Alaskans have ANWR in the bag, or we will after Congress approves the overhaul of the federal tax code. Authorization for leasing in the Arctic National Wildlife Refuge is attached to the tax bill. The goal is to bring in at least $1 billion in lease sale revenues in the next 10 years.
This has been a long slog. Alaskans have been at this for decades and twice snatched defeat from the jaws of victory, once when Congress approved ANWR exploration and President Bill Clinton vetoed it, and second when a Republican-led U.S. Senate defeated it by one vote. The latest opportunity may yet get blown, but that will require the overall tax bill to crater in the next few days.
Now that we've opened ANWR, or nearly, will we really find any oil?
History instructs us to be cautious and modest in expectations. Alaskans have been conditioned to believe that ANWR is a big oil tank, and that another super-giant Prudhoe Bay field lies beneath the tundra.
Geologists agree that the coastal plain of the refuge has some of Alaska's best prospects for major oil discoveries, but some geologists also believe that more natural gas than oil might be found because of the way the rocks were formed. We won't know until we sink the drill bit.
We do know there is oil. There are surface rock outcrops that drip with the stuff, and you can even light these on fire. There are also apparent large geologic formations underground that might be oil traps. We know this from a limited seismic program allowed by the Department of the Interior in the 1980s. (Seismic exploration involves bouncing sound waves off underground rocks to show their contours.)
There's no certainty that oil is there in quantities we expect. It may be water that's discovered, too.
We should remember two famous oil Alaska exploration flops. One, most recent, was Shell's "Burger" well in the Chukchi Sea, which after several billion dollars of expenditures hit water instead of oil. Another was Sohio's "Mukluk" test in the Alaskan Beaufort Sea in 1981, which also hit water. Until Burger was drilled, Mukluk was the most expensive dry hole drilled in the U.S.
What struck me about Burger and Mukluk was how confident companies were at the time and how this raised expectations among Alaskans, hopes that were dashed.
There's more: Both failures were disasters for Alaska because they chilled industry interest in the Arctic offshore. After Mukluk, no company drilled in the Arctic outer continental shelf for decades, until Shell came along in 2005. In the wake of Shell's result, I don't hear a lot of industry clamoring for renewed Arctic exploration.
Something like this could happen in ANWR too. After all the buildup, the initial results may be disappointing and Alaskans should be prepared for that. It may take more time to find ANWR's bonanza, if it's there.
What should also make us cautious about ANWR is that we don't see industry really rushing to get into the refuge. The big push to open the refuge has come from Alaskans, not the oil companies. Does this tell us something?
It could be that industry, realizing how politically radioactive the refuge is, just doesn't want to be dragged into the swamp, at least for now. We know the cumulative impact of environmental protests over Chukchi Sea drilling became very wearing for Shell's board. Big companies may be wary of suffering reputation damage if they jump into ANWR.
There will be companies interested, particularly midsized firms and small independents. But these companies don't have deep pockets, which makes it unlikely the federal government will reach its revenue goal of $1 billion in two lease sales. Remember that the two lease sales authorized will really have to achieve $2 billion in bids because 50 percent goes to the state of Alaska. Bids will have to average $2,500 per acre, in fact, for the federal share to reach $1 billion.
Do the math: Two lease sales of 400,000 acres each are authorized over 10 years. Total lease sale high bids must total $2 billion, divided 50-50 with the state. Divide $2 billion by 800,000 acres and we get $2,500 an acre that's needed to reach the goal.
Is that realistic? I wonder, given the geologic unknowns in ANWR and the political mud that will accrue for anyone acquiring leases in the refuge. Crude oil prices are likely to remain at modest levels, too, thanks to those energetic shale oil drillers in the Lower 48.
More fundamentally, there's an expectation among major companies like BP and Shell that world oil demand will level off in 10 to 15 years, thanks to technology changes and energy efficiency.
That's a sobering outlook. Were the modest results of the December state and federal North Slope lease sales an indicator of things to come? (Except for Repsol's high bids in the state sale, most companies bid near the minimums asked for.) There are parallels, including geologic unknowns and lack of infrastructure, but also differences in the sheer prospectivity of ANWR.
I don't want to rain too much on this parade because there's no doubt ANWR's prospects are very good, but for the longer term. We have to be patient.
Remember that it took a decade of dry holes, disappointments and companies walking away before the big Prudhoe Bay oil find was made in 1968. History tells us we'd better not count on ANWR to refill our state treasury, at least anytime soon.
Tim Bradner is co-publisher of the Alaska Legislative Digest.
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