Alaska announces Arctic oil lease sales on the heels of 2 large North Slope discoveries

By Alex DeMarban, Alaska Dispatch News - November 1, 2016

Following announcements of two large oil discoveries in Alaska in the last 12 months, the state is conducting an annual lease sale in the Beaufort Sea and North Slope that could provide clues about how the industry views oil opportunities in the state.

Significant chunks of state-owned land on the North Slope are already under lease by oil companies, particularly in the northernmost section around existing oil fields. The biggest North Slope finds are also on state land, like the giant Prudhoe Bay field.

But there may be openings for prospectors emboldened by new claims of two world-class discoveries in Alaska reservoirs that previously had not attracted much attention, the relatively shallow Torok and Nanushuk formations created roughly 100 million years ago.

The formations have typically not been targeted as explorers have sought deeper prospects known for their potential to hold oil. But the recent announcements suggest the Nanushuk and Torok may also support large pools of petroleum.

[On Alaska’s North Slope, exploration companies eye new oil prospects likely to require fracking]

The state’s sale, announced Friday, will conclude Dec. 14 when officials publicly open bids. Bids will be accepted until Dec. 12.

The sale comes amid growing interest over a different lease sale proposed for federal waters of the U.S. Arctic Ocean, with pro-development forces concerned the federal government will not allow sales in the Beaufort and Chukchi seas in its 2017-22 program.

Potentially generating interest in the state sale is a discovery heralded by Armstrong Oil and Gas last October — midway through the state’s last North Slope lease sale. The field is called Pikka or Nanushuk, after the formation, and it is northeast of Nuiqsut village. Armstrong said the field has the potential to produce 120,000 barrels of oil daily.

Caelus Energy early this month also announced a major discovery in Smith Bay about 50 miles southeast of Barrow. The company seeks to capitalize on the Torok formation and said its discovery could produce 200,000 barrels daily.

Smith Bay is Caelus Energy's development just southeast of Barrow. (Caelus Energy)
Smith Bay is Caelus Energy’s development just southeast of Barrow. (Caelus Energy)

Few land-based tracts are available in the Slope’s most promising areas because of earlier leases, but some are available south of the Nanushuk project. A smattering is sprinkled elsewhere near existing units and fields.

The Alaska Division of Oil and Gas on Friday also announced parallel lease sales in the North Slope Foothills south of the oil fields, and for state-owned waters of the Beaufort Sea. Many tracts in the state’s coastal waters are still on the table for lease, including outside of Smith Bay. Tracts in the bay have been previously snatched up by Caelus.

A geological area similar to the Nanushuk discovery extends west and offshore from the prospect, David Houseknecht, project chief for the U.S. Geological Survey’s Energy Resources Program for Alaska, has said.

He said that could stimulate interest in state waters north of the National Petroleum Reserve-Alaska, much of which has not been leased, including waters near Smith Bay. But today’s low-oil-price environment is causing some uncertainty.

Kara Moriarty, president of the Alaska Oil and Gas Association, representing the state’s oil industry, said it’s difficult to predict the level of interest.

“Companies do not discuss this type of activity — it is very confidential about when-where they will purchase leases,” she said in an email.

A spokeswoman for the Division of Oil and Gas, Diane Hunt, would only say that the division hoped for a good turnout.

As for the proposed federal lease sale, Interior Secretary Sally Jewell is expected to decide in the coming weeks whether to permit leasing in the Beaufort Sea in 2020 and the Chukchi Sea in 2022.

The issue has drawn strong opposition from conservation groups who want the oil to stay beneath the seabed.  But two pro-development groups — Arctic Inupiat Offshore and the Arctic Energy Center — launched a two-week television ad campaign on Tuesday calling for offshore development.

The cost of the campaign is in the “high six figures” and the groups are targeting Washington, D.C., and nearby areas, said Lucas Frances, spokesman for the Arctic Energy Center, created in 2015 by the Independent Petroleum Association of America and AOGA.

Arctic Inupiat Offshore, created in 2014, consists of the Arctic Slope Regional Corp., the regional Native corporation for the North Slope, as well as six Native village corporations from the region.

“Tell Washington to support Native Alaskans. Include the Arctic in the next offshore leasing program,” says the 30-second spot, featuring officials with village corporations from Wainwright and Barrow.