Dunleavy administration sues feds over ANWR lease sale scheduled for Friday

The state of Alaska on Monday sued the Biden administration over restrictions set on an upcoming oil and gas lease sale in the Arctic National Wildlife Refuge.

The state argues in the complaint that the restrictions were designed to severely limit oil exploration and drilling in the refuge, a 19 million-acre area where the fight over oil and gas development has played out for decades.

The lawsuit, filed in U.S. District Court in Alaska, argues that the restrictions violate a 2017 law that for the first time required lease sales in the coastal plain of the refuge and called for development of an oil and gas program there.

A spokesperson with the Interior Department said the agency had no comment on the complaint.

The filing comes as the federal government prepares to hold its second lease sale in the refuge Friday, opening potential bids from oil and gas companies seeking to lease tracts in the refuge.

It’s uncertain whether there will be much bidding from oil companies or other parties.

The first lease sale in the refuge fizzled under the first Trump administration in 2021. Major oil companies submitted no bids. A state agency, the Alaska Industrial Development and Export Authority, was the dominant bidder with seven bids that were later canceled after the Biden administration said the lease sale violated federal law. The state agency has set aside $20 million to potentially bid again.

People familiar with the Alaska oil industry said this week that they expect to see only modest bidding by smaller companies or the state agency, even with pro-development President-elect Donald Trump set to return to office amid promises to “drill, baby, drill.”

The region is isolated and far from other infrastructure, so exploration and drilling there will be costly with no guarantee of success, they say. It’s also politically sensitive, and the next administration after Trump could once again seek to limit development there, they say.

Still, even light bidding under the right circumstances could lead to modern seismic exploration that helps update the refuge’s oil potential, a former head of the U.S. Geological Survey said.

Estimates hold the refuge could hold billions of barrels of oil scattered across several pools, though that’s based on old seismic data from the 1980s.

Drilling in the refuge has been subject to fierce national debates for decades, with conservation groups and some Alaska tribal organizations arguing that it will put polar bears, caribou and other wildlife at risk, and contribute to climate change.

Many Alaskans, politicians and other Alaska Native organizations have supported drilling in the refuge, arguing it will help sustain the state’s economy and North Slope communities.

Alaska Gov. Mike Dunleavy said in a statement Tuesday that the lawsuit is important in part to help provide a source of future money for the Alaska Permanent Fund.

“We have already heard comments from the incoming president that his administration will thankfully take a different tack and open up those areas that are meant to be developed,” Dunleavy said. “But unfortunately, we can’t wait for that — we have to challenge this unlawful action now.”

‘We’ll find out’

The state argues in its lawsuit that the terms of the upcoming lease sale will impede development.

The Interior Department in December determined that the sale would be limited to the minimum amount allowed by the 2017 law, at 400,000 acres, or 25% of the coastal plain.

The construction of surface oil facilities is prohibited on well over half the available acres, aside from additional limitations on other acreage, the state says in the complaint.

The terms “essentially rendered the lands to be leased undevelopable by severely limiting use and occupancy of their surface,” the lawsuit argues.

“The United States’ conduct both thwarted Congress’ express purpose of having actual oil and gas development occur within the Coastal Plain and also violated numerous specific requirements of the 2017 statutory mandate,” the lawsuit says.

The administration also violated the National Environmental Policy Act by not allowing public comment as required on the final leasing terms, the state argues.

The restrictions will limit development, one oil industry insider suggested.

Bill Armstrong, the risk-taking geologist who discovered the giant Pikka field now being developed on the North Slope, declined to comment on whether he will bid in the lease sale.

But he said he thinks there will likely be no competition during the sale in part because the Biden administration has structured it to ensure there is no bidding.

“It really is a ‘non-sale’ sale,” Armstrong said in a text message Tuesday. “The sale results will in no way reflect the industry’s interest in, or the potential of ANWR.”

Two large oil companies in Alaska, Hilcorp and ConocoPhillips, declined to comment on whether they will bid.

Kara Moriarty, president of the Alaska Oil and Gas Association trade group, said oil companies don’t disclose whether they’ll bid beforehand.

So it’s difficult to know how the sale will turn out, she said.

The limited number of acres proposed by the Biden administration is unfortunate, she said.

“If the lease sale is not successful, it doesn’t mean it won’t be in the future,” she said. “It just means under these scenarios, people weren’t interested.”

“Or they might be. We’ll find out, just like everyone else, later this week,” she said.

‘Modest bidding’

Industry experts said the sale could generate some light bidding by smaller outfits, or speculators that acquire leases to sell for a profit in the future.

Larry Persily, an oil and gas analyst and former Alaska deputy commissioner of revenue, said viable oil companies will likely not bid though AIDEA will surely try again, potentially along with speculators, he said.

The lack of broader interest stems from the economic challenges and risk of exploration in the remote Arctic, not the policies of the Biden administration, he said.

“You need really deep pockets and a lot of patience and a lot of tolerance for risk, and it just doesn’t seem like anyone in the industry’s really been interested in it,” he said.

Brad Keithley, a retired Alaska oil and gas attorney, said the restrictions set by the Biden administration could reduce bidding in the lease sale, even with the second Trump term set to begin Jan. 20.

That’s because companies may believe that the Trump administration will soon hold a third lease sale under the law, with the Biden-era limits removed.

They’ll wait for that less restrictive sale, he said.

He said he doesn’t expect major oil companies, or even midsize companies, to bid for leases Friday.

Producing oil from the refuge, if a sufficient discovery is made, would take more than a decade in part because of environmental laws and the refuge’s remoteness, said Mark Myers, a former director of the U.S. Geological Survey and an energy and natural resources consultant.

Major companies won’t be interested in bidding, given the chance that presidential politics will change after Trump leaves office in four years, putting costly plans at risk.

“I think it’s likely we’ll see some modest bidding,” he said.

The bidders will likely be smaller companies or the Alaska Industrial Development and Export Authority, he said.

He said those bids are unlikely to lead to exploratory drilling in the next four years, given the costs and equipment involved in that effort.

But a modern seismic survey, with three-dimensional technology to better assess the refuge’s oil potential, could potentially take place in the next four years under Trump, he said.

“(The survey) could be shot under the right conditions,” he said, including that the data can be sold to recoup costs.