Interior approves ANWR leasing with possible lease sale in December

The U.S. Interior Department approved a long-delayed Record of Decision Aug. 17 for oil and gas leasing in the Arctic National Wildlife Refuge, or ANWR, setting the stage for a possible lease sale by December.

Obstacles loom, however. National conservation groups are expected to file lawsuits to block the sale. It’s also uncertain what appetite the oil and industry will have to bid for acreage with any drilling certain to face drawn-out litigation delays, particularly at a time of depressed oil prices.

There are two other problems. One is the prospect that President Donald Trump may not be reelected in November, which could change any plans for development even if a lease sale is held before a change of administration.

A second is the possibility for a major increase in state oil taxes if a pending ballot proposition on the November state general election ballot is passed by voters.

Still, the possibilities for oil are good, perhaps a lot of it. U.S. Geological Survey and state of Alaska geologists have said that the coastal plain has potential for large oil and gas discoveries based on the region’s prospective geology and limited seismic data from a geophysical survey in the 1980s.

Interior department officials said they’re doing what the law tells them to do.

“Congress directed us to hold lease sales in the ANWR Coastal Plain, and we have taken a significant step in meeting our obligations by determining where and under what conditions the oil and gas development program will occur,” said Secretary David Bernhardt in a statement.

“Our program meets the legal mandate that Coastal Plain leaseholders get the necessary rights-of-way, easements and land areas for production and support facilities they need to find and develop these important Arctic oil and gas resources.”

Congress set a requirement for an ANWR lease sale in the Tax Cuts and Jobs Act of 2017, with the first sale to be held by the end of 2021. Sales would be within a 1.56-million-acre coastal plain section of the Arctic refuge, which totals 19.3 million acres.

One exploration well has been drilled in the area, the KIC No. 1 well drilled by Chevron and BP in a private land inholding within the refuge owned by Arctic Slope Regional Corp., an Alaska Native development corporation. Results of the KIC well are still held confidential, but BP’s rights the well data have now passed to Hilcorp Energy following that company’s acquisition of BP’s Alaska assets in July.

Alaska leaders were enthusiastic over Bernhardt’s announcement.

“The Record of Decision is a definitive step in the right direction to developing this area’s energy potential — between 4.3 and 11.8 billion barrels of technically recoverable oil reserves,” that are estimated, said Alaska Governor Mike Dunleavy. ‘

Alaska U.S. Senator Lisa Murkowski, who played a key role in the legislation to authorize ANWR exploration, said: “This is a capstone moment in our decades-long push to allow for the responsible development of a small part of Alaska’s 1002 Area. I’m confident the ROD has been developed carefully and comprehensively,” to withstand expected litigation.

But Kara Moriarty, CEO of the Alaska Oil and Gas Association, voiced a cautionary note: “The biggest risk to producing in future areas in Alaska, regardless of this lease sale, is a (pending state) ballot measure that would significantly raise taxes on production, including from future production in ANWR,” she said.

Ballot Measure 1, which will be on the state general election ballot in November, would effectively double state taxes on fields producing more than 40,000 b/d. Any development in ANWR would likely have to be of that size or larger.

One issue in any environmental litigation will be on protection of polar bears under the federal Endangered Species Act. The coastal plain is a known denning area for polar bears and the ability of seismic operators and companies building ice roads to support exploration to detect female bears and cubs in snow-covered dens has been challenged.

The Tax Cuts and Jobs Act of 2017 directs the Interior secretary, acting through the Bureau of Land Management, to conduct at least two area-wide lease sales of not less than 400,000 acres each within the coastal plain. The first lease sale must take place before December 22, 2021 and the second sale before December 22, 2024.

The Act also requires the Department of the Interior to grant rights-of-way and easements necessary for successful development of the oil and gas resources, and authorize up to 2,000 surface acres to be covered by gravel to support production and support facilities.

If the lease sales withstand challenges and exploration results in discoveries a second federal Environmental Impact Statement would be required for any development of surface production facilities.