a statement Friday.

Late last month, Shell abandoned its multibillion-dollar effort to drill in the Chukchi Sea.

Leases in the Chukchi and Beaufort seas were expected to go up for sale in 2016 and 2017. But the Interior Department said calls for nominations came up short -- none for the Chukchi Sea Lease Sale 237 in 2013, and only one prospect for the Beaufort Sea Lease Sale 242 in 2014.

And Shell and Statoil's plans didn't rise to what the Interior Department thought was needed to suspend their leases, the agency told both companies in letters Friday. The Obama administration thought the companies didn't provide sufficient plans for work and exploration needed to suspend their leases.

The suspensions would have extended the end of the leases by five years.

Shell was the only company of seven with Arctic drilling rights to take a shot at pulling oil from the Chukchi Sea.

In a hastily organized news conference at the Alaska Federation of Natives convention in Anchorage, Gov. Bill Walker and the three members of the state's all-Republican congressional delegation took turns criticizing the cancellation and the Obama administration.

"It's more of the same," said Sen. Dan Sullivan.

Sen. Lisa Murkowski complained that the only advance warning she'd heard about the decision came in a call two hours before the announcement from Jewell. Jewell left a voicemail saying she was on a plane and that Murkowski could call an aide with questions, Murkowski said.

Rep. Don Young told reporters that he wanted to respond to the cancelation by renting a rig and drilling horizontally into the off-limits Arctic National Wildlife Refuge from state land nearby.

Walker and the congressional delegation then huddled for a quick discussion after the news conference, at which Young could be overheard saying that the Obama administration would only respond to "physical action."

"ANWR! ANWR!" Young said.

Walker seemed to agree, telling the three others: "We've got to make a statement."

"Alaska must be able to responsibly explore and develop our rich natural resources both onshore and offshore," Walker said in an earlier written statement. "Any action that limits our ability to explore for more oil -- to increase much-needed oil production through the trans-Alaska oil pipeline -- creates unnecessary uncertainty and burden on our economy."

Young decried the decision to reject lease extensions. "Instead of throwing a lifeline to the state, they throw us a cinder block," he said in a statement.

In a written statement, Murkowski called it a "stunning, short-sighted move."

"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," the senior senator said, pointing to prior decisions to close off other Arctic coastal areas and 11 million acres of the National Petroleum Reserve-Alaska.

Murkowski said she will continue to push legislation requiring regular lease sales in the offshore Arctic.

Crawford Patkotak, chair of the Arctic Slope Regional Corp. and Barrow resident, said this is another example of the Obama administration's "strangulation by regulation."

It's another step "by the current administration to put us back to poverty and cut our legs out from under us as we try to live the American dream and provide opportunity for our people," Patkotak said.

ASRC is an investor in Shell's project, and Patkotak said the decision has a direct impact on the regional corporation. Helped by the oil field development at Alpine, drilling has provided more than $1 billion in last 15 years to other Alaska Native corporations through a sharing provision in federal law, he said.

Environmental groups were quick to voice approval of the decision. Some, likely given an early heads-up by the Obama administration, sent out press releases lauding the decision before Interior made the announcement.

Lois Epstein, Arctic program director for The Wilderness Society, said the leaseholders shouldn't get extensions to their leases.

"Leaseholders knew the Arctic Ocean was a challenging environment in which to operate, and they should not get special treatment because of federal requirements developed to address those hazards," Epstein said.

Interior previously denied a similar request from ConocoPhillips.

"Today's announcement moves us away from old arguments about companies' unwise investments and toward better choices for the Arctic Ocean," said Susan Murray, Oceana's deputy vice president.

Murray said it was best to "wipe the slate clean" and cancel the upcoming lease sales for the Arctic.

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