Guest post by David Middleton
Firstly, how can reopening the Chukchi Sea and Beaufort Sea OCS areas to leasing be disrespectful to “market forces”? Opening up an area to leasing doesn’t somehow impose an obligation on oil companies to bid on leases in those areas.
Secondly, Royal Dutch Shell and ConocoPhillips didn’t pull out of the U.S. Arctic OCS due to free “market forces.” Shell pulled out for a combination of reasons: 1) operational challenges, 2) the disappointing results of their first wildcat in the Chukchi Sea and 3) regulatory malfeasance. ConocoPhillips pulled out of the U.S. Arctic OCS for one reason: regulatory malfeasance.
Had market forces been the driving force, Shell would have drilled several exploratory wells years before the Obama administration grudgingly allowed them to drill one.
Thirdly, if the “market argues against Arctic Ocean oil development”, why is Eni forging ahead in the Beaufort Sea?
Trump Weighing Eni’s Arctic Drilling Bid in Post-Obama Pivot
by Jennifer A Dlouhy
March 16, 2017, 10:42 AM CDT
- Company can target tracts 5.5 miles away from man-made island
- Shell, Repsol are partners in Beaufort Sea exploration project
The Interior Department is weighing Eni SpA’s request to explore for oil in waters north of Alaska, giving the Trump administration a chance to reverse course from former President Barack Obama’s attempt to curtail Arctic drilling.
Eni’s exploration well would be in an area it previously leased from the federal government, and so it isn’t covered by the executive order Obama issued in December to block the sale of new drilling rights within huge swaths of the Chukchi and Beaufort seas. As the Trump administration considers ways it could reverse Obama’s directive, approving this plan could encourage more oil companies to consider Arctic exploration.
Although some oil companies have abandoned plans to launch expensive quests for crude off Alaska’s coast, recent discoveries have fanned interest in waters near the shoreline that can be drilled at a lower cost.
The Bureau of Ocean Energy Management is conducting an initial, 15-day review of the broad drilling blueprint filed by Italy’s Eni, which is aiming to sink a well in the federal waters of the Beaufort Sea before its leases expire at the end of the year.
If the bureau deems Eni’s broad exploration blueprint complete, it would publish the document online and subject it to public comment while scrutinizing the plan’s details in a 30-day review.
Granted, Eni can drill their program from existing infrastructure. However, market forces don’t seem to be arguing against them.
Fourthly, if the “market argues against Arctic Ocean oil development”, why did Shell, Statoil and ConocoPhillips request lease extensions in the Alaska OCS? Dr. Kozloff seems to think that the answer is to impress shareholders:
Some oil companies want the Administration to open Arctic leasing so they can show their shareholders that they have access to these reserves, at least on paper.
There are no “reserves.” There is only resource potential… And no oil company would expend millions of dollars on lease bonuses and rentals, simply to hold leases they never intended to exploit.
Furthermore, they wouldn’t even bid on the blocks without having spent a lot of money and time acquiring and interpreting seismic data.
Many leases are never drilled. Sometimes this due to geological and/or geophysical condemnation after more detailed work is done or newer data is acquired. Sometimes it’s due to changing price environments. Sometimes it’s due to the fact that the prospects never rise high enough in a company’s portfolio to make it onto the drilling calendar before the leases expire. But, no company would spend millions, possibly billions of dollars, on the evaluation and leasing of Alaska OCS blocks, if they had no intention of drilling anything.
Dr. Kozloff belies an ignorance of market forces, basic business principles and the definition of “reserves” in his diatribe about market forces arguing against Arctic Ocean oil development. I’m going to take a wild @$$ guess (WAG) that he has an ulterior motive. Most of the rest of his article babbles on about the Deepwater Horizon blowout/oil spill and he closes his essay with this:
The Trump Administration needs to stand up to them and conserve the Arctic, both its oil reserves and fragile ecosystems, for all Americans.
Dr. Keith Kozloff served as Senior Environmental Advisor at the U.S. Treasury Department, 2001-2011, where he evaluated impacts of oil development and other megaproject
Market An Environmental Activist Bureaucrat Argues Against Arctic Ocean Oil Development
Now the title of Dr. Kozloff’s essay makes sense!
Caelus Energy recently announced a 2-4 billion barrel discovery in Alaska State waters adjacent to the Beaufort Sea OCS.
Despite the best
market force environmental activist bureaucrat’s arguments, Caelus is determined to develop this discovery.
While Beaufort Sea OCS tracts just east of Smith Bay are still available for leasing, all of the rest of the Beaufort and all of the Chukchi Sea OCS tracts have been withdrawn from leasing due to
market forces environmental activism.
If the Chukchi Sea and Beaufort Sea OCS areas are not economically or operationally viable, open them back up to leasing and actually allow market forces to work.