Senate ponders arctic drilling but questions remain
Companies’ interest in extracting oil from refuge hinges on many factors
WASHINGTON — More than a decade after former president George W. Bush tried but failed to open up drilling in the Arctic National Wildlife Refuge, oil companies are now poised to gain access to what is one of the country’s largest and most remote wilderness areas.
Under legislation designed to help pay for an historic corporate tax cut, the U.S. government would begin leasing a 1.5 million acre section of ANWR, where one of the largest oil fields is believed to lie. But with oil prices below $60 a barrel, and environmental groups poised to go to court to block any development within the refuge, the question remains whether enough oil companies would be interested in drilling in one of the harshest and most remote corners of the world to produce the kind of revenues Republicans in Congress are promising to offset the costs of the tax cuts and their impact on the deficit.
The Senate is expected to vote on its version of the
tax plan next week.
“Any discoveries in ANWR would face significant obstacles before reaching first oil,” said Alison Wolters, an analyst at the energy research firm Wood Mackenzie. “Oil companies would have to decide if they think the opportunity is worth the potential delays and a lot of legal wrangling and back and forth with regulators.”
The opening up of ANWR would be a bonus for an oil industry expected to profit mightily from the Republicans tax reform plan, which would cut the corporate tax rate to 20 percent while preserving key tax breaks, such as the deduction for drilling costs on future production, that the industry has long fought to preserve.
Among those expected to take a close look at ANWR are oil giants Exxon Mobil and BP, along with Conoco Phillips and Houston-based Hilcorp, all of which already have operations on Alaska’s North Slope.
Tax cut leverage
Oil and gas lobbyists have pressed the government to open up drilling in ANWR since Congress first declared it a wildlife refuge in 1980. While economic conditions might make drilling there risky, the potential payout in the decades ahead is likely to attract plenty of bidders, said Ed Longanecker, president of the Texas Independent Producers & Royalty Owners Association, an oil industry trade group.
“If the reserves justify the expense and build out of infrastructure, they’ll definitely go,” he said.
Set on 1.5 million acres between the Arctic Ocean and the mountains of Alaska’s Brooks Range, the area of ANWR targeted for drilling is home to polar bears, wolves and more than 150 species of birds. The vast expanse also serves as a critical stop for porcupine caribou herds on their migration around Alaska and Canada.
Democrats and Republicans alike have long been reluctant to develop there. In 2002, Bush’s plan to open up drilling in ANWR was ultimately blocked in the Republican-controlled Senate when eight Republicans broke party ranks.
“Our natural heritage is something important to the American people, and this place is the ultimate symbol of that,” said Kristen Miller, conservation director with the Alaska Wilderness League. “It’s the wildest refuge we have.”
But this time around, ANWR could serve as leverage in Republicans’ bid to pass a tax cut seen as critical to preserving their control of Congress and the White House. Sen. Lisa Murkowski, R-Alaska, who joined Democrats to block the repeal of Obamacare, is viewed as a critical vote on tax reform as Republican leaders try pass the bill with their thin majority. Murkowski has long sought to open ANWR to drilling, to help offset a steep decline in oil production from the North Slope that has left Alaska’s state coffers badly depleted.
Republicans in the Senate Budget Committee are working to combine the ANWR legislation with the tax reform bill ahead of the vote. On Tuesday, Murkowski wrote an opinion piece in an Alaska newspaper declaring her support for a provision within the tax reform bill repealing the individual mandate that underpins Obamacare — though a spokesman said she was still reviewing the legislation.
Lessons from Shell
The Congressional Budget Office estimates that lease sales in ANWR would generate $1.1 billion over the next decade, with revenue expected to rise as oil production comes online. But considering how little is known about the geology in ANWR — only one well has ever been drilled there — it will likely take at least a decade before companies get oil from the ground, said Wolters, the energy analyst.
Hanging over any potential development will be Shell’s failed attempt to tap reserves off Alaska’s coast.
In 2015, after years of legal fighting with environmental groups, the European oil giant announced it was abandoning $2.5 billion in drilling rights in U.S. Arctic waters.
“Any operator that would lease in ANWR would have that same scrutiny on them,” Wolters said. “Every environmental impact statement and drilling plan would be highly scrutinized. And in Alaska, where seasonal change really impacts what you’re able to do, just small delays could push back production a whole year.”