US federal lands access issues continue to boil over

The last time USGS did a comprehensive study of the region was more than 20 years ago. Then US geologists estimated the technically recoverable oil in NPR-A at 0.3-5.4 billion bbl, with a mean value of 2.1 billion bbl (Table 1). The 1980 assessment did not include an economic analysis.

The 2002 reassessment shows 1.3-5.6 billion bbl are thought to be economically recoverable, assuming market prices of $22-30/bbl, respectively. Estimates of technically recoverable oil on the NPR-A federal lands alone are 5.9-13.2 billion bbl, with a mean value of 9.3 billion bbl.

North holds large resources

A large proportion of the undiscovered oil resources is thought to occur in the northern third of the NPRA in "moderate-size accumulations," according to the USGS report.

The report further estimated technically recoverable undiscovered natural gas resources on federal lands in NPR-A at 39.1-83.2 tcf, with a mean value of 59.7 tcf. The bulk of the natural gas resources are thought to occur in the central and southern NPR-A. But the economic viability of that natural gas depends on the availability of a pipeline to transport the product to the Lower 48, USGS said.

A pending Senate energy bill offers generous tax incentives and other federal assistance to encourage industry to build a new North Slope gas line along the Alaska Highway and then via southwestern Canada that would eventually be connected to the upper US Midwest.

But presently, no natural gas pipeline exists, and the economic viability-and fate of supportive energy legislation in the US Congress (see related story)-underpinning such a project is far from certain.

Meanwhile, the USGS report also draws comparisons between the newly beefed-up NPR-A resource assessment and the agency's 1998 ANWR coastal plain hydrocarbon resource assessment.

The US House of Representatives' energy bill includes a provision to allow leasing of the ANWR 1002 (coastal plain) area in northeastern Alaska, now off-limits.

New methodology

USGS said the new NPR-A assessment reflects a comprehensive examination of all public domain data and considers new exploration and development strategies being applied on the Alaska North Slope; it uses a methodology similar to that used in the 1998 USGS assessment of the ANWR 1002 area (Table 2).

The assessment area for ANWR included federal lands within the 1002 area and adjacent state offshore and native lands and did not study the entire wildlife refuge.

Using the USGS estimates for undiscovered technically recoverable oil, a comparison between the federal study areas of NPR-A and the ANWR 1002 area shows:

• The NPR-A federal area covers 22.5 million acres, with 5.9-13.2 billion bbl of recoverable oil and with a mean value of 9.3 billion bbl.
• The ANWR 1002 federal area covers 1.5 million acres, with 4.3-11.8 billion bbl of recoverable oil and with a mean value of 7.7 billion bbl.

The White House's energy blueprint released a year ago calls for the leasing of ANWR. USGS said that, although NPR-A holds much promise for future oil and gas development, the location of ANWR's reserves might make exploration more attractive to industry.

"The economic analysis of undiscovered resources is particularly important in an area as large as NPR-A, because some of the oil resources may be far from existing infrastructure. The amount of technically recoverable oil estimated for NPR-A is similar to that estimated for the ANWR study area," USGS said. "The economic analysis considers accumulation sizes, numbers of accumulations, and proximity to infrastructure. The conclusion is that when market prices are below $35/ bbl, a larger volume of technically recoverable oil would be economic in the ANWR 1002 area (Table 3). And if prices exceed $35/bbl, NPRA and ANWR 1002 would have nearly equal volumes of economically recoverable oil."

Murkowski stance

Sen. Frank Murkowski, (R-Alas.), a proponent of ANWR leasing and ranking member of the Senate Committee on Energy and Natural Resources, welcomed updated estimates for the oil potential of NPR-A, calling the new estimates "heartening" but said the data do not mean the US government should not open a portion of the refuge as well.

Murkowski said economic oil is still likely to be found in the ANWR coastal plain, but from a footprint potentially 1/15 that of NPR-A's.

"The report also proves that ANWR is a far better source of oil. Development in the coastal plain would be far more concentrated, likely improving the economics and certainly lessening the environmental impacts. The report builds the case for energy development in both ANWR and NPR-A," said Mur- kowski.

Murkowski said the report also should give policy-makers another reason to justify federal support for the proposed natural gas line from Alaska to the Lower 48.

Murkowski's Democratic counterpart, Senate Energy Chairman Jeff Bingaman (D-NM) concurred that the USGS analysis helps bolster the argument for a new gas pipeline from Alaska. But Bingaman rejected Murkowski's reasoning that the nation should open ANWR, an area that environmental groups say is ecologically unique and too fragile to be trusted to oil exploration, no matter how sophisticated today's technology.

"The administration's reassessment of the oil and gas potential of the National Petroleum Reserve-Alaska is great news for our nation's energy future. It also validates the Democratic view that this reserve has outstanding potential as a major new source of oil. And Congress doesn't need to pass any new law to drill there.

"Enhancing America's energy security is the goal of the Senate-passed energy bill. When we debated this bill for 6 weeks, the volume of rhetoric about drilling in the arctic wildlife refuge may have confused some into believing that ANWR is the only place in the US where you can find more oil. This study proves what we have said all along: That's not so.

"In addition to the 32 million acres in the Gulf of Mexico that have been leased for oil and gas activities, the NPR-A also holds great promise for more oil and gas development, according to the government's scientists. That shouldn't surprise anyone: Those 23 million acres were specifically set aside 79 years ago because of their oil resources. Drilling there is already happening, and there have been major finds.

"As the leader for the Senate majority when we conference energy, I'm eager to begin working with my colleagues in the House. We've got a lot of work to do, and this new analysis of the NPR-A's potential will be very useful when the discussion turns to whether drilling should be allowed in the arctic refuge," Bingaman said.

More industry interest

Following a 10-year hiatus in exploration activity, NPR-A got back on industry's radar screen following the 1996 announcement of the discovery of Alpine oil field, located on the North Slope just outside NPR-A.

Portions of NPR-A were leased in 1999, and additional lease sales are expected beyond the one held in early June.

The NPR-A study is the second in a series of assessments that ultimately will result in a reevaluation by the USGS of the petroleum potential of the entire Alaska North Slope.

USGS scientists reexamined the geology of NPR-A, focusing on understanding the recent oil discoveries on state lands east of NPR-A and the potential for those productive geologic trends to extend westward into NPR-A.

NPR-A sale

BLM's latest lease sale of NPR-A acreage generated winning bids totaling $63.8 million on 60 tracts totaling 579,269 acres.

The agency offered close to 300 tracts totaling 3 million acres. It was the second sale in NPR-A. Per federal law, the state of Alaska will receive 50% of the proceeds.

BLM said it expects TotalFinaElf E&P USA Inc., a subsidiary of TotalFinaElf SA, to hold the six highest bids, accounting for about 83% of the money raised by the sale.

Notably absent from the sale was BP PLC, a company active in the last NPR-A lease sale in 1999. Anadarko Petroleum Corp., Phillips Petroleum Co., and BP later drilled exploration wells in 2001 and 2002, with encouraging results.

This time, eight companies participated in the sale, including Phillips and Anadarko. The two companies, already active in the reserve, submitted their bids jointly. BLM said it expects the companies will be awarded 34 tracts with winning bids of $9.6 million.

The 34 tracts cover more than 282,000 gross acres and are located primarily west of the companies' Moose's Tooth discovery, Anadarko noted after the sale.

"This additional acreage in the NPR-A will allow us to continue our exploration momentum westward across the petroleum reserve, to examine new ideas and explore new stratigraphic intervals," said John Seitz, Anadarko president and chief executive officer.

"Alaska is an important frontier exploration area. Anadarko is one of the largest acreage holders on the North Slope, and these new tracts further enhance our prospect inventory," Seitz said.

With this sale, Anadarko's leasehold in NPR-A will total 277,500 net acres. Across the North Slope of Alaska, Anadarko has access to 1.9 million net acres through current and pending leases or options, the company said.

Other companies with apparent winning bids include a unit of the Canadian company EnCana Corp., which got a total of five tracts with a combined total winning bid of $920,000.

Alaska investors Paul L. Craig and Pete Zamarello were the apparent high bidder on one tract, offering $83,491, beating out the independent Arctic Falcon Exploration LLC.

BLM study focus

BLM said the selection of the priority basin study areas was based on industry interest, resource potential ranking by USGS, Energy Information Administration reserves ranking, and the BLM and US Forest Service oil and gas needs analysis.

Over a quarter of Bush's energy policy recommendations specifically relate to one or more of BLM's energy, mineral, and planning-related responsibilities, according to BLM Director Kathleen Clarke.

"To systematically carry out the president's policy and goals, the BLM has identified more than 40 tasks to facilitate domestic production and transmission of both renewable and nonrenewable energy resources while ensuring environmental protection," she said.

Since enactment of the Energy Policy and Conservation Act Reauthorization (EPCA) of 2000, Interior has been working expeditiously to complete the study requirements of that law and comply with a congressional directive to inventory oil and gas resources and reserves on federal lands, Clarke said.

Interagency inventory

BLM, as lead agency of the effort, said it is working closely with USGS, USFS, the Department of Energy, and EIA to produce the inventory and to identify the extent and nature of any restrictions or impediments to development.

"It should be emphasized that, as the BLM works on reviewing the EPCA information and considers potential land-use planning modifications, we will continue to abide by the Federal Land Management and Policy Act's principles of multiple-use, sustained yield, and environmental protection. These are standards to which the BLM is completely committed. The BLM will only consider opportunities to increase access to oil and gas resources while still maintaining multiple-use values, including surface and subsurface resource values (such as aquifers and other minerals), and appropriate environmental protection," Clarke said.

Clarke's remarks were at a House Subcommittee on Resources hearing on how to best evaluate the oil and gas potential on federal lands. A recent controversial report by the Santa Monica, Calif.-based think tank RAND Corp. called for a new approach to the way the federal government assesses oil and gas potential. An interim report found, for example, that current oil and gas supply scenarios for the US Rocky Mountain region are "too narrow," because they focus mainly on availability of resources on federal lands (OGJ, Mar. 25, 2002, p. 33). The study, which was funded under an energy initiative by the Hewlett Foundation, also highlighted the deficiencies RAND cited in current oil and gas supply assessments and offered a new approach for measuring "viable" energy resources in certain areas of the Rocky Mountain region.

Green groups' view

Environmental groups have praised the RAND study, saying it reflects real-life conditions instead of theoretical estimates. "Much of the potentially restricted oil and gas resources would never be developed because they are inaccessible for other reasons," said Peter Morton, resource economist, ecology and economics research, for the Wil- derness Society.

"The oil and gas leasing stipulations that dictate where, how, and when exploratory drilling may be conducted in order to protect wildlife and the environment are not, in many cases, binding constraints on energy production," Morton said. "Economics, terrain, and technology may in fact play more important roles in determining the economically viable resource," he said.

Morton said his group strongly agrees with RAND's recommendations that assessments of oil and gas that is economically recoverable take into consideration not only reserves potential but also private lands access, accounting for stipulations waived, directional drilling, pipeline access, and multiseason drilling.

"As the RAND report noted, including wellhead cost, infrastructure costs, and environmental costs in the assessment of viable resource will likely have the greatest impact on the amount of oil and gas estimated to be economically viable. Accurately assessing these costs is the key, and these proposed methods will make an important contribution to the debate."

AAPG speaks out

Speaking on behalf of the American Association of Petroleum Geologists, Charles J. Mankin, director of the Oklahoma Geological Survey, and the Sarkey Energy Institute of the University of Oklahoma, said AAPG believes the US still has a large energy resource remaining to be tapped.

"We believe the techniques and scientific methods used by both the Minerals Management Service and USGS are sound and provide a good basis for discussion of a national energy policy," he said. Studies by the USGS and National Petroleum Council have concluded that the most prospective areas for major new discoveries, particularly natural gas, are on public lands in the Rocky Mountain sedimentary basins, in the Gulf of Mexico, including the eastern gulf, and on the Atlantic and Pacific Outer Continental Shelf. AAPG concurs with this assessment.

Mankin contends that RAND's white paper essentially argues for "proving" that a given area contains technically recoverable, economically profitable, and environmentally suitable resource before access issues can be decided. However, without access to the area in the first place, its potential cannot be tested or realized, Mankin said.

"RAND Corp.'s own statement of research principles describes that any research should be well-designed for the problem, that it should be based on sound information, that it should be balanced and independent, and should be relevant to a client's interest and needs. It also states that it should take into account the relevance of previous work.

"We believe that the clients, the citizens of the United States, deserve a sound energy policy that maximizes domestic production with utmost care for the environment. However, the clients' needs are ill-served by insisting that we have ample sources of energy while putting restrictions on its supply, that we use more natural gas while shutting areas from where the gas might come, by insisting that we use alternative energy sources while having no viable alternative source in the near future, and by insisting that oil and gas development by definition spoils the environment while the facts are otherwise."

RAND defends study

RAND officials stressed that their proposed approach is not meant to replace industry's detailed, site-specific economic evaluations or federal land managers' existing environmental assessment and permitting processes.

"Rather, it is meant to provide decision-makers with a more comprehensive assessment of bounding ranges of resource viability at the regional and subregional scale," said Debra Knopman, associate director of RAND's science and technology program. "We believe our proposed methodology would enhance current efforts by the BLM and other federal land managers to communicate more effectively and clearly the economics and environmental implications of their actions. We are simply arguing for more comprehensive information in the policy process."

Producer view

However, an independent who spoke at the hearing took issue with the RAND analysis. Ray Seegmiller, Chairman of Houston-based Cabot Oil & Gas Corp. and past chairman and director of the Domestic Petroleum Council, said that "statements to the effect that a large percentage of public lands are open to oil and natural gas leasing and development continually ignore the fact that only a portion of the most prospective areas may be available.

"Those who claim that we should not be concerned about access until we are sure that resource exploration and production will be economic will only stifle development. Likewise, those who claim that issues regarding capital infrastructure, such as development of pipe- line and gathering system capacity, should come before resolving access issues turn the decision-making process totally upside-down."

Powder River CBM

Producers roundly applauded the BLM draft plan downplaying the environmental impacts of CBM development expansion in the Powder River basin

"The BLM has issued a well-crafted, exhaustive analysis of the potential impacts of development of natural gas and oil resources in the Powder River basin," said Gary Davis, president of Redstone Resources Inc., Denver, and a member of the Independent Petroleum Association of Mountain States. "The BLM is applying appropriate mitigation measures to address those impacts."

The Powder River basin is a 4 million acre area in northeastern Wyoming and southeastern Montana. IPAMS said that the region could yield up to 40 tcf of gas if fully developed. Producers want to expand CBM development there but first must win necessary permits and approvals from the federal government. Within the Powder River basin there are already over 10,000 active CBM wells, and industry hopes to have about 51,000 wells drilled within the decade.

Producers defend the way existing wells have been drilled, saying the water from the fields is clean and suitable for irrigation. Water from fractured coal seams is usually discharged to the surface but is drinkable and can be used for crops, they say.

Environmentalists disagree

But according to the Wyoming Outdoor Council (WOC), an environmental group, deeper wells can create brackish water that could harm wildlife and limit crop irrigation. They maintain BLM is relying on outdated environmental data for its latest report on the basin.

WOC's arguments helped convince the Department of the Interior's Land Appeals Board on Apr. 26 to void three CBM leases in the basin owned by Marathon Oil Corp. Industry sources familiar with the case said BLM should have been more careful following the proscribed environmental review process before it approved the three leases; however, a bureaucratic snafu should not be an indictment for the entire CBM production process, they say.

BLM can appeal the lease decision within 60 days or ask the Interior secretary to intervene. Marathon may also challenge the decision in federal court.

Environmental groups warn that if Interior chooses to overturn the decision, the fate of thousands of other leases could be tied up in court as well.

WOC said BLM is making the same mistakes with thousands of other CBM leases in Montana and several basins in Wyoming, Colorado, Utah, and New Mexico.

"The potential ramifications of this decision are enormous," stated Tom Darin, WOC director of public lands. "BLM has known for years that leasing for CBM was illegal, (and) they admitted this to Congress in early 2000 and received an injunction from judges within Interior later that year.

"Yet, the Bush administration continued to lease for CBM at a frantic pace, while admitting once again in 2001 that its antiquated land use plans needed to be revised to account for CBM leasing and development."

Producers, however, say CBM development can and has been done in an environmentally responsible way. They also say that CBM potentially represents four times the amount of recoverable energy now locked away in the politically sensitive ANWR coastal plain.

"If not in the Rockies, then where?" noted one producer with ties to the region. "The environmental record is sound, and it's unfair that three problematic leases could stand in the way of US production."

But that's the message that-for now at least-the public may not be hearing, according to various surveys of public opinion that have been paid for by industry groups.

"Right now we are losing the public relations battle on this issue," noted one Washington, DC, oil and gas lobbyist who has covered the issue for years.

Public comments

BLM is expected to issue a final report on expanding Power River basin development this November. Public comments on a draft environmental impact statement were due May 15.

BLM's earlier draft ran afoul of environmental groups and also caused some internal debate within the Bush administration. The Environmental Protection Agency's Denver office in March said it has serious reservations about expanding production in the area because of groundwater concerns. EPA officials said the discharge of enormous quantities of groundwater from coal seams would make surface water unacceptable for irrigation uses.

EPA is now in discussions with BLM about possible changes to the environmental analysis that could require producers to reinject water back into the well or treat wastewater from the wells before discharging it into streams.

Destin Dome setback

Meanwhile, proponents of federal lands access were dealt a setback when the White House announced at the end of May that the government would buy back most of the offshore oil and natural gas development rights in the eastern Gulf of Mexico's Destin Dome Unit, as well as the rights to future oil and gas development in a portion of the Florida Everglades.

The agreement "ellipseresponds to state and local requests to prohibit oil and gas drilling off Florida's Gulf Coast," a White House statement said.

The US departments of Justice and Interior will spend $115 million to buy back seven long-disputed oil and gas leases in the Destin Dome area about 25 miles south of Pensacola, Fla. Three companies who held those leases-ChevronTexaco Corp., Murphy Oil Co., and Conoco Inc.-agreed to relinquish the leases and will drop a pending lawsuit filed in July 2000.

"We believe the safe development of America's oil and gas resources is vital to a sound national energy strategy," said a ChevronTexaco spokesman. "The development of the Destin Dome Resource could have been accomplished with the utmost sensitivity to the environment while providing American consumers with a large and stable supply of clean natural gas.

"While we are very disappointed that we will not be able to develop Destin Dome resource, this settlement addresses concerns of parties involved and reimburses us for the investment we have made to date."

Environmental groups, meanwhile, praised President Bush's action: "This agreement is a huge step forward in protecting one of America's most unique and special wild places," said Don Barry, executive vice-president of the Wilderness Society. "Sec. Norton and the Bush administration should be commended for achieving something that other administrations tried but were unable to bring to fruition."

DOE estimates that Destin Dome field may have potential natural gas reserves of 2.6 tcf. Chevron's share of the settlement is $46 million, to compensate the company for a series of lease purchases it made during 1984-89.

In February 1998, Florida objected to a development and production plan submitted by the lessees to the US government, saying that the proposal would not be consistent with the state's Coastal Zone Management Program. The lessees appealed to the US Secretary of Commerce, asking that Florida's objections be overruled. That appeal was still pending when in July 2000 the lessees sued the US to recover the cost of the leases, taking into account "improper delays" and other regulatory actions.

Chevron officials said the settlement means the company will drop its lawsuit and related regulatory appeals.

Two other leases, held by Murphy, will be suspended until at least 2012. But Florida and the federal government will each have the ability to object to future development, the White House said.

Two other Destin leases, held by ExxonMobil Corp. and Samedan Oil Corp. (a unit of Houston-based Noble Energy Inc.), were not part of the litigation. Under the agreement, Chevron, Conoco, and Murphy agreed to seek to compensate ExxonMobil and Samedan in exchange for relinquishing the last 2 leases.

Everglades deal

A related agreement that Bush announced concerns the Everglades ecosystem in Florida. Big Cypress National Preserve (consisting of 729,000 acres next to the Everglades National Park), Florida Panther National Wildlife Refuge (26,400 acres in Collier County) and Ten Thousand Islands National Wildlife Refuge (35,000 acres in Collier County) were established partially on land donated by the Collier family. However, the Collier family retained its rights to oil and gas exploration and currently owns about 72% of the oil and gas rights in those areas.

Under the White House agreement, Interior will buy out the Colliers' substantial oil and gas rights in Big Cypress National Preserve, Florida Panther NWR, and Ten Thousand Islands NWR.

Once the Colliers' rights are acquired and retired, further development within these areas essentially will be precluded. The Colliers will receive $120 million for the leases (either in cash or in credits that could be used toward other federal oil and gas leases), subject to congressional approval.

No comparisons

Bush's action was reminiscent of a decision he made last fall to dramatically pare back Lease Sale 181 in the eastern Gulf of Mexico. At that time his administration also cited concerns by Florida, a state whose Republican Gov. Jeb Bush, is running for reelection and who also is the president's brother.

Mindful of those criticisms, Interior said that its decision to stop development in Florida and encourage production in Alaska was not inconsistent with the White House's energy policy to encourage domestic production.

"When it comes to energy development on federal lands, each case must be evaluated individually in cooperation with the people who live in the area," said Sec. Norton. "In this case, the amount of oil available was relatively small compared to the nation's overall energy needs, the impact of development could be significant, and the government and people of Florida supported this action."

Interior said the three Everglades areas may hold 40 million bbl of oil, about equal to 2 days of US oil consumption. "By comparison, the 10.6 billion bbl available in the 1002 area of ANWR would provide enough oil to run Florida every day for 30 years," Norton said.