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Ardor for ANWR fortifies opposing camps.

Agreeing only that the Arctic National Wildlife Refuge's Coastal Plain is unique valuable, conservationists and those who favor opening the area to oil exploration are divided on its best use.

Congress again is debating whether to open the Coastal Plain of the Arctic National Wildlife Refuge to oil exploration and development or to enshrine it forever as an unscathed wilderness area. Perhaps the most sought after chunk of real estate in the country, ANWR has emerged inarguably as the nation's crown jewel for both the oil and environmental-minded communities of America.

"ANWR is truly everyone's crown jewel, not just the crown jewel of the circumpolar Arctic from a greenie point of view; it's also a crown jewel of the whole petroleum industry in the circumpolar Arctic," explains Becky Gay, executive director of the Alaska Resource Development Council.

With the supergiant Prudhoe Bay oil field on the decline and the nation becoming increasingly dependent on foreign imports, pro-industry forces, as well as President George Bush, still maintain the Coastal Plain represents the best hope to replenish domestic oil supplies. After years of debate, however, political observers say there is almost nothing new to be said on the ANWR issue.

Says John Roots, Arco Alaska's vice president of governmental affairs, "The parties are the same, and the issue hasn't changed. About the only difference I see at this point is that the legislation will be developed in a broader context. It will be more global in scope, in that it will contain a focus on national energy priorities and needs, as opposed to just opening ANWR."

Adds Tom Cook, Chevron's Alaska exploration representative, "It has all of the geological ingredients that we see characterizing other areas, notably Prudhoe Bay and areas to the east. You've got the right sequence of rocks, you've got large structures, you've got source rocks, and you know petroleum has been generated (through surface seeps)."

Touting their environmental record at Prudhoe Bay and other North Slope fields, oil companies say new technologies help to guarantee the Coastal Plain would be developed in a responsible manner, taking up only 8,000 to 12,000 acres - roughly an area the size of Washington D.C.'s Dulles International Airport.

"You can eat off the floors in our facilities," says Roots, "and that's the way we're going to develop ANWR. Whether it gets open in two years or five years or whatever, that's the way we're going to develop ANWR. And we will do it with a lot of consideration toward minimizing our impact."

But the nation's environmental groups continue to question industry's track record in the Arctic. They say exploration and development on the Coastal Plain will destroy wildlife habitat and forever alter its unique landscape. They say the United States needs alternatives to fossil fuels and that Alaska must move away from its oil-dependent economy if it is to survive after the oil is gone.

Says Karen Jettmar, assistant regional director of the Wilderness Society, "I don't believe the technology we have today is good enough to protect that area. And I think the American people deserve more than just a short-term solution to our energy needs. We don't deserve to go in there as a nation, because we're not doing anything to conserve energy. We are just like a gluttonous kid."

While key issues addressing the opening of ANWR remain the same, Congress has shifted the focal point. One important aspect of the debate now centers on just what percentage of the ANWR leasing and production royalties Alaska and the federal government ought to receive.

Alaska's political leaders feel Congress should honor the Alaska Statehood Act, which entitles the state to 90 percent of royalty proceeds from federal land. To their dismay, however, U.S. Sen. J. Bennett Johnston (D-La.) introduced a bill calling for a 50-50 split. At one time, President Bush said the federal government was entitled to all of the royalties, but later he backed off his demand.

Royalty Brawl. There's no doubt the royalty issue is a sticky point for many Alaskans. If dwindling North Slope oil reserves cannot be replaced or alternative financial sources cannot be found, state government income will be reduced by half at the turn of the century. Depending on the amount of commercial oil beneath the Coastal Plain, it's been estimated the state could receive up to $10 billion in bonuses and royalties. The first two lease sales alone could generate about $3.1 billion in total proceeds.

Gov. Walter Hickel has said he may be willing to trade some of Alaska's royalty share for federal lands in the state. Others have suggested the state could simply increase its royalty rate to offset whatever Congress might take away.

Alaska's U.S. Sen. Frank Murkowski warns that too many Alaskans are "trying to divide up the spoils" when they should be concentrating on "the battle ahead of us," most notably the considerable political efforts by environmentalists to keep the 1.5-million-acre Coastal Plain closed to exploration and development.

Murkowski says Alaska has been sending mixed signals to the nation's leaders, compromising its 90 - 10 position far too early in the political bargaining game. "I think the best defense is a good offense," he adds. "If we distract publicly from our stated objective of 90-10, clearly you're not going to get 90-10, and clearly you're not going to have the leverage that you want for whatever other considerations you might have gotten."

While Alaska oil companies, including Chevron, have not taken a position on the royalty issue, Cook agrees that "how the revenue will be split distracts from the overall effort to get the area open." But he adds, "There's just not much political sensitivity, from what I've observed, for Alaska to get 90 percent. If the state gets adamant and won't settle for something less, it'll be a deal breaker. I just don't think you want to fall on your sword on that one if you really want to get ANWR open."

Cook also warns that increasing the state royalty rate to offset the federal take would depress the bidding on ANWR leases. "These folks have to realize that this is a high-cost area," he says. "If they increase royalties or taxes, it's going to diminish interest in the sale."

Regardless of its royalty share, however, Alaska could reap billions of dollars in severance taxes from ANWR oil, depending on field size, location and transportation costs. The worst fear is that the Coastal Plain will yield no commercial oil or only marginal fields that would generate little or no revenue for the state under the economic limit factor tax structure.

A high royalty rate on industry also could render smaller fields uneconomical to produce. Explains Bill Van Dyke, petroleum manager for the Alaska Division of Oil and Gas, "A 50-50 deal at a high royalty rate certainly has its drawbacks. If there's oil in ANWR, and it's in a number of smaller fields or in a big field that's relatively spread out, the royalty rate is going to be a real factor."

Figuring Odds. Based on additional seismic information and well data collected from four exploratory wells near the Coastal Plain, the U.S. Interior Department in February increased from 19 percent to 46 percent the odds of discovering a field in ANWR worth producing. The agency now estimates the region likely holds 3.7 billion barrels of economically recoverable oil. The minimum amount of oil needed for a field to be workable is 400 million barrels.

As geologists and oil company executives keep emphasizing, however, there is virtually no way of determining ANWR's true oil potential without drilling exploratory wells. Chevron's KIC No. 1 near the Inupiat Eskimo village of Kaktovik, on private land owned by the Arctic Slope Regional Corp., is the only well to have been drilled in ANWR. But the well data remains a tightly guarded secret.

"In any case, it (KIC No. 1) doesn't speak to the prospectiveness of the area at large," says Chevron's Cook. "A 19 percent probability is very high and 46 percent is about the best we will ever see, if in fact it is that high. But there's still a lot of uncertainty, and you're never going to know until you have an opportunity to go in there and drill."

Some geologists are skeptical the Coastal Plain contains a large Prudhoe Bay-size field, primarily because most of it is located in the so-called "disturbed" or "overthrust" belt. That belt has been shown to have reservoir rock of poor quality compared to Prudhoe Bay and other producing North Slope fields that are located in more stable geological formations.

As one state geologist notes, "The concept of finding a good-quality reservoir rock into which the oil can migrate and then be trapped is going to be different in ANWR because of the thick rock and because it is in an area of disturbed tectonics, where there's lots of folding and thrusting. This is not necessarily bad, it's just different. In ANWR, there's going to be a definite hunt for suitable) reservoir rock."

Peripheral Pluses. The addition of just a few hundred thousand barrels of oil a day from ANWR would extend the production life of Prudhoe Bay and other declining fields until well after the turn of the century. If total North Slope production were to fall to between 150,000 and 300,000 barrels a day, it is anticipated that the transAlaska pipeline would have to be shut down, because high transportation costs and low well-head values would make it unprofitable to operate.

Says Chuck Logsdon, the state's chief petroleum economist, "There are some real benefits from having more oil, even if we don't get a direct benefit in the way of large taxes and royalties from production. The chances are the more oil you can get into the line at crucial periods, particularly around the year 2000 or so, it's going to help keep the (pipeline) tariffs low and the well-head values higher, which means we get larger revenues from fields like Prudhoe that will be in the latter part of their decline."

If the Coastal Plain is explored and developed, Alaska also could experience its biggest economic boom since construction of the 800-mile transAlaska pipeline in the 1970s. "You don't want to ignore the economic kick from industry getting in there and developing the oil," adds Logsdon.

But Logsdon emphasizes that there remains economic uncertainty about long-term state benefits from ANWR oil production. "I don't see how we would get as much revenue out of ANWR as we get out of existing North Slope fields, primarily because the state doesn't own the land under which they would explore," he explains.

Other ANWR observers say no matter how big the state lobbying effort to open the Coastal Plain to exploration and development, Congress holds all the trump cards. The final congressional vote on an ANWR bill could come this summer or fall.

Squaring Off. In the meantime, numerous advocacy groups are hard at work trying to persuade Congress to open the Coastal Plain to exploration and development or to keep it under wraps as a wilderness area.

The Alaska-based American Coalition for American Energy Security "has one focus in mind, and that is to open ANWR; we self-destruct after ANWR is opened," says executive director O.K. "Easy" Gilbreth. The coalition keeps tabs on its 18 member groups, which include the Alaska State Chamber of Commerce, Anchorage Chamber of Commerce, Associated General Contractors, Retired Officers Association, the Alliance, Alaska Oil and Gas Association, and Resource Development Council.

Says Gilbreth, "Our activity in the last year has been more designed along trying to get the word out into the hinterlands rather than in Washington, D.C., itself. This matter probably is going to be decided by responses back from each congressional district."

He adds that the coalition's message is threefold: "We need more conservation; we need to look at alternative energy; and we need to develop domestic energy. And I don't think any one of them is going to do it. They are all part of the energy equation."

Adds Gay of RDC, "Our bend now is more toward education, laying out more facts and repeating the same stuff because now people are listening. There's hardly anything new to say about ANWR that doesn't work to our side. The statistics for proven reserves are better; the need for oil gets stronger as the imports get bigger; and the more we know about caribou, the less people are going to fear harming them."

The biggest opposition to opening the ANWR Coastal Plain to industry comes from well-organized national environmental groups, which have targeted the refuge as their top priority.

Says Jettmar of the Wilderness Society, "We have 1,100 miles of Arctic coastline and out of all that only 125 miles isn't open to development. Nowhere else in the United States is there an example of an entire spectrum of the Arctic ecosystem. And despite any arguments oil companies make about how wildlife and oil development can coexist, once you go in there and build the first road, put in the first helicopter pad, the first pipeline, you've destroyed the wilderness. In this country, we have a heritage of wilderness protection.

"If we can't protect one tiny example of 1.5 million acres, then it's a pathetic statement for the United States."

Arco's Roots recognizes that the environmentalists will invest a lot of time and effort trying to forestall any development. But he adds, "We will be investing a lot of our time and effort, and make it a very sincere commitment to doing what we think is right for the energy (situation) in the country."
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Copyright 1991 Gale, Cengage Learning. All rights reserved.

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Title Annotation:debate over oil exploration in the Arctic National Wildlife Refuge's Coastal Plain in Alaska
Author:Tyson, Ray
Publication:Alaska Business Monthly
Date:May 1, 1991
Previous Article:Hankering for herring.
Next Article:ASRC seeks to develop coastal plain assets.

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