The Aiviq (blue hull) escorts the tugs Corbin Foss, Ocean Wave and Lauren Foss as they tow the conical drilling unit Kulluk from Kiliuda Bay near Kodiak Island, Alaska, Feb. 26, 2013, less than two months after it ran aground on a remote island in the western Gulf of Alaska. U.S. Coast Guard Photo
By Alex Nussbaum (Bloomberg) — Drilling for crude in the Arctic National Wildlife Refuge may be just the start as President Donald Trump seeks to revive Alaska’s beleaguered oil industry.
Republicans in Congress handed the industry a long-sought victory on Tuesday, approving exploration in the vast Arctic preserve as part of their tax overhaul. The legislation, which Trump is expected to sign into law, would lift an almost 40-year old ban on prospecting for oil and natural gas in the refuge’s coastal plain, where endangered polar bears, caribou and other species roam.
It’s the capstone of a year in which legislators and the Trump administration pushed on multiple fronts to unwind regulatory restrictions in what was once America’s busiest oilfield. That won’t solve the challenge of declining wells, or global crude prices too low to support many Alaskan projects. But it’s a long way from a year ago, when then-President Barack Obama put millions of acres off-limits, citing the risks of oil spills and concerns about climate change.
“It’s a recognition that the era of oil is not over in Alaska,” said Kara Moriarty, president of the Alaska Oil and Gas Association, a trade group. “Clearly we have an administration that believes that America can be energy dominant, and that is a complete 180-degree shift from the previous administration.”
Republicans included the refuge in their bill as a revenue source, saying the drilling will generate $1 billion to offset tax cuts over the next decade. Trump’s expected to sign the legislation as soon as Wednesday. The administration has promised to fast-track lease offerings in the area, which could draw interest from operators including Exxon Mobil Corp. and ConocoPhillips.
It’s just one of many moves intended to rekindle Alaskan exploration:
As soon as this week, the Interior Department may unveil a draft of its new five-year plan for offshore U.S. drilling, including Arctic waters. The plan would build on Trump’s April executive order undoing Obama’s decision to ban new operations in most of the Chukchi and Beaufort seas. In November, the administration issued a permit to Italian oil giant Eni SpA for what would be the first exploratory well in U.S. Arctic waters since Royal Dutch Shell Plc abandoned a project in 2015. In August, Trump instructed regulators to allow seismic testing for oil and gas deposits in the wildlife refuge, reversing another Obama stance. Interior Secretary Ryan Zinke also ordered a rewrite of a 2013 plan that limited drilling in the National Petroleum Reserve-Alaska in the state’s northwestern corner.
Environmentalists have gone to court or threatened to sue over the moves, and Democratic takeovers of the White House or Congress in coming years could stall many of them.
“We view the Trump approach as really a wholesale assault on America’s Arctic,” said Nicole Whittington-Evans, Alaska Regional Director for The Wilderness Society. The tax bill “will certainly be a setback for us, but it will only heighten our resolve to defend America’s last great wilderness.”
Still, 2017 brought a burst of momentum for drillers who’ve seen Alaskan production fall from 2 million barrels a day in the late 1980s to less than 500,000 in recent years. Once-mighty North Slope reserves have been depleted and producers have turned their attention to cheaper options like U.S. shale fields in Texas and Oklahoma.
In early December, the administration conducted the largest-ever auction of drilling leases in the National Petroleum Reserve, putting access to almost half of the area’s 23 million acres up for bid. It received only seven bids for 80,000 acres, a reminder of the difficulties attracting interest in a remote, frigid landscape where wells can cost three times as much as in the Lower 48 states.
Arctic National Wildlife drilling may face similar reluctance, said Pavel Molchanov, a Raymond James Financial Inc. analyst.
“Our sense is that there is little to no current interest in the industry to invest in ANWR,” Molchanov said in a Dec. 4 research note. “This is high-risk ‘frontier exploration’ with a very distant roadmap to cash flow.”
Among Alaskan oil companies, there’s a growing confidence, said Kevin Durling, whose Anchorage-based Petroleum Equipment & Services Inc. provides drill bits, cement well casings and other products to North Slope explorers. The company has 20 employees and expects to add at least two more early next year as a result of expansion by Conoco, Repsol SA and others.
“It’s improving slowly, but the leading indicators are out there,” Durling said in a telephone interview. “I am much more optimistic that we can develop our resources and have a viable industry in Alaska; a year ago, I was not sure.”
© 2017 Bloomberg L.P
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