Drilling the Arctic: will native Alaskans succeed where others have failed?

22 November 2017 (Last Updated November 22nd, 2017 10:41)

The Arctic Slope Regional Corporation, the wealthiest Native corporation in Alaska, recently snapped up 21 drilling licenses in the Camden basin. Following Shell’s failed mission in Arctic waters in 2015, can indigenous Alaskans succeed where the oil and gas supermajor failed?

Drilling the Arctic: will native Alaskans succeed where others have failed?
The existence of ASRC challenges the widely held view that Arctic indigenous peoples are the natural enemies of resource exploitation in Alaska. Pic courtesy Steve Halama.

The well-worn narrative of oil industry exploitation in Alaska goes roughly like this: Multinational oil company with insatiable appetite for profit and little concern for the environment targets the Arctic, estimated to contain 30% of the planet’s undiscovered natural gas and 13% of its undiscovered oil. On cue Indigenous peoples join forces with environmental activists to oppose the proposed exploitation of one of the last great unspoilt natural regions on Earth.

In recent history they’ve been winning. In December 2016, that coalition scored a notable victory when the US and Canada banned new leases for oil and gas drilling in the Arctic.

However, a month earlier few people appeared to notice when 21 of Shell’s former federal leases in a part of the Beaufort Sea Lease Area called Camden Bay were snapped up by ASRC Exploration, a subsidiary of Arctic Slope Regional Corporation (ASRC), the wealthiest Native corporation in Alaska.

The purchase came in the wake of several aborted drilling projects in the Arctic by Royal Dutch Shell.

In 2013, less than year after a 30-mile-long ice floe forced Shell to shut down its Burger-A well in the Chukchi Sea after just 24 hours, the multinational announced that as a “precautionary measure” it was suspending offshore drilling in Alaska for the remainder of 2013. Statoil quickly followed suit.

Shell returned to the frozen north two years later, only to pull the plug on Arctic operations “for the foreseeable future” in September 2015 after disappointing results from its Burger-J well. Shell’s official line is that there wasn’t enough oil at the site to make it commercially viable. At that point, the company had spent around $7bn on development in the Chukchi and Beaufort seas.

So, how and why does the ASRC, one of 13 regional corporations created under the Alaska Native Claims Settlement Act of 1971, hope to exploit hydrocarbons buried 6,000ft below the ocean floor in one of the Earth’s most inhospitable environments when an oil and gas supermajor like Shell failed?

Northern soul: Native support for offshore drilling in Alaska

One explanation is that the regulatory environment has shifted. Barack Obama green-lighted Shell’s Arctic operations, but the fine print of the agreement contained multiple environmental restrictions.

According to ASRC, the president’s subsequent decision to block the sale of offshore drilling rights in Alaska’s Arctic and withdraw additional acreage in the Arctic Outer Continental Shelf in the name of climate change endangers Alaskan jobs and the economic outlook of North Slope communities.

“We will fight this legacy move by the outgoing president with every resource at our disposal,” said Rex A. Rock Sr, ASRC president and CEO, in December 2016. “This decision will not stop our climate from changing, but it will inhibit our North Slope communities from developing the infrastructure, communications capability and technology necessary for growth. It’s a move which was made without any consultation from the largest private land owners in the US Arctic and yet we will be the ones forced to live with the consequences.”

ASRC board chairman Crawford Patkotak added: “It’s disappointing this administration would base much of its decisions regarding offshore oil and gas development on faulty assumptions. Today’s surprise announcement will have lasting negative effects across the US Arctic without seeking input from those who call the region home.”

ASRC says that while the decision did not directly affect its new leases – which are situated around 15 miles off the oil-rich North Slope coast − it sets a dubious precedent for future regulatory actions.

A statewide poll conducted in October 2016 appears to support ASRC’s claim that the majority of Alaskans are in favour of offshore oil and gas development. More than two thirds of Alaskans (76%) supported the practice and almost universally believe it has a major impact on their economy (88%).​

Regulatory change: can ASRC succeed under President Trump?

Bloomberg speculated that Shell’s decision to pull out may have been motivated, at least in part, by the spectre of a Hillary Clinton presidency. Clinton was a vocal critic of oil and gas drilling in the Arctic; that fact, plus historically low oil prices, made E&P in the region too risky, even for Shell.

Enter Donald Trump. In June, the US President signed an executive order aimed at expanding E&P in the Arctic. Shell’s request to extend the Camden leases – the majority expire this year, two in 2019 – was turned down. Unlikely as it sounds, ASRC may actually flourish under a Trump administration.

The early signs are positive. In July, the US Bureau of Safety and Environmental Enforcement (BSEE) agreed to ‘unitize’ 20 of the leases, allowing regulators to treat the group of leases as a single entity. Now, if ASRC discovers oil in one lease area, the rest remain active and exploration can continue.

However, that is just the beginning of a long process that will test ASRC’s conviction, not to mention its bottom line. The next challenge is to obtain an extension of the Beaufort Sea leases from BSEE.

“Shell tried more than once to explore on them,” said Michael LeVine of environmental organisation Oceana told Arctic Now. “There are no active exploration proposals and little reason to think ASRC or anyone can satisfy the legal obligations to have the expiration dates extended.”

Alaska Natural Resources Commissioner Andy Mack disagrees, pointing to the fact that ASRC is an Alaska-based company and also counts whalers and subsistence hunters on its board of directors.

“I think ASRC is positioned well,” he said. “I think they’re going to have an opportunity to make something happen.”

Untapped potential: risks and rewards of Arctic drilling

ASRC’s size in relation to multinationals such as Shell may work in its favour. Economies of scale mean that the majority of international oil companies (IOCs) can no longer afford to spend small money on minor oil and gas projects around the world, regardless of the quality of the play.

As a result, small-scale projects that once weren’t profitable suddenly are and smaller operators are also becoming adept at attracting capital from niche investors as traditional bank funding dries up.

ASRC is hardly a minnow, however. The organisation has 13,000 Iñupiat shareholders and posted revenues of more than $2.5bn in 2015. As well as proven experience in the oil field services sector, ASRC Exploration has conducted exploratory drilling at the on-shore Placer site on the North Slope.

ASRC is also eligible for government contracts without having to compete with other bids as part of the 8(a) Business Development Program. There is no limit on the size of the contracts that Alaska Native corporations can receive. Of course, none of this guarantees that ASRC will find oil.

Decades before Shell entered the region, Unocal and Arco each made an oil discovery in the Alaskan Arctic containing more than 50 million barrels of black gold. Neither discovery led to production.

The existence of ASRC challenges the widely held view that Arctic indigenous peoples are the natural enemies of resource exploitation in Alaska. Instead, the organisation sees the potential revenues from oil as a way to ensure economic security and preserve a traditional way of life under threat.

“What jeopardises future generations of Iñupiat on the North Slope is the threat of a failing economy and a diminishing number of opportunities for our people,” Ty Hardt, senior director of communications at ASRC told Maritime Executive. “We believe offshore exploration and development in the Alaskan Arctic can be done safely and successfully, which has proven to be the case in other regions, such as the Canadian and Russian Arctic.”