Obama's Offshore Drilling Plan: Conoco, Shell Look North to Alaska and Smile

Last Updated Apr 1, 2010 5:31 PM EDT

President Obama's offshore drilling plan was met this week with just about every reaction except for unadulterated happiness. But wait, there are a couple winners here -- namely ConocoPhillips (COP) and Royal Dutch Shell (RDS), two oil companies that have been trying to expand in Alaska for several years.

Here's the quick lowdown: Obama announced Wednesday a plan to open up the Atlantic coast, parts of the eastern Gulf of Mexico and areas in Alaska to oil and natural gas drilling. Some areas in turn have been closed off to drilling, including the Pacific coast from Mexico to Canada, the Atlantic coast north of Delaware and Bristol Bay in Alaska.

Both Conoco and Shell had secured drilling rights in the Chukchi Sea back in 2008, but numerous court challenges scuttled their plans. As a result the two companies have watched a lot of money drift away. Conoco spent more than $500 million for its Chukchi leases. And Shell paid upwards of $2.1 billion to acquire 275 blocks in Chukchi that same year, but has yet to turn a single drill bit because of legal challenges. And last year, Shell dropped its three-year plan to explore for oil in the Beaufort Sea because of challenges from environmental groups. And earlier this year, Conoco announced it would direct its spending in Alaska toward other projects and then sold a 25 percent interest in its Chukchi leases to Statoil, which already holds 16 leases there.

In short, it wasn't looking too good for Conoco or Shell. But now, oil executives believe Obama's offshore plan clears the legal path for development in the Chukchi and Beaufort seas. That's not to say the three pending lawsuits against Shell's plans to drill in Alaska will simply disappear. But the endorsement from Obama may help speed up the process and ultimately lead to drilling.

Under the new offshore plan, the Interior Department has canceled a set of leases in the Chukchi and Beaufort seas. The Cook Inlet and the Chukchi and Beaufort seas would be open to drilling once environmental impact studies have been conducted there. That may seem like a non-starter since environmental studies can take awhile, and more bad news for companies like Shell that have been trying, unsuccessfully, to drill test wells there for several years. But Shell and Conoco see the bigger picture. Shell's spokesman Marvin Odum noted in a Reuters article the lease cancellation wasn't a big deal and that the company has plenty of work to do for a couple of years to execute the program anyway.

Here's why oil companies are pleased and itching to get out there. The Interior Department's Minerals Management Service estimates undiscovered, economically recoverable resources in the Beaufort Sea are up to 7 billion barrels of oil and 20 trillion cubic feet of natural gas. Chukchi is estimated to have as much as 12 billion barrels of oil and 54 trillion cubic feet of natural gas.

Photo of northern lights in Alaska from Flickr user Trodel, CC 2.0 Map of strategy for the Outer Continental Shelf of Alaska from the Interior Department See additional BNET Energy coverage of offshore drilling and Alaska oil:
  • Kirsten Korosec

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