US industry group pushes for arctic lease changes

The US National Petroleum Council (NPC) is urging policy makers to rethink the leasing terms governing arctic oil and gas exploration.

With Russia, Norway, Canada and Greenland all keen to test the waters at the top of the world, the industry advisory group told the US Department of Energy in a new report today that US policy makers must help facilitate oil and gas exploration in the Arctic to help offset an anticipated decline in US oil production sometime after 2020.

The NPC warns that the long lead times needed to develop projects in the Arctic mean that exploration off the coast of Alaska must ramp up this decade if new sources of oil are to become available in the 2030s and 2040s.

ExxonMobil chief executive Rex Tillerson said the industry views the resource potential in the US Arctic "as attractive if not more attractive than arctic resource potential in other nations."

But with the practical drilling season in the Arctic sometimes as little as 40-60 days, the NPC called on US regulators to increase lease terms, calling today's 10-year lease duration "inadequate".

Shell upstream Americas director Marvin Odum said "it makes sense to have longer lease terms. The season is short. The regulatory process is more onerous. It is going to take more time and that should be recognized, at least."

Tillerson pointed to a US leasing system that is development-based. To retain a lease, an operator must be able to move into commercial development within 10 years. Canada, Greenland, Norway and Russia all offer exploration-based leasing and licensing systems, which grant regulators extra time to determine technical or commercial viability.

The Northstar field, located six miles northwest of Prudhoe Bay, is the only US offshore producing field in the arctic offshore. Production began in 2001, 22 years after the leases were first acquired. That is twice the lead time for Shell's deepwater Mars project and BP's Atlantis project in the US Gulf of Mexico.

Shell is hoping to return this summer to drill on leases it holds in the Chukchi Sea off the Alaska coast, following a mishap-laden effort there in 2012. Odum confirmed the company is moving drilling equipment in preparation for resuming activity this summer.

"We are watching the permitting side of the activity, and if that falls into place there is a good chance we will be moving forward," Odum said.

Shell is awaiting word on the status of leases in the Chukchi it acquired in 2008. Interior's Bureau of Ocean Energy Management (BOEM) issued a final supplemental environmental impact statement in February and expects to determine by the end of March whether the leases issued for the Chukchi are valid. Assuming those leases are upheld, BOEM will then conduct an environmental review of Shell's exploration plan. Drilling permits would come later in the process.

The NPC study declares that the oil and gas industry "has a long history of successful operations in arctic conditions". But the report places little emphasis on Shell's troubles in 2012. Shell's experience there prompted the US Interior Department to propose a new rule to tighten restrictions governing exploration in the Arctic. Regulators are now taking comments on that proposal.

Tillerson noted that more than 30 offshore wells have been drilled in the US Arctic, mostly in the 1970s and 1980s, and more than 400 globally and have more recently been through a "fairly long period of little activity."

The US will have an opportunity to promote its views on the Arctic internationally when it assumes the chairmanship of the Arctic Council for a two-year term on 25 April.

Globally, the Arctic has yielded more than 25bn bl of liquids and 550 trillion ft³ of natural gas to date, the report said. Reserves are estimated at 38bn bl of liquids and 920 trillion ft³ of gas.

The report estimates the Arctic contains an additional 525bn bl of oil equivalent (boe), 426bn boe of which have yet to be discovered. Overall, the undiscovered oil and gas in the Arctic could account for about 25pc of the remaining undiscovered conventional resource around the globe.

Russia has the greatest energy potential in the Arctic, with an estimated 36bn bl of oil and 1,506 trillion ft³ of gas, followed by the US at 34bn bl of oil and 360 trillion ft³ of gas (not including NGLs). The US' arctic oil potential is comparable to about 15 years of oil imports. Greenland is estimated to boast 16bn bl of oil and 138 trillion ft³ of gas, followed by Canada with 15bn bl of oil and 114 trillion ft³ of gas; and Norway with 5bn bl of oil and 120 trillion ft³.

The NPC estimates about 75pc of the arctic conventional resource potential is located offshore. US offshore waters in the Arctic are believed to hold 48bn boe, with more than 90pc of those resources in water depths of less than 100m (328ft). The Russian arctic shelf is broad and shallow, but water depths off Canada and Greenland fall off to more than 100m closer to shore, the report said.

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