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Oil companies cooling on Arctic drilling rights
http://www.sfchronicle.com/science/article/Oil-companies-cooling-on-Arctic-drilling-rights-5658254.php
"Oil companies that had locked up more than 1.3 million acres of the Beaufort Sea for drilling in 2007 have since relinquished nearly half that territory, signaling the industry's appetite for tapping those Arctic waters may be waning even as the Obama administration makes plans to auction off more of the area.
Oil companies have since ceded the rights to drill on roughly 584,000 acres, despite paying tens of thousands - and sometimes much more - in bonus bids for individual leases in auctions since 2003, according to an analysis of government data by the conservation group Oceana reviewed by Hearst Newspapers.
And now, all but seven of the 141 still-active oil and gas leases in the Beaufort Sea along Alaska's northeast coast are partly or completely held by a single firm, Shell Oil Co. Those tracts, which generally span about 9 square miles each, include territory the company began drilling in 2012.
"Nearly half of the leases purchased in the 2003-to-2007 lease sales have been allowed to expire as company after company decides to forgo or delay activities in the U.S. Arctic Ocean," said Susan Murray, Oceana's Pacific deputy vice president.
"Companies cannot operate safely and are walking away from the leases they bought," said the group's Pacific senior counsel, Michael LeVine. The trend means that "there is no reason to offer additional leases in the Beaufort Sea."
Auctions move forward
But on Tuesday, the Obama administration took the first formal steps to do precisely that, inviting oil companies, environmentalists, Alaska residents and other stakeholders to weigh in on what parts of the U.S. Beaufort Sea should be open for leasing during a 2017 auction.
The Interior Department's Bureau of Ocean Energy Management also has asked for public input on what coastal waters - from California and Alaska to the Gulf of Mexico - should be available for leasing from 2017 to 2022.
A similar appeal for information to plan a 2016 sale of oil leases in the neighboring Chukchi Sea was effectively boycotted by individual oil companies, which objected to the bureau's decision to limit available acreage to areas with fewer environmental risks and other concerns, with tracts nominated by would-be bidders.
By contrast, when the government sells oil and gas leases in the Gulf of Mexico, it follows an "area-wide leasing" approach that puts most territory up for grabs and is not limited to specific industry nominations.
Differing processes
"With a nomination process, companies wind up providing information that by some way or another, parties interested in opposing or stopping exploration activities can gain advantage from," said Richard Ranger, a senior policy adviser with the American Petroleum Institute. "In an area-wide process, what you have is the entirety of a planning area being available for consideration and different factors that range from environmental concerns or a perceived lack of prospectivity could prevent particular tracts from being leased."
Interior Department officials have stressed they want to balance any future oil development in the Arctic with preservation of the area's unique ecosystem and subsistence fishing in the region. So far, the ocean energy bureau is continuing to work on the Chukchi Sea sale, even without a single specific industry nomination for territory that should be sold off. The agency was flooded with maps and other data from local communities and conservation groups suggesting areas that should be off limits.
Administration officials have suggested they are looking for ways to get more input from oil companies as they decide whether to hold the Chukchi Sea auction or cancel it altogether.
"We're still figuring out how to engage all parties, including industry, around whether, in fact, there actually is any interest in the 2016 sale," Tommy Beaudreau, the former bureau director, told Hearst Newspapers in May. Beaudreau, now chief of staff to Interior Secretary Sally Jewell, said she would decide how to proceed with that potential sale.
Bureau spokesmen declined to comment this week on the planned Beaufort and Chukchi sea lease auctions. U.S. Arctic waters are estimated to contain 27 billion barrels of oil and 132 trillion cubic feet of natural gas, with much of the prize concentrated in the Chukchi Sea.
Tough to tap into
But oil companies have struggled to tap the potential lurking under those remote and icy waters - vividly illustrated by the series of mishaps that befell Shell as it drilled exploratory wells in the Chukchi and Beaufort seas two years ago.
A specialized, first-of-its-kind oil spill containment system was not ready on time, engines discharged more air pollution than authorities had permitted to be released, and the company's Kulluk drilling unit ended up beached on a rocky Alaskan island's shore on Dec. 31, 2012.
Other oil companies that hold Arctic leases, including Statoil and ConocoPhillips, have put their own exploration plans there on hold, while Shell may seek to resume drilling in 2015. A Shell spokesman declined to comment on its Arctic program or the overall decline in industry holdings in the Beaufort sea, citing the company's second-quarter earnings report on Thursday.
BP has been producing oil from leases in shallow Beaufort Sea waters close to shore, with much of the related infrastructure on land or man-made gravel islands. In April, the company agreed to sell some of those assets to Hilcorp. Those ongoing projects were not reflected in Oceana's analysis.
Companies move on
Many of the forfeited Beaufort Sea oil leases documented by Oceana may have simply been allowed to expire - the likely fate for 39 blocks sold for $9 million in a 2003 auction. Others may have been relinquished early. Industry representatives say the decline in active Beaufort Sea oil leases represents a natural release of acreage based on individual companies' decisions about what they believe to be the most promising prospects.
"On a case by case basis, some companies have made the decision to relinquish leases in the Beaufort and move somewhere else," API's Ranger said. "Companies aren't sitting around accumulating vast amounts of acreage on which they aren't doing anything. ... At the end of the day, they're interested in production and molecules running through pipelines."
Arctic oil exploration is also an expensive proposition that may be tough for even well-capitalized companies to justify amid an onshore drilling boom. Legal challenges to the government's Arctic leasing decisions and uncertainty about the requirements to operate in the region also have dissuaded some would-be drillers, Ranger said.
Uncertain but promising
"There hasn't been an assurance of predictability and certainty in the leasing program in the Arctic, (which is) key because the companies considering the Arctic are making long-term decisions in planning their capital," Ranger said. There is a "high cost of entry" and "long timelines associated with planning exploration drilling in the Arctic." But, he added: "There's a big prize up there. Arctic lease sales provide a tremendous opportunity to the nation."
Shell has 100 percent ownership of 406,283 leased Beaufort Sea acres and 40 percent ownership in an additional 310,573 acres where leases are jointly held with ENI and Repsol. Outside of Shell and BP's close-to-shore operations, ENI and Repsol are the only other companies holding active Beaufort Sea leases, about 23,861 acres' worth.
That's a big contrast from 2007, when seven companies held active leases in the Beaufort Sea, including France's Total, Canada's EnCana Corp., Armstrong Oil and Gas, and Conoco."
"Oil companies that had locked up more than 1.3 million acres of the Beaufort Sea for drilling in 2007 have since relinquished nearly half that territory, signaling the industry's appetite for tapping those Arctic waters may be waning even as the Obama administration makes plans to auction off more of the area.
Oil companies have since ceded the rights to drill on roughly 584,000 acres, despite paying tens of thousands - and sometimes much more - in bonus bids for individual leases in auctions since 2003, according to an analysis of government data by the conservation group Oceana reviewed by Hearst Newspapers.
And now, all but seven of the 141 still-active oil and gas leases in the Beaufort Sea along Alaska's northeast coast are partly or completely held by a single firm, Shell Oil Co. Those tracts, which generally span about 9 square miles each, include territory the company began drilling in 2012.
"Nearly half of the leases purchased in the 2003-to-2007 lease sales have been allowed to expire as company after company decides to forgo or delay activities in the U.S. Arctic Ocean," said Susan Murray, Oceana's Pacific deputy vice president.
"Companies cannot operate safely and are walking away from the leases they bought," said the group's Pacific senior counsel, Michael LeVine. The trend means that "there is no reason to offer additional leases in the Beaufort Sea."
Auctions move forward
But on Tuesday, the Obama administration took the first formal steps to do precisely that, inviting oil companies, environmentalists, Alaska residents and other stakeholders to weigh in on what parts of the U.S. Beaufort Sea should be open for leasing during a 2017 auction.
The Interior Department's Bureau of Ocean Energy Management also has asked for public input on what coastal waters - from California and Alaska to the Gulf of Mexico - should be available for leasing from 2017 to 2022.
A similar appeal for information to plan a 2016 sale of oil leases in the neighboring Chukchi Sea was effectively boycotted by individual oil companies, which objected to the bureau's decision to limit available acreage to areas with fewer environmental risks and other concerns, with tracts nominated by would-be bidders.
By contrast, when the government sells oil and gas leases in the Gulf of Mexico, it follows an "area-wide leasing" approach that puts most territory up for grabs and is not limited to specific industry nominations.
Differing processes
"With a nomination process, companies wind up providing information that by some way or another, parties interested in opposing or stopping exploration activities can gain advantage from," said Richard Ranger, a senior policy adviser with the American Petroleum Institute. "In an area-wide process, what you have is the entirety of a planning area being available for consideration and different factors that range from environmental concerns or a perceived lack of prospectivity could prevent particular tracts from being leased."
Interior Department officials have stressed they want to balance any future oil development in the Arctic with preservation of the area's unique ecosystem and subsistence fishing in the region. So far, the ocean energy bureau is continuing to work on the Chukchi Sea sale, even without a single specific industry nomination for territory that should be sold off. The agency was flooded with maps and other data from local communities and conservation groups suggesting areas that should be off limits.
Administration officials have suggested they are looking for ways to get more input from oil companies as they decide whether to hold the Chukchi Sea auction or cancel it altogether.
"We're still figuring out how to engage all parties, including industry, around whether, in fact, there actually is any interest in the 2016 sale," Tommy Beaudreau, the former bureau director, told Hearst Newspapers in May. Beaudreau, now chief of staff to Interior Secretary Sally Jewell, said she would decide how to proceed with that potential sale.
Bureau spokesmen declined to comment this week on the planned Beaufort and Chukchi sea lease auctions. U.S. Arctic waters are estimated to contain 27 billion barrels of oil and 132 trillion cubic feet of natural gas, with much of the prize concentrated in the Chukchi Sea.
Tough to tap into
But oil companies have struggled to tap the potential lurking under those remote and icy waters - vividly illustrated by the series of mishaps that befell Shell as it drilled exploratory wells in the Chukchi and Beaufort seas two years ago.
A specialized, first-of-its-kind oil spill containment system was not ready on time, engines discharged more air pollution than authorities had permitted to be released, and the company's Kulluk drilling unit ended up beached on a rocky Alaskan island's shore on Dec. 31, 2012.
Other oil companies that hold Arctic leases, including Statoil and ConocoPhillips, have put their own exploration plans there on hold, while Shell may seek to resume drilling in 2015. A Shell spokesman declined to comment on its Arctic program or the overall decline in industry holdings in the Beaufort sea, citing the company's second-quarter earnings report on Thursday.
BP has been producing oil from leases in shallow Beaufort Sea waters close to shore, with much of the related infrastructure on land or man-made gravel islands. In April, the company agreed to sell some of those assets to Hilcorp. Those ongoing projects were not reflected in Oceana's analysis.
Companies move on
Many of the forfeited Beaufort Sea oil leases documented by Oceana may have simply been allowed to expire - the likely fate for 39 blocks sold for $9 million in a 2003 auction. Others may have been relinquished early. Industry representatives say the decline in active Beaufort Sea oil leases represents a natural release of acreage based on individual companies' decisions about what they believe to be the most promising prospects.
"On a case by case basis, some companies have made the decision to relinquish leases in the Beaufort and move somewhere else," API's Ranger said. "Companies aren't sitting around accumulating vast amounts of acreage on which they aren't doing anything. ... At the end of the day, they're interested in production and molecules running through pipelines."
Arctic oil exploration is also an expensive proposition that may be tough for even well-capitalized companies to justify amid an onshore drilling boom. Legal challenges to the government's Arctic leasing decisions and uncertainty about the requirements to operate in the region also have dissuaded some would-be drillers, Ranger said.
Uncertain but promising
"There hasn't been an assurance of predictability and certainty in the leasing program in the Arctic, (which is) key because the companies considering the Arctic are making long-term decisions in planning their capital," Ranger said. There is a "high cost of entry" and "long timelines associated with planning exploration drilling in the Arctic." But, he added: "There's a big prize up there. Arctic lease sales provide a tremendous opportunity to the nation."
Shell has 100 percent ownership of 406,283 leased Beaufort Sea acres and 40 percent ownership in an additional 310,573 acres where leases are jointly held with ENI and Repsol. Outside of Shell and BP's close-to-shore operations, ENI and Repsol are the only other companies holding active Beaufort Sea leases, about 23,861 acres' worth.
That's a big contrast from 2007, when seven companies held active leases in the Beaufort Sea, including France's Total, Canada's EnCana Corp., Armstrong Oil and Gas, and Conoco."
Russia's Rosneft, North Atlantic Drilling in $4.25 bln drilling deal
Reuters
July 30, 2014 2:08 PM
* Rosneft's offshore exploration may suffer due to sanctions
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Russia's Rosneft says to honour agreements despite sanctions Reuters
* Rosneft, North Atlantic Drilling cooperation announced in May (Adds detail, contract value)
MOSCOW, July 30 (Reuters) - Russia's top oil producer Rosneft and North Atlantic Drilling have entered into a drilling agreement worth up to $4.25 billion, in line with a previous agreement and despite Western sanctions over Moscow's role in Ukraine.
Rosneft said the deal foresaw the employment of six offshore drilling rigs until 2022. North Atlantic Drilling is a subsidiary of Seadrill, the world's largest offshore driller.
In a separate statement, North Atlantic Drilling said total revenue potential for the six contracts "exclusive of mobilization" was approximately $4.25 billion.
Rosneft has first signed a cooperation agreement with North Atlantic Drilling in May with a view to start drilling two offshore wells in the Russian Arctic in 2014 and 2015.
"We are very pleased with the execution of these contracts, which is in line with the timetable agreed earlier this year," Alf Ragnar Lovdal, North Atlantic Drilling's chief executive officer said a statement.
Rosneft plans to start drilling an exploration well jointly with ExxonMobil in Kara Sea next month.
The United States and the European Union have imposed a number of sanctions against Russian individuals and companies, including Rosneft, in attempt to spot violence in eastern Ukraine where pro-Moscow rebels are fighting against the government forces.
On Tuesday, European diplomats said ambassadors from the 28-member European Union agreed restrictions on the trade of equipment for the oil and defence sectors, and "dual use" technology with both defence and civilian purposes.
This may hamper Rosneft's ambitions to tap the vast offshore Arctic riches.
North Atlantic Drilling is based in Oslo, Norway, which is not a part of the EU and has not announced any sanctions against Russia. However its shares were listed its NYSE in January.
Rosneft Chief Executive Officer Igor Sechin, an ally of President Vladimir Putin, said in the statement the deal with North Atlantic Drilling "will allow Rosneft to ensure implementation of exploration and development of its harsh environment offshore license areas." (Reporting by Vladimir Soldatkin, editing by David Evans)
Reuters
July 30, 2014 2:08 PM
* Rosneft's offshore exploration may suffer due to sanctions
Related Stories
ExxonMobil's Exploration Plan Threatened by Russian Sanctions Motley Fool
Rosneft lines up anti-sanctions measures, net income up Reuters
Norway to sign up to EU sanctions against Russia Reuters
Russia's Rosneft says to honor agreements despite sanctions Reuters
Russia's Rosneft says to honour agreements despite sanctions Reuters
* Rosneft, North Atlantic Drilling cooperation announced in May (Adds detail, contract value)
MOSCOW, July 30 (Reuters) - Russia's top oil producer Rosneft and North Atlantic Drilling have entered into a drilling agreement worth up to $4.25 billion, in line with a previous agreement and despite Western sanctions over Moscow's role in Ukraine.
Rosneft said the deal foresaw the employment of six offshore drilling rigs until 2022. North Atlantic Drilling is a subsidiary of Seadrill, the world's largest offshore driller.
In a separate statement, North Atlantic Drilling said total revenue potential for the six contracts "exclusive of mobilization" was approximately $4.25 billion.
Rosneft has first signed a cooperation agreement with North Atlantic Drilling in May with a view to start drilling two offshore wells in the Russian Arctic in 2014 and 2015.
"We are very pleased with the execution of these contracts, which is in line with the timetable agreed earlier this year," Alf Ragnar Lovdal, North Atlantic Drilling's chief executive officer said a statement.
Rosneft plans to start drilling an exploration well jointly with ExxonMobil in Kara Sea next month.
The United States and the European Union have imposed a number of sanctions against Russian individuals and companies, including Rosneft, in attempt to spot violence in eastern Ukraine where pro-Moscow rebels are fighting against the government forces.
On Tuesday, European diplomats said ambassadors from the 28-member European Union agreed restrictions on the trade of equipment for the oil and defence sectors, and "dual use" technology with both defence and civilian purposes.
This may hamper Rosneft's ambitions to tap the vast offshore Arctic riches.
North Atlantic Drilling is based in Oslo, Norway, which is not a part of the EU and has not announced any sanctions against Russia. However its shares were listed its NYSE in January.
Rosneft Chief Executive Officer Igor Sechin, an ally of President Vladimir Putin, said in the statement the deal with North Atlantic Drilling "will allow Rosneft to ensure implementation of exploration and development of its harsh environment offshore license areas." (Reporting by Vladimir Soldatkin, editing by David Evans)
"....."Companies cannot operate safely and are walking away from the leases they bought....."
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