A federal agency decision keeps former Shell leases in the Beaufort Sea alive

The leases are now held by Arctic Slope Regional Corporation Exploration, an Alaska Native corporation, which had asked for more time to conduct environmental assessments.

By Yereth Rosen - April 19, 2018
A drilling unit works at a Shell prospect in the Beaufort Sea in 2012. Arctic Slope Regional Corporation Exploration, the Alaska Native corporation that now holds some of Shell’s former Beaufort leases, has been granted additional time to make environmental assessments by a federal agency. (Shell Alaska file photo)

Beaufort Sea oil leases that had been scheduled to expire late last year are now still alive, thanks to a decision by a U.S. Department of Interior Agency.

A subsidiary of the Arctic Slope Regional Corp., a corporation owned by the Inupiat of Alaska’s North Slope, was granted a request for Suspension of Operations for 21 leases in the Camden Bay area of the Beaufort Sea. Nineteen of those leases had been scheduled to expire last October. The lease suspension granted on April 13 by the U.S. Bureau of Safety and Environmental Enforcement temporarily stops the expiration clock and gives the company until 2023 to come up with a plan for exploratory drilling.

Arctic Slope Regional Corporation Exploration LLC, also known as AEX, acquired the leases from Royal Dutch Shell on Nov. 20, 2016, a little over a year after Shell officially abandoned its offshore Arctic exploration program.

The leases were part of Shell’s ambitious plan for Arctic oil development. Shell’s Beaufort exploration plan included a prospect that the company called Sivulliq. Shell in 2012 used its Kulluk rig to drill the top portion of its first and only Sivulliq well. On Dec. 31 of that year, Shell grounded the Kulluk while towing it through a Gulf of Alaska storm, and the drill ship was wrecked beyond repair.

After picking up the Shell leases, AEX consolidated 20 of them into a new unit it calls Taktuk. The unitization was approved last year by BSEE’s sister agency, the Bureau of Ocean Energy Management. One lease did not qualify for inclusion in the unit, BOEM ruled.

AEX applied in February of 2017 for lease suspension to avoid what was then an impending expiration. AEX offered five justifications for lease suspension, but ultimately, BSEE ruled that there was a single reason to stop the expiration clock: More pre-drilling environmental analysis is needed, the agency said.

With the lease suspension in hand, AEX is now in a position to move toward an exploration drilling program, a result that BSEE officials said was positive.

“BSEE cares about the Arctic environment and is actively working with our Alaskan Native Partners by taking a thoughtful and balanced approach to oil and gas operations in the Arctic,” BSEE Director Scott Angelle said in a statement. “After a thorough review, we determined that AEX has provided reasonable justifications to warrant the suspension of operations approval. We are also encouraged that an Alaska Native organization, owned by the Iñupiat people — who care deeply for the Arctic environment and depend on a subsistence lifestyle — is actively engaged in potential offshore exploration on the Outer Continental Shelf.”

The suspension granted by BSEE is conditioned on AEX meeting a series of milestones to prove it will diligently develop the leases. The final milestone in that list is the submission of a full exploration plan to BOEM, said BSEE spokesman Guy Hayes.

An Arctic Slope Regional Corp. spokesman was not immediately available for comment on the company’s plans.

The leases include sites that were drilled before Shell moved into the area.

In 1985 and 1986, Union Oil Company drilled two wells there, Hammerhead 1 and Hammerhead 2. Before Shell bought its Beaufort leases in 2005 and 2007, the prospect there was known as Hammerhead.