Willow oil development could pave way for more drilling in Alaska reserve, despite Biden’s new limits

The Biden administration announced a host of new environmental protections last week to limit future drilling in the National Petroleum Reserve-Alaska, just before it approved development of the massive Willow oil field.

But Willow owner ConocoPhillips and other oil companies still have lots of room to grow in the Indiana-sized reserve, according to industry observers.

To what extent the Biden administration will be able to limit oil development in the reserve is uncertain. The Interior Department has not yet announced all the restrictions it will pursue, so the impacts to future leasing and drilling aren’t known, experts say. And future forces, such as expectations for falling oil demand in the years to come, might also play a role in whether companies will take the costly and lengthy steps to pursue drilling in the reserve, they say.

[ConocoPhillips Alaska to pause some work at Willow oil field amid lawsuits from conservation groups]

The Interior Department has pointed to ConocoPhillips’ existing leases at Willow, and the legal rights that gives the oil company, as justification for approving the project. Interior Secretary Deb Haaland said in a video March 13, the day the Willow decision was announced, that ConocoPhillips’ leases — approved by previous administrations — “limited decision space” for the administration.

ConocoPhillips and a handful of other oil companies hold more than 200 additional leases beyond Willow, covering 10% of the reserve, or 2.3 million acres. So far, only ConocoPhillips has launched production at a few relatively small fields in the reserve’s northeastern corner where Willow is located.

But the industry has its eye on prospects farther west and south into the reserve where they hold leases.

A ConocoPhillips executive told investors in 2021 that Willow could be the “next great Alaska hub” for oil production, while its infrastructure could support additional large “prospects and leads” hosting potentially 3 billion barrels of oil equivalent, referring to a unit of energy that could be oil or natural gas. Willow is said to contain 600 million barrels of estimated oil production.

So far, industry observers say there’s still potential for new projects in the reserve, home to what a federal geologist has said could be many pools of oil outside of Willow.

Oil explorer Bill Armstrong, credited with Alaska oil discoveries that set the stage for Willow, said at this point he doesn’t see the environmental protections affecting his exploration plans in the reserve.

His company, Colorado-based North Slope Energy, has filed plans to explore for oil southwest of Willow. Armstrong also doesn’t see impacts to roughly 1 million acres of leases his company holds in partnership with Oil Search Alaska, part of Australia-based Santos, in the reserve.

Armstrong said in a text that the Biden administration decision was “solid.”

[Interior Secretary Haaland criticized over Biden administration’s ‘difficult’ choice on Willow project]

“A fair balance. I haven’t read the fine print of the (decision) but directionally everyone gets a win,” he said March 13.

‘A domino effect’

Conservation groups have said they support the administration’s beefed-up steps for environmental protections in the reserve. But they add that those don’t outweigh climate impacts from the oil project, one of the largest in Alaska in decades.

In an apparent nod to those climate concerns, Interior Department scaled back ConocoPhillips’ drilling plans at Willow to three drilling sites, down from as many as five sites in an earlier proposal, though conservation groups say the oil company can still get at more than 90% of the oil it originally sought. ConocoPhillips also agreed to relinquish leases to reduce Willow’s acreage by one-third, Interior said.

President Joe Biden also took the U.S. Arctic Ocean off the table for oil and gas leasing — removing 3 million acres in the Beaufort Sea just north of Willow.

Still unknown is just how the administration intends to tighten restrictions in five ecologically important “special areas,” something that’s planned with a rulemaking process to come. The special areas cover about 55% of the 23-million-acre reserve, including the Teshekpuk Lake area that’s critical for wildlife and Alaska Native hunters.

The scaled-back Willow project, if developed, is expected to lead to additional development in the reserve, both industry observers and conservation groups say.

Assuming Willow survives the court challenge, it can be a base supporting future development in the remote region, said Mark Myers, former head of the Alaska Oil and Gas division and the U.S. Geological Survey.

New development in Alaska’s oil fields has historically provided a jumping-off point for the creation of future fields, he said.

“It’s sort of a domino effect,” he said.

Complaints filed by conservation groups to stop the project argue that discoveries in the reserve outside Willow will lead to expanded development in the NPR-A.

Willow is the “launching pad for a greater industrialization of the Western Arctic,” said Ben Tettlebaum, director and senior staff attorney at The Wilderness Society, a group suing to stop Willow.

“The Beaufort Sea action (in the Arctic Ocean) and also prospective measures to provide greater protection to special areas will not alone stop that continued expansion of oil and gas development on the reserve,” he said.

Senators say existing lease rights will be protected

ConocoPhillips, which holds close to 1 million acres of leases in the reserve outside Willow, has said in annual activity updates that it has made multiple discoveries and is looking for additional opportunities in the reserve, though it has recorded some dry holes.

The company said last year that the oil-containing geological formation at Willow is “believed to extend farther southwestward, facilitating future exploration in the NPR-A, where ConocoPhillips is the largest leaseholder.”

Rebecca Boys, a ConocoPhillips spokesperson, said the company plans to carefully review any proposal from the Biden administration for new rules in the reserve.

U.S. Sens. Lisa Murkowski and Dan Sullivan, meeting with reporters, said they have been assured by Biden administration officials that existing leases in the reserve will not be impacted by future restrictions.

“Those can’t be touched,” Sullivan said. “That would be a taking. And they assured me that those valid leases in their next move on Alaska would not be touched.”

Murkowski said it’s uncertain how restrictive the additional protections will be in the five special areas, which include the Teshekpuk Lake and Colville River areas, near development activities, plus three other areas far from current development.

Murkowski said she wouldn’t be surprised to see new rules that are “more restrictive rather than less given this administration.”

One question is whether the rules could halt construction of pipelines or roads in the special areas, she said. That could potentially create barriers to development.

“I think we are all going to be waiting to see this when it comes out, they say, in the next month or so,” Murkowski said.

Kara Moriarty, head of the Alaska Oil and Gas Association, said it’s unknown how oil and gas prospects in the reserve might be impacted until the Biden administration lays out its plans.

“It could mean you can’t actually do anything with the leases,” she said. “We need to see maps. We need to see the rulemaking in writing. We need to see what they are actually proposing.”

Blocked pipelines could stop remote projects

Myers said that a rule halting pipelines in the Teshekpuk Lake area could stop potential development in state coastal waters to the north.

An oil company in 2016 said its discovery in Smith Bay in that area was one the largest oil discoveries ever made in Alaska.

But the project is so remote it’s questionable if, or when, it would be developed, Myers said.

“There’s no current plans to develop there, so I’m not sure what harm it does” to block the prospect, Myers said.

[Willow oil project expected to cost Alaska treasury more than it brings in during early years]

Paul Bledsoe, a former aide who worked on climate issues in the Clinton administration, said while the details for future restrictions are unknown, the current administration is signaling it wants to reduce the availability of leases.

Future drilling in the reserve may also be impacted by other issues, he said, such as the willingness of companies to invest in costly and complex Arctic oil projects, which could face more challenges if demand for oil falls as anticipated, he said.

“And there are few projects that will be anywhere near Willow in terms of its size,” said Bledsoe, with the Progressive Policy Institute, a D.C.-based think tank.

Interest in permanent protections

Athan Manuel, director of the Sierra Club’s land protection program, said the group wants permanent protection in the special areas that can’t easily be undone by a future president, perhaps something like a wildlife refuge.

Manuel said the group, a plaintiff in one of the lawsuits to stop Willow, is happy that the Biden administration took the Beaufort Sea off the table for drilling, though that’s overshadowed by the negative impacts of approving Willow, he said.

Manuel said there appears to be no industry interest in the federal waters of the Beaufort Sea.

“Closing the offshore to drilling is like closing my bathtub,” said Larry Persily, former Alaska Department of Revenue deputy commissioner, who writes a newsletter tracking oil markets. “It wasn’t going to be developed anyhow.”

Persily said Biden’s announcement was less harmful than it could have been to Alaska’s oil industry.

“I don’t see it having immediate or short-term impacts in Alaska,” he said. “The longer-term question is whether companies are interested in any new leases up there,” in part given the hassles ConocoPhillips has already faced.

“If you close areas no one wanted, it’s like a tree falling in the forest that no one hears,” he said.

Andy Mack, chief executive at Kuukpik, the Alaska Native corporation for the village of Nuiqsut near Willow, said there’s a path for significant oil development to the west and south of Willow.

Kuukpik, which provides oil field support services, also supports the administration’s proposed rulemaking process and hopes it leads to permanent protections for the Teshekpuk Lake area, something the corporation has long sought for the area’s importance to caribou and hunting, he said.

While the lake must be protected, the corporation is open to considering allowances for a community road or even a pipeline in the area, if there is a vital need for such infrastructure.

“We support the project, but we also support the mitigation,” Mack said. “This decision calls out the economic benefits of NPR-A as a petroleum reserve but it also calls out the special environmental benefits of the reserve and Teshekpuk Lake.”

Daily News reporter Riley Rogerson contributed from Washington, D.C.