The State of Alaska now controls 480,753 acres of oil and gas lease rights in the Arctic National Wildlife Refuge, or ANWR, after the U.S. Bureau of Land Management’s first-ever lease sale in refuge last Tuesday, Jan. 6.
The Alaska Industrial Development and Export Authority, the state’s development finance corporation, bid on 11 of 13 tracts receiving offers in the 1.5-million-acre coastal plain of the refuge.
Two tracts were won by private entities, one an Anchorage investor group, Knik Arm Services, Inc., and the second by Regenerate Alaska, Inc., a small independent company affiliated with 88 Energy, an Australian independent company that has been exploring on the North Slope.
No oil companies other than Regenerate Alaska submitted offers. All bids were near the minimum required by the BLM.
In total, 1.09 million acres in the 1.5-million-acre coastal plain were put up for bid. About half a million acres considered for lease earlier were withdrawn from the sale by BLM because industry activity on the leases would have affected sensitive caribou habitat.
In total, $14.4 million in high bids were offered, with $12 million of that paid by AIDEA for leases.
Under federal law, however, the state receives 50 percent of all bids along with land rental and any production royalties from an ANWR lease sales, so the state will get $7.2 million of its money back, or half the total $14.4 million bid.
However, the state will incur an ongoing cost of paying lease rentals to the BLM, and with the 480,753 acres now held by AIDEA that amounts to $10 per acre annually for the 10 years of the lease term, or about $4.8 million per year. However, the state gets half of that back too. The state’s net cost of holding the leases will be $2.4 million per year.
AIDEA’s strategy in making minimum bids on all tracts BLM made available was basically to ensure there was at least one offer for each parcel in case there was a light showing from oil and gas companies who traditionally bid in lease sale.
In this case, industry was virtually a no-show except for Regenerate, the small independent.
Given that result, the state authority will now have ten years to work with companies interested in exploring and drilling. There may be more interest from companies if a planned three-dimensional seismic exploration program planned for the coastal plain this winter is allowed.
Alaska-owned SA Exploration has proposed the survey on behalf of Kaktovik Inupiat Corp., the village corporation for the Inupiat community of Kaktovik, which is located on the northern coast of the refuge. With the price of oil touching $50/b -- higher than it has been much of 2020 but still lower than last year -- operators have reined in their capital spending and their attraction to longer-lead projects.
A related development is that U.S. District Court Judge Sharon Gleason ruled against a coalition of U.S. conservation and tribal groups in a last-minute effort to stop the lease sale. The issue isn’t entirely settled, however, because Gleason said she may revisit her decision if an exploration plan is submitted later by a leaseholder.
Gleason declined to issue a Temporary Restraining Order against any award of leases sought by the Audubon Society, the Wilderness League and others including Alaska Native tribal groups.
The plaintiffs argued that leasing and oil development would irreparably change the wilderness character of the Arctic refuge’s coastal plain, where leases are being offered. Gleason disagreed in her decision, saying that the government’s act of issuing leases does not in itself result in activity that could cause damage.
The exploration plan would approve drilling, which would have surface impacts and possible effects on wildlife.
Meanwhile, a separate part of Gleason’s decision allowed the proposed winter seismic program by SA Exploration to proceed, however, although the BLM must issue final permits.
Kaktovik Inupiat Corp. is designated as the client for SA Exploration but it is unknown how many other clients, and their identities, have been secured to share in the data.
SA Exploration plans to use modern three-dimensional seismic technology. Data from a 1980s-era seismic program allowed by the government with older two-dimensional technology is likely to available to some bidders in the sale. It has been reprocessing and will be of some value to bidders but the more refined 3-D seismic will be of value in planning an actual exploration program.
It’s possible also that some of the bidders may have secured information from the only exploration well drilled in ANWR, a test by Chevron and BP in the early 1990s on a 91,000-acre inholding privately owned by Kaktovik Inupiat Corp. and Arctic Slope Regional Corp., or ASRC, the regional Inupiat development corporation, which is based in Utqiagvik, formerly Barrow.
Results of the Chevron-BP well, KIC No. 1, have been held confidential since the drilling and while there have been reports that data from the well were not encouraging geologists say that any information from an initial well in a large, unknown area is of value.
Since the well was drilled both Chevron and BP have left Alaska and while Chevron has retained its ownership of the information, BP sold its rights to Hilcorp Energy, a Houston-based major independent, as a part of Hilcorp’s purchase this year of BP’s Alaska holdings.
ASRC, as owner of the subsurface mineral rights in the inholding, also has rights to the well data and may have made it available to some bidders.
Geologists have long felt the coastal plain has potential for significant oil and gas finds. Discoveries have been made on state-owned lands immediately west of the refuge’s coastal plain. ExxonMobil and BP made a large gas and condensate discovery in the 1970s at Point Thomson, on state lands west of the Canning River border of the refuge, which is now producing.
BP also made a small oil discovery at Sourdough, virtually on the Canning River border, which is now being explored by Jade Energy, a small Alaska independent.