Regulatory uncertainty forces ConocoPhillips

to put 2014 Chukchi Sea exploration plans on hold

By Carl Portman

ConocoPhillips has put its 2014 Chukchi Sea exploration drilling plans on hold, given the uncertainties of evolving federal regulatory requirements and operational permitting standards.

“While we are confident in our own expertise and ability to safely conduct offshore Arctic operations, we believe that more time is needed to ensure that all regulatory stakeholders are aligned,” said Trond-Erik Johansen, President, ConocoPhillips Alaska, Inc.

Johansen noted that a recent Department of the Interior report called on industry and government to work together to develop an Arctic-specific model for offshore oil and gas exploration in Alaska. This model would focus on standards in the areas of drilling, maritime safety and emergency response equipment and systems.

“We welcome the opportunity to work with the federal government and other leaseholders to further define and clarify the requirements for drilling offshore Alaska,” Johansen said. “Once those requirements are understood, we will re-evaluate our Chukchi Sea drilling plans. We believe this is a reasonable and responsible approach given the huge investments required to operate offshore in the Arctic.”

In 2008, ConocoPhillips was awarded 98 exploration lease tracts in the Chukchi Sea Outer Continental Shelf. The company has more than 50 years of Arctic experience both onshore and offshore

ConocoPhillips is Alaska’s largest oil producer, operating the Kuparuk and Alpine fields and maintaining a working interest in the Prudhoe Bay unit and the Trans-Alaska Pipeline System.

“I am disappointed that the federal government’s unstable regulatory environment has led Conoco to make this business decision,” Governor Sean Parnell said. “The federal government’s inability to provide regulatory certainty is once again reducing jobs and economic opportunities for Alaskans.”

Senator Lisa Murkowski called the decision disappointing but was not surprised by the announcement. “Companies can’t be expected to invest billions of dollars without some assurances that federal regulators are not going to change the rules on them almost continuously,” she said. “The administration has created an unacceptable level of uncertainty when it comes to the rules for offshore exploration that must be fixed if we’re going to end our dependence on oil from the Middle East.”

Senator Mark Begich was also disappointed, pointing out he has spent four years working with the Obama administration and industry to promote responsible development of Alaska’s Chukchi and Beaufort seas. “I will continue to encourage the Department of Interior and industry to work together, iron out their differences and get moving on exploring and developing these resources that are key to our economic and national security,” Begich said.

Shell paused its own Arctic exploration program for this summer and Statoil delayed its exploration plans until at least 2015.

The American Petroleum Institute’s Jack Gerard said the ConocoPhillips’ decision demonstrates the impact regulatory uncertainty has on the industry. “They have to look at the political risk,” Gerard said. “Political risk is high when there is regulatory uncertainty.”

The industry spent billions of dollars to acquire leases in a 2008 Chukchi Sea lease sale. Shell itself spent over $2 billion for its leases and has now spent approximately $5 billion on its Arctic efforts.

The Alaska Arctic is considered the richest offshore energy province in America with estimated reserves of 27 billion barrels of oil. Alaska has produced more than 17 billion barrels since statehood.

Return to newsletter headlines