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Will Big Oil show up to Obama's NPR-A lease sales?

Patti Epler

The Obama administration says it will expedite lease sales in the National Petroleum Reserve-Alaska, holding one sale this December and then sales every year after that.

The news, coming during a congressional hearing Thursday morning on a bill that would require annual lease sales in NPR-A, among other things, makes good on a promise President Obama offered in May, when Americans were first beginning to grapple with high gasoline prices. The president used a nationally-broadcasted speech on the energy crisis and rising pump prices to vow to do more to bring domestic oil to market, including in Alaska.

But now, the real question is: Do oil companies really care about NPR-A anymore?

Companies have been giving back dozens of leases in the NPR-A, 60 last year and 64 so far this year, according to a report in the Houston Chronicle. Earlier this year, the U.S. Geological Survey dramatically reduced its assessment of oil and gas potential in the 23 million-acre reserve, from 9 billion barrels of oil to only 896 million barrels, and of that only 350 million to 500 million is considered economically recoverable even at today's high oil prices.

Gas reserves were downplayed from 61 trillion cubic feet to 53 trillion cubic feet, and experts say the reserve now seems much more like a gas play than an oil play. But the low price of natural gas in the Lower 48 also throws the NPR-A into the same economic boat as all North Slope gas -- tough to get to market at today's prices.

Development plan rejected by Feds

"I don't see a queue of people standing in line to go into NPR-A," said Ken Boyd, a former state Division of Oil and Gas director who now represents Norwegian giant Statoil in Alaska.

He's watched the progression of companies handing back their leases and says ConocoPhillips is clearly still the key player in the NPR-A. That's because Conoco already has a significant development on state land just to the east of the NPR-A at its Alpine oil field. Conoco has been working for about five years on a project within the NPR-A known as CD-5 that would dovetail with Alpine. But the U.S. Army Corps of Engineers rejected a plan that would allow a road into the development site, in keeping with a longstanding federal policy that the Colville River area would be roadless to protect one of the world's largest migratory waterfowl populations. Even Alpine relies primarily on winter ice roads to reach new development areas.

"Conoco knows NPR-A better than anybody," Boyd said. "If they take the lead and develop the fields, then that's a shot in the arm. If Conoco can't make a go of it even with facilities in place, then it's probably not going to attract new players."

Conoco's not saying what it thinks of the president's plan to regularly offer more acreage for sale in the NPR-A. Company spokeswoman Natalie Lowman said Thursday the company routinely doesn't comment on pending lease sales essentially because it doesn't want to show its hand.

No oil companies testified at Thursday's hearing before the House Natural Resources Committee's subcommittee on energy and mineral resources. The committee's chair, Rep. Doc Hastings, R-Washington, toured the NPR-A recently with Alaska Rep. Don Young and Gov. Sean Parnell and introduced the bill that was aired before the subcommittee. Young testified at the hearing and challenged the government's conclusions about the reserve, including the amount of oil and it's environmental sensitivity.

Interior Secretary Ken Salazar announced the planned annual lease sales in a press release issued at the end of Thursday's hearing. He said companies will have a 30-day period to nominate tracts and comment on acreage that is available within the NPR-A.

So far, the prime oil and gas areas that have been identified are in the northeast corner of the reserve, smack in the midst of the most environmentally sensitive areas near Teshekpuk Lake and the Colville River delta. Federal administrators -- including for years before Obama took over the White House -- have been wary of allowing permanent roads and bridges, not only for a particular project but because they could lead to widespread development in the area that is vital to geese molting and migration.

Eric Meyers, the Alaska policy director for the Audubon Society, said his organization has made Tesehkpuk Lake and other NPR-A habitat areas its particular mission for the past decade. The group is not opposed to development in the area and recognizes it as helping meet the nation's energy needs, he said.

But, he said, "the 'Drill Baby Drill' rhetoric most famously associated with Alaska's former governor (Sarah Palin) will not bring down the price of gasoline at the pump."

The industry has demonstrated its declining interest in NPR-A by abandoning leases and giving up as much as three-quarters of the more than 6 million acres that had been under lease, he said.

Meyers said the Corps of Engineers decision to rethink Conoco's permit for the road and bridge was the right one. "The CD-5 project proposal is not only relevant in terms of 'opening' NPR-A, the project design has very significant implications for the Colville River delta, an area with unique biological qualities found nowhere else on the North Slope."

The area has always been touted by the oil industry as roadless in order to prevent damage to the tundra, and the administrative record has a long history of opposition from many different agencies and organizations. In fact, he quoted from a Wall Street Journal article that found the denial of Conoco's permit was a "rare step by the Alaska district engineer, who has denied just two of nearly 3,000 permit applications, including the Conoco proposal, since he took command in June 2009." 

NPR-A is managed by the federal Bureau of Land Management, and its deputy director, Mike Pool, told the subcommittee Thursday that most of the requirements of the legislation are already in place.

Balancing oil development with conservation is federal law

Generally, he said, the administration is concerned that some provisions of the measure conflict with federal law put in place in 1976 that requires the government to balance oil development with the protection of wildlife, habitat and subsistence uses in the reserve.

Pool also objected to a requirement that USGS conduct a new assessment of oil and gas reserves, saying no new information has come out since the last assessment was done earlier this year. The agency is evaluating unconventional petroleum resources, such as shale gas, but the report isn’t expected for another two to three years, he said.

Joe Balash, deputy commissioner of the Alaska Department of Natural Resources, testified in favor of the bill, particularly a provision that would virtually guarantee approval of roads, pipelines and other surface infrastructure. The Parnell administration is seeking to build a road from the Dalton Highway 90 miles west to the Umiat oil project, which is just within NPR-A.

The state also has a major stake in NPR-A development, giving more than $180 million in exploration tax credits to companies for seismic work and exploration wells.

Balash reiterated Alaska's potential to play a major role in America's energy future and emphasized the importance of the trans-Alaska pipeline to the nation's energy supply. He warned that the pipeline is in danger of becoming inoperable if no new oil development is brought on line and the flow through the pipeline drops so low that problems such as freezing and sludge buildup occur.

Balash pointed out that even though 98 percent of Alaska oil production to date has come from state leases, "the lion's share of the resource potential belongs to the federal government." He said 88 percent of the undiscovered "technically recoverable" oil and 79 percent of the gas is on federal land.

"For these reasons, the long-term viability of TAPS will primarily be determined by federal politics and policies," Balash said.

But it remains to be seen whether even streamlined permitting and less restrictive requirements for roads and other facilities -- even if in place by the end of the year -- would be enough to pique industry's interest in the reserve, which was established in 1923 and has seen lease sales every other year since 2002.

"I still believe the area has potential," said Boyd. "On the other hand, we've had some companies that have done a hell of a lot of work and then left."

Contact Patti Epler at patti(at)alaskadispatch.com