No Bridge to Nowhere: Feds Derail Conoco's Alaskan Oil Ambitions

(MoneyWatch)  If ConocoPhillips' recently scuttled plans to develop Alaska's North Slope teaches us anything it's that sometimes the biggest hurdle to domestic oil production is about access, not drilling. The Army Corps of Engineers' recently denied a permit request by Conoco and Anadarko Petroleum to drill in the National Petroleum Reserve in Alaska. The denial is technically over the building of a bridge, not the drilling itself. Although now that the permit has been denied, Conoco has stalled its planned $500 million new oil project there.

The two oil companies wanted permission to build a bridge over the Colville River to explore the first oil and gas lease in the reserve. The Corps said the proposal did not comply with Clean Water Act rules and said other methods such as directional drilling would be better at avoiding environmental damage. [To be clear, the NPR-A is not the Alaska National Wildlife Refuge. NPR-A is a 23 million-acre area on Alaska's North Slope that was originally set aside as an emergency oil supply for the U.S. Navy.] This means applying for another permit and another wait. Note: There also is a 60-day appeals process, which Conoco is planning to pursue.

The long-awaited decision "outraged" some Alaska politicians, who believe the move will harm an industry that has been a financial boon to the state, the Anchorage Daily News reported. It would appear the Corps has not ended Conoco's plans to drill there because it offers up the directional drilling method. But Republican Alaska Sen. Lisa Murkowski said it's not so simple and accused the Obama administration of knowingly placing an insurmountable hurdle in front of oil companies who want to drill in the NPR-A (National Petroleum Reserve-Alaska.)

"Directional drilling can work in ANWR because the oil is concentrated in the northwest corner," Murkowski said in a press release. "That is an entirely different situation than the vast and widely distributed deposits in the NPR-A, however, the administration knows it."

In short, oil producers will not be able to access oil in NPR-A unless they can get across the Colville river, Murkowski says. And they can't get across the river because the Corps denied the permit request to build a bridge over it.

The big fear in Alaska is that oil companies will pull out of the area in search of more fruitful, and less government-controlled pastures. Conoco, which has had a significant presence in Alaska for years, will not drill any new onshore wells in the state this year. And last month, Conoco sold working interest in 50 leases in Chukchi Sea offshore Alaska to Statoil. Conoco then bought stakes from Statoil in the ultradeep waters of the Gulf of Mexico, the WSJ reported in January.

About 30 percent of Conoco's profits -- $1.54 billion -- came from Alaska last year. Which means the company is not going to pull out of the state completely. Still, there will be millions in lost income to the state for every development that is unrealized.