Statoil quits the Alaska Arctic OCS, following Shell’s exit

Norway-based Statoil has quit its Alaska Arctic program in the Chukchi Sea, becoming the second company to officially withdraw from the region. 

ConocoPhillips, the remaining holdout among the Chukchi Sea explorers, has not indicated its intentions but said the company’s Arctic offshore plans had been on hold for some time.

Earlier this fall Shell announced disappointing results on Chukchi Sea drilling and said it would end its program.

Statoil is returning its leases, however, while Shell is retaining its Chukchi holdings, as is ConocoPhillips, although all leases expire in 2020. The U.S. Department of the Interior refused a request by the companies to suspend the clock on the leases.

In a statement, Gov. Bill Walker said, “We are disappointed in Statoil’s decision not to pursue further offshore development in the Chukchi, and understand it is largely tied to Shell’s decision to terminate its offshore drilling efforts in Alaska as well. This further emphasizes the need to develop our onshore opportunties, such as the 1002 section of ANWR.”

Environmental groups reacted positively. Oceana, which focuses on the offshore, said, “Decisions made by oil companies in the Arctic Ocean are finally starting to make sense. First Shell and now Statoil abandoning offshore leases sends a strong message to decision-makers meeting in Paris next month,” on climate change, said Susan Murray, Ocean’s Deputy Vice President for the Pacific. “Pursuing oil and gas development in the Arctic Ocean is too risky.”

Statoil said its leases in the Chukchi Sea are no longer considered competitive. The company also closed its office in Anchorage on Nov. 16, laying off two employees who were still here.

Statoil will also drop 16 leases that were 100 percent owned by the company and also a part ownership, with ConocoPhillips, in 50 other leases in the Chukchi Sea. 

“Since 2008 we have worked to progress our options in Alaska. Solid work has been carried out, but given the current outlook we could not support continued efforts to mature these opportunities,” Tim Dodson, Statoil’s executive vice president for exploration, said in a statement.

Statoil U.S. spokesman Peter Symons said the company is in discussions with ConocoPhillips on the disposition of Statoil’s shares of the 50 jointly-owned leases, in which Statoil holds varying percentages.

ConocoPhillips spokeswoman Natalie Lowman, based in Anchorage, said it is possible that if Statoil surrenders its share of leases that portion of ownership would revert to ConocoPhillips, but that the matter is not clear.

As for ConocoPhillips’ own position, she said, “Our plans for the Chukchi Sea were on hold prior to Statoil’s announcement and they remain on hold.”

Statoil’s last Alaska employees had expected the office closure.

“Statoil is a great company but there were just too many obstacles placed in the path of drilling, and low oil prices don’t help,” said Ella Eide, who until Nov. 16 was Statoil’s spokeswoman in Alaska.

The company had been gradually winding down its Alaska presence, and its workforce in the state, for some time.

Statoil acquired its Arctic offshore leases in the Interior Department’s 2008 OCS lease sale in the Chukchi Sea along with, Shell, ConocoPhillips and Repsol.

Statoil and ConocoPhillips began environmental and early planning for drilling but decided to let Shell take the lead in clearing regulatory obstacles and legal challenges.

After about $7 billion in expenditures including over $2 billion spent for the OCS leases in 2008, Shell was finally able to drill a well into potential oil formations in 2015, but the results were disappointing.

Randall Luthi, president of the National Offshore Industry Association, a trade group, said, “Statoil’s decision to withdraw from the Alaskan Arctic is disappointing yet understandable given current tough economic and regulatory conditions. These are challenging times for the oil and gas industry with continued low commodity prices making for hard choices, and I know this was a difficult one for Statoil. 

“The company has a substantial investment in the U.S. Arctic and had hoped to become a producer of both energy and economic growth there for Alaskans and for our nation. Hopefully, another company will step in to fill the void left by Statoil, but given the harsh economic climate and the difficulty obtaining lease extensions, the outlook is rather bleak.”

Kara Moriarty, president of the Alaska Oil and Gas Association, said Statoil’s decision is a stark reminder of the importance of regulatory certainty in the oil and gas business.

“While lawmakers and policymakers cannot control an oil basin’s geology, they can control permitting and regulatory policies to make the region competitive for exploration and development,” Moriarty said in a statement. “Unfortunately, Alaska is an expensive place to do business, and the federal regulatory environment is known for being difficult and unpredictable. Coupled with oil prices staying stubbornly low and expected to remain so for the foreseeable future, taking huge financial risks in Alaska is just not feasible for most oil companies, even large ones like Statoil and Shell.”

The decisions by the two companies to depart will not have a large adverse economic impact on the state, although had Shell had better results and continued with drilling in 2016 it would have generated work for many Alaska-based support companies.

There is no effect on state finances either, since it would have been a decade or more before any offshore oil flowed into the Trans-Alaska oil pipeline. Also, oil and gas from federal offshore waters pay no production taxes or royalties to Alaska, although state taxes on onshore property, like pipelines, would have been a benefit. 

Offshore production would mainly have helped keep the TAPS pipeline viable by providing more oil. That would lower TAPS’ operating costs, which would have lowered costs for transporting oil produced on state lands.

That would have resulted in new revenues to the state. 

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

Updated: 
11/18/2015 - 3:18pm

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