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Trump Plans Arctic Drilling Rights Sale in Likely 2020 Clash (2)

Aug. 17, 2020, 6:09 PM

The Trump administration on Monday authorized a sweeping plan to sell drilling rights and spur oil development in Alaska’s rugged Arctic refuge, setting up a possible auction by the end of 2020 and a political clash if the president loses the November election.

The Interior Department’s decision approves oil leasing across the Arctic National Wildlife Refuge’s entire 1.56-million-acre coastal plain -- an area the size of Delaware that’s home to polar bears and caribou. Though Congress earmarked the area for possible energy development in 1980, it has remained off-limits to oil drilling for decades.

“The establishment of this program is a major milestone,” Interior Secretary David Bernhardt said in an interview. “It’s not the end of the leasing process, but it is a very, very significant milestone.”

The decision sets the stage for the federal government to potentially auction Arctic drilling rights in the final quarter of 2020 -- and a possible confrontation next year if President Donald Trump doesn’t win re-election. Democratic nominee Joe Biden said he’s “totally opposed” to drilling in the Arctic refuge, having called the idea a “big disaster” in a February town hall meeting.

Although the refuge has long beckoned the energy sector with the potential for mammoth oil discoveries, it is unclear whether companies will aggressively bid on the territory, as low crude prices and an epic downturn in fuel demand from the coronavirus spur drillers to idle rigs and curtail new spending across the U.S. Legal uncertainties and public opposition to Arctic drilling also could dissuade some activity.

Read More: Wall Street Is Bending to Pressure to Halt Arctic Oil Loans

Trump didn’t make a clear commitment to a sale during a Monday interview on Fox News. “We are looking at it,” he said, before adding, “we did do ANWR.”

Congress mandated an Arctic oil and gas program three years ago, with a law requiring Interior to sell drilling rights and facilitate development in the coastal plain. Under the 2017 Republican tax overhaul, the Interior Department must hold at least one auction of coastal plain oil leases before Dec. 22, 2021 and another by Dec. 22, 2024. Congress also required Interior to issue rights-of-way and easements necessary to support oil exploration and production.

The record of the decision signed Monday is anchored by those congressional mandates, which Bernhardt said provide “far greater assurances to potential leaseholders” that they will have the ability to access, explore and develop operations.

The approach is meant to help buttress Trump’s Arctic oil plans, which environmentalists have vowed to challenge in court, while making it harder for a future administration to reverse course.

“Congress has mandated these lease sales” and “they have to go forward in some regard,” Bernhardt said in a call with reporters Monday. “They can’t just simply unduly delay.”

Read More: Comptroller of Currency Examining Bank Bans on Arctic Oil Loans

Environmentalists argue Arctic oil development imperils one of the country’s last truly wild places -- a swath of northeast Alaska populated by Arctic foxes, polar bears, caribou herds and more than 200 species of birds. Canada has repeatedly warned about the potential for harm to the Porcupine caribou herd that forages and calves in the area.

The Interior Department has acknowledged that its plans would affect large portions of critical habitat and denning areas for polar bears, including a dwindling Southern Beaufort Sea population. “The potential for injury or mortality could be high when developing new oil and gas projects in polar bear habitat,” Interior’s Bureau of Land Management said in an environmental analysis last year.

“An oil spill in this special sanctuary could devastate polar bears and caribou and cause irreparable harm to a pristine Arctic ecosystem,” said Kristen Monsell, an attorney with the Center for Biological Diversity. “We’ve reached a dangerous new low in the Trump administration’s obsession with expanding the extraction of dirty fossil fuels.”

Conservationists vowed to challenge the administration’s move, which they said was fundamentally flawed and rested on insufficiently narrow environmental analysis of oil leasing and development in the Arctic.

Bear Buffer Zones

“This is another outrageous move by an administration that ignores science and shortcuts the public process in an irresponsible rush to help oil companies secure leases on the coastal plain before the 2020 presidential election,” said Karlin Itchoak, with The Wilderness Society.

The Interior Department rejected narrower alternatives that would put less acreage up for grabs and impose more restrictions. The agency is establishing buffer zones around polar bear dens and timing limitations on activity during Porcupine caribou calving season, but conservationists have said the planned safeguards are inadequate.

The Interior Department still must issue a formal “call for nominations” seeking input on specific tracts and take public comment before scheduling a sale.

Under the approved plan, surface activity will be off-limits in 23% of the 1.56 million acres (632,726 hectares) available for oil leasing. Timing limitations will be imposed on 37% of the area to help protect habitat and wildlife. Further site-specific limitations could be embedded in leases and future permits, Bernhardt said.

Arctic Oil to Draw Bids Despite Rout, Interior Chief Predicts

The U.S. Geological Survey has estimated the refuge’s coastal plain might hold between 4.3 billion and 11.8 billion barrels of technically recoverable crude. A large discovery there could produce oil for decades, rivaling output even from the nearby Prudhoe Bay field.

Yet relatively few companies have the resources to mount costly operations in the remote region, and major U.S. banks have sworn off financing Arctic oil projects in response to environmental pressure.

With crude now trading near $40 a barrel following an unprecedented crash in oil prices, U.S. drillers also have been in retrenchment mode -- scaling back spending instead of exploring for new oil. There are only 172 oil rigs active in the whole of America, the lowest since 2005. And some potential coastal plain bidders, such as Oil Search Ltd., have recently pared back operations.

Nevertheless, the industry still welcomed the administration’s move to open up a new front for exploration.

Energy ‘Renaissance’

ConocoPhillips, Alaska’s biggest producer, is advancing oil projects in the National Petroleum Reserve located in the northwest part of the state, while charting plans to expand. Governor Michael Dunleavy said last year that Conoco would help drive an energy “renaissance” in Alaska after years of production declines. On Monday, Dunleavy said the Trump administration’s plan “will lead to the responsible development of Alaska’s abundant resources, create new jobs, support economic growth and prosperity” and ensure the state continues playing a critical role in U.S. energy “well into the future.”

“Industry interest for the Arctic refuge is particularly hard to predict” as many companies have kept quiet, observed the progressive Center for American Progress, which opposes the plan. “They must weigh, among other things, the huge expense and risk of new development in the Arctic; the certainty of costly and protracted litigation; and the uncertainty of whether there are any oil and gas resources.”

A future president who opposes Arctic drilling could slow-walk selling leases or permitting wells in the coastal plain. While that resistance could in turn be challenged, the ensuing litigation might span years.

Already, concerns about polar bears and work schedules have prevented new geological surveys to better pinpoint potential oil reserves -- foreshadowing future hurdles.

(Updates with oil industry details from fifth paragraph.)

--With assistance from Kevin Crowley.

To contact the reporter on this story:
Jennifer A. Dlouhy in Washington at jdlouhy1@bloomberg.net

To contact the editors responsible for this story:
Jon Morgan at jmorgan97@bloomberg.net

Elizabeth Wasserman, Christopher Anstey

© 2020 Bloomberg L.P. All rights reserved. Used with permission.

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