Tuesday, February 12, 2008

A Lot Of Money Being Spent On Arctic Oil Exploration

Oil companies just spent a record $2.7 BILLION dollars for the "right" to drill exploratory wells in the Chuckchi Sea off the northwest coast of Alaska. This is a huge amount of money, in fact, the most ever spent in Alaska, onshore or offshore. This tells me, as a geologist who is familiar with the area and its history of oil exploration and development, that the oil companies are very confident there is a lot of recoverable oil in rocks beneath the Chuckchi Sea. It also means they think they can find it, produce it, and move it to market. This is by no means a simple task, in what certainly must be the world's harshest environment.

Another aspect of this lease sale by the United States Federal Government, and one that is often overlooked, or ignored, is that all of the money from the winning bids goes into the governments coffers. Look at the amount of money the government has collected from lease sales in Alaska in the past (see the list below). The amount is mind-boggling. So much for the idea that "big oil" is bad. The government must love the oil and gas industry for all of the revenue it provides.

There is yet another aspect to this sale that I'm sure a lot of people overlook. Where does the oil industry get all the money to spend on these lease sales? Well, they get it from you and I, and anyone and everyone who uses petroleum products. The cost gets passed on to the consumer, of course. When you think about it, this is another form of taxation; in this case the money goes from your pocket to the oil companies, who then pay a large portion to the government. This does not even include the royalties companies pay when they actually produce oil and gas.

To make things even more depressing, think of the taxes you pay when you buy the gasoline made from this oil. We're being taxed, and taxed, and taxed again. Think about this the next time you fill your car with gas and complain that you're being "ripped off" by "big oil".


Record bids for oil, gas leases in Chukchi Sea
$2.7 BILLION: Alaska won't get a penny from federal sale of remote Chukchi Sea tracts.

wloy@adn.com wloy@adn.com
Published: February 7th, 2008 12:11 AMLast Modified: February 7th, 2008 03:23 PM

Oil companies flush with cash and hungry for new discoveries bid nearly $2.7 billion Wednesday in a blockbuster competition for drilling rights in the forbidding Chukchi Sea.
The sum of winning bids is the most ever generated in an Alaska oil and gas lease sale, whether on land or offshore. The tally tops the $2.1 billion raised in a 1982 sale in the neighboring Beaufort Sea, and the $900 million in a 1969 land sale at Prudhoe Bay that launched giddy Alaskans into a new era of fabulous oil wealth.
All proceeds from Wednesday's sale go to the U.S. government, and none to the state, as the offshore acreage is under federal jurisdiction.

Oil men, journalists and others packed a Loussac Library auditorium in Anchorage and listened with anxiety and awe as officials announced hundreds of often jaw-dropping bids on tracts totaling 2.8 million acres in the Chukchi, a shallow and icy polar sea between Alaska and Russia.
The competition was pitched as two global powers -- Shell and Conoco Phillips -- offered fortunes on some of the same tracts. Onlookers sometimes sounded like a football crowd, going "ohh!" or "aww!" when one company barely beat out the other.

The day's highest bid for a single tract came from the Dutch company Shell at $105,304,581.
"It's fabulous," Jason Brune, head of the Resource Development Council for Alaska, said during a break in the three-hour bid reading. "The big boys came -- flexed their muscles."
Not everyone was happy.

A handful of environmental activists and Native leaders from the coastal villages of Point Hope and Barrow stood in subzero cold outside the library to protest the sale. They fear industrial activity and spills could drive away or kill whales villagers hunt for food.
"Our ocean is our garden," said a shivering Earl Kingik, a Point Hope whaler.
He and other protesters said they don't believe oil companies can clean up offshore spills, and they said the companies demonstrated with their huge bids they have the power to steamroll village concerns.
Point Hope and a coalition of environmental groups have filed suit challenging Wednesday's lease sale.

Oil company executives and officials with the U.S. Minerals Management Service, which regulates offshore industry, said whales, polar bears and other wildlife will enjoy many protections from explorers. For example, all the leased acreage is at least 50 miles out to sea. And companies would be encouraged to use pipelines, not tankers, to carry oil to market.
Randall Luthi, director of the Minerals Management Service, said world energy demand is rising and the Chukchi Sea offers a chance to reduce U.S. dependence on oil and gas imports.
The government estimates the Chukchi could hold 15 billion barrels of recoverable oil and 77 trillion cubic feet of natural gas. Those numbers compare to reserves in the Prudhoe Bay area.
"It's a great sale, a great commitment," Luthi said. He noted the $2.7 billion in winning bids far surpassed his agency's prediction a couple of years ago that the Chukchi sale would generate $67 million.

The last Chukchi sale, in 1991, generated $7.1 million.
Much has changed since then. The price of oil has rocketed to nearly $100 a barrel, and Shell and Conoco ran seismic surveys to test the geology beneath the Chukchi in the last couple of years, sometimes sharing the cost and the data, said Erec Isaacson, Conoco Alaska's exploration and land vice president.

Of the seven companies bidding, Shell was tops with $2.1 billion in winning bids, followed by Conoco with more than $506 million. Other bidders included the Spanish firm Repsol, the Italian firm Eni, Statoil Hydro of Norway, and two others.

The biggest bids centered on abandoned well sites in the Chukchi. Between 1989 and 1991, Shell drilled four exploratory wells with names like Popcorn and Burger, finding signs of oil and gas, and Chevron drilled one.

Because the Chukchi is so remote and devoid of roads, pipelines and ports, it'll take a major strike to justify the enormous cost of commercial development, oil company executives said.
But with other oil provinces around the globe either closed or played out, and with oil prices soaring, the Chukchi looks like a good gamble, they said.

"The time's right to come back to Alaska," said Annell Bay, a Shell exploration vice president.
Shell, which re-entered the Alaska picture in 2005, plans to drill in the Beaufort Sea this summer assuming it can overcome a court challenge.

Biggest Alaska oil lease sales
Year Sponsor Location High bids
2008 Federal Chukchi Sea$ 2.66 billion
1982 Federal Beaufort Sea $2.06 billion
1969 State North Slope $900 million
1984 Federal Beaufort Sea$ 867 million
1979 State Beaufort Sea $567 million
1976 Federal Gulf of Alaska $560 million
1984 Federal Navarin Basin $516 million
1979 Federal Beaufort Sea $489 million
1988 Federal Chukchi Sea $478 million
1983 Federal St. George $426 million
Sources: U.S. Minerals Management Service; Alaska Division of Oil & Gas

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