After disappointing results in Alaska including Shell’s drilling hiccup, oil and gas companies are abandoning the area.
Companies have voluntarily given up rights to 584,000 acres in Alaskan Arctic waters, or nearly half the 1.3 million acres under lease in the Beaufort Sea in 2007. According to Michael LeVine, senior counsel at conservation group Oceana, “companies cannot operate safely and are walking away from leases they bought. There is no reason to offer additional leases in the Beaufort Sea.”
While this issue is pertinent, the high costs and seasonal weather variability, combined with burgeoning shale production and development opportunities elsewhere, are the primary reasons for the exodus.
But the prize is potentially huge in the far north. There are an estimated 27 billion bbls. of oil and 132 tcf of gas in U.S. Arctic waters.
The stage should be set for a return to the area. In fact, some predict that Shell may return to the Arctic in 2015.
That would be good news for the current administration, which appears to have some interest in promoting Arctic development. A lease sale in the neighboring Chukchi Sea is tentatively scheduled for 2016. While a request for information to help plan for the Chukchi Sea auction was boycotted by the oil industry because of environmental restrictions and an apparent focus on auctioning tracts that had been nominated by potential bidders, the Bureau of Ocean Energy Management continues to plan for the sale.
Even though the question of short-term Arctic development is in limbo, long-term development is almost certain. The prize is just too big to ignore. Should the 2016 and 2017 lease sales produce good results, offshore service vessel owners might consider gearing up for an increase in Arctic drilling operations.
