Norway's Statoil has decided to quit its Alaskan exploration efforts in the Chukchi Sea, following a recent move by Shell to drop its search for oil in the US Arctic after a key drilling target came back dry.
Citing recent exploration results in neighboring leases, Statoil said its leases in the Chukchi Sea are "no longer considered competitive" within its global upstream portfolio. The company said it will also shut its office in Anchorage, Alaska.
The move will see Statoil exit 16 operated leases, and its stake in 50 leases operated by ConocoPhillips, all in the Chukchi Sea. The leases were awarded in a 2008 lease sale in Alaska and expire in 2020.
"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 executive vice president for exploration, said in a statement.
Shell in September announced plans to drop its Arctic exploration after a well testing its Burger J prospect in the Chukchi Sea was a disappointment. The company will, however, retain ownership of its leases.
It had been chasing Arctic oil for years, having spent some $7 billion, or 20% of its global exploration budget, on Arctic exploration since winning licenses there in 2005. Legal and environmental challenges as well as logistical roadblocks caused the costs of the long-delayed exploration drive to escalate.
In the wake of Shell's move, market watchers had predicted Statoil and ConocoPhillips could be next to exit the region as the costs and risks of exploring in the Arctic are seen to outweigh the expected offshore resources.
Houston-based Statoil spokesman Peter Symons said the company is in discussions with ConocoPhillips on the disposal of its stake in the 50 jointly-owned leases, in which Statoil holds varying percentages.
Anchorage-based ConocoPhillips spokeswoman Natalie Lowman said it is possible that if Statoil surrenders its stake in the leases that portion of ownership would revert to ConocoPhillips, but that the matter is not clear.
As for ConocoPhillips' own position, "our plans for the Chukchi Sea were on hold prior to Statoil's announcement and they remain on hold," Lowman said.
Statoil's Alaska office was closed Monday and the two Statoil employees remaining there were let go, said Ella Eide, who until Monday was Statoil's spokeswoman in Alaska.
"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," Eide said Tuesday. Statoil has been gradually winding down its Alaska presence, and its workforce in the state, for some time.
Statoil, by far the biggest operator on the Norwegian Continental Shelf, has canceled or deferred a number of major projects this year and flagged the sale of non-core assets to help shore up its balance sheet in the oil price downturn.
"Statoil is committed to optimizing its portfolio, strengthening financial performance, and positioning for long-term value," the company said.
In December, the Obama administration canceled two potential Arctic lease sales in the Beaufort and Chukchi seas, citing low oil prices and limited industry interest.
The pending Arctic lease sales, Chukchi Sea Lease Sale 237 and Beaufort Sea Lease Sale 242, were tentatively scheduled for 2016 and the first half of 2017, respectively.
At the same time, the US Department of the Interior's Bureau of Safety and Environmental Enforcement also denied requests from Shell and Statoil to retain their leases in the Beaufort and Chukchi seas.
"Among other things, the companies did not demonstrate a reasonable schedule of work for exploration and development under the leases, a regulatory requirement necessary for BSEE to grant a suspension," Interior said in a statement.
Susan Murray, a deputy vice president for the Pacific with environmental non-profit Oceana, said Statoil's announcement Tuesday signals "the end of the road" for its leases in the Chukchi.
While the Obama administration may keep Beaufort and Chukchi leases in its next five-year drilling plan, near-term development offshore Alaska will not take place, she said.
"It's not all over, but for the foreseeable future ... nothing's happening," Murray said Tuesday.
The Obama administration's five-year plan, which Interior unveiled in January, calls for 14 potential lease sales in eight of the 26 possible offshore planning areas from 2017 to 2022, but just three sales in federal waters offshore Alaska.
In September, Interior Secretary Sally Jewell said that low oil and gas prices have lessened pressure from producers for the Obama administration to expand the plays it plans to offer in its five-year plan for offshore leasing.
On Tuesday, Senator Lisa Murkowski, an Alaska Republican and the chairman of the Senate Energy and Natural Resources Committee, blamed Obama administration regulations for Statoil's decision to leave the Arctic.
"Low oil prices may have contributed to Statoil's decision, but the real project killer was this administration's refusal to grant lease extensions; its imposition of a complicated, drawn-out, and ever-changing regulatory process; and its cancellation of future lease sales that have stifled energy production in Alaska," Murkowski said in a statement.
