(Bloomberg) — 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.
"By the end of the 30-day period BOEM will either approve the exploration plan, require modifications to the exploration plan or disapprove the exploration plan," bureau spokeswoman Connie Gillette said in an email. Before it could launch operations on its proposed Nikaitchuq North well, Eni also would have to win a drilling permit from the Bureau of Safety and Environmental Enforcement and secure other government approvals.
Eni already uses a man-made gravel island to extract oil from leases in state waters hugging Alaska’s coast. Under its plan, the company would would use that same site — known as Spy Island — as a launching pad for extended-reach drilling that would target a potential oil reservoir in nearby federal waters.
Eni, the lead operator on the project, owns 40% of the 13 leases set to be affected by the plan. Its partners are Royal Dutch Shell Plc, which also has a 40% share, and Spain’s Repsol SA, which claims the remaining 20%.
In an emailed statement, Eni said it was planning to begin drilling by the end of the year. Eni could cite its proposed oil exploration in trying to convince federal regulators to issue a "suspension of operations" that would effectively extend its leases there.
In February, the safety bureau approved Eni’s bid to consolidate 13 of its federal leases in a single unit — a decision that could make it easier to prolong the life of all of them if drilling began in any one of those tracts.
Still, U.S. law is designed to push oil companies to diligently develop their holdings — and it sets a relatively high bar for granting time-outs. Eni’s targeted leases have already been suspended before — some for roughly four years. Federal law does not give the Interior Department authority to issue blanket extensions and requires companies to lay out a specific plan for developing leased acreage in order to get more time.
Environmental Opposition
"Eni and the federal government must be cautious and responsible," said Michael LeVine, Pacific senior counsel for the conservation group Oceana, which closely monitors Arctic development. "The leases Eni owns have sat dormant for more than a decade and have already had their expiration dates extended in the past. There is no compelling reason to extend the leases again or to rush to grant last minute approvals."
Under Obama, the Interior Department rejected bids by Shell and ConocoPhillips to extend the life of other Arctic leases. Shell initially appealed the decision but later dropped the effort after a challenge from environmentalists.
Environmentalists argue the risks of Arctic drilling are too high — potentially imperiling the seals, whales and walruses that live in the region as well as the Alaska Natives who live off those resources. Government auditors have warned that icy conditions, dark days and sparse infrastructure could make it impossible to adequately sop up a spill in the region.
27 Billion Barrels
Obama cut Arctic tracts from a five-year leasing plan issued last year, and issued a sweeping order that withdrew almost all U.S. Arctic waters from future sales. Neither action affects existing leases, such as that held by Eni. Trump is weighing how to reverse both of Obama’s moves, according to Alaska Senator Lisa Murkowski.
The 2012 grounding of Shell's mobile offshore drilling unit Kulluk was one case investigated by the NTSB. Coast Guard photo.
The U.S. Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cubic feet of natural gas, but energy companies have struggled to tap resources buried below the remote, icy waters at the top of the globe. Shell spent more than seven years and roughly $8 billion trying to find a large stash of crude in the Chukchi Sea, but it abandoned that quest in 2015 after a series of embarrassing mishaps and a test well yielded disappointing results.
A different scenario is playing out closer to the coast, where recent discoveries — and the prospect of far lower development costs — may be luring oil companies. Caelus Energy Corp. claimed to have found at least 2 billion barrels of recoverable oil far beneath northwestern Alaska’s Smith Bay in 2016. And Repsol just announced a 1.2 billion-barrel discovery on Alaska’s North Slope.
Bloomberg News by Jennifer A. Dlouhy
