Shell, Slope Native corps. sign royalty deal for Chukchi leases

Shell has negotiated an option for seven Alaska Native corporations in the Arctic to purchase a royalty interest in its offshore leases in the Chukchi Sea.

The percent of royalty and the financial terms not disclosed. The deal was announced July 31.

Rex Rock, Sr., president of Arctic Slope Regional Corp. will be president of the Arctic Inupiat Offshore LLC, a joint-venture company formed by ASRC and six Native village corporations.

The agreement applies to all of Shell’s 275 federal Outer Continental Shelf leases in the Chukchi Sea but does not include Shell’s leases in the Alaskan Beaufort Sea.

Rock said the deal could create a sustainable economy for communities in the region.

“This does three things: It creates alignment with the offshore development; it gives us a seat at the table in decisions on offshore development, and it can create an economic base,” he said.

However, an oil and gas royalty owner normally plays a passive role in the management of an oil producing asset. The royalty owner has no direct role in a project, unlike a working interest partner.

Inupiat people on the Arctic have supported onshore oil and gas development because of the industrial tax base it creates for the North Slope Borough, the regional municipality, and the local jobs it creates. Also, ASRC is a royalty owner in the producing Alpine oil field and will have a royalty interest in future production from certain lands in the National Petroleum Reserve-Alaska.

There is opposition in the region to offshore development because of the threat pose by oil spills to subsistence resources, mainly migrating bowhead whales.

One Inupiat tribal group, the Native Village of Point Hope, is still the lead plaintiff in a coalition with environmental groups suing the U.S. Department of the Interior over the Chukchi Sea lease sale, which was held by 2008.

The U.S. Bureau of Ocean Energy Management is now redoing part of the environmental impact statement for the 2008 sale in response to a judge’s order in the lawsuit, and until that is completed Shell cannot resume its exploration in the Chukchi Sea.

The company hopes to do exploration drilling in 2015 if the EIS issues are cleared up and if the Interior Department completes work on new Arctic drilling regulations.

 “This is important for our Alaskan venture. A regional alliance with so many respected Alaska Native corporations provides Shell the opportunity to collaborate with savvy and experienced North Slope business partners going forward,” said Pete Slaiby, head of Shell’s Alaska operations. “It also underscores our commitment to provide opportunities for North Slope communities to directly benefit from Shell’s activities offshore Alaska.”

U.S. Sen. Lisa Murkowski said she was pleased at the deal in a statement.

“Shell’s decision to invest in the future of the region and its people should be applauded,” she said. “This announcement ensures that the people of the North Slope Borough share directly in the oil and gas bounty off their coast. It also gives locals a say in what happens near their communities. I think that’s a wise decision on Shell’s part.”

The lack of a direct financial link between offshore development and coastal communities, which bear the risk on an oil spill, has long been a point of contention in Alaskan OCS leasing.

In the U.S. Gulf of Mexico, coastal states share in federal OCS royalties but the same provision does not apply to Alaska.

Joe Balash, Alaska’s Commissioner of Natural Resources, said the state and the North Slope Borough, the Arctic regional municipality, are pushing for revenue-sharing of federal OCS royalties with the state and coastal communities, but Congress must pass legislation for that.

The royalty agreement between Shell and the communities will not change that, he said.

Shell has spent almost $6 billion in exploration and leasing in the Chukchi and Beaufort Sea.

11/22/2016 - 2:16pm