Oil & Gas

Published: Oct 11, 2022 | Updated at: Oct 11, 2022

The Oil and Gas Industry in Alaska paid over $3.1 billionin state and local taxes in 2019.

While this figure has gone up and down over the last few years, the Alaskan oil and gas industry is responsible for much of the economic growth in the area. The proceeds from the industry make up around 90% of the General Fund that’s used to develop the state.

This is why the uncertainty around the new economic and environmental policies is so worrying for the local economy. With oil and gas lease sales in Alaska on hold, Biden has proposed an alternative plan that keeps the drilling offshore.

Interested in learning more about the future of oil and gas leasing in Alaska? You’ve found the right blog. Here’s everything you need to know.

Oil and Gas Lease Sales in Alaska

While many people may not pay much attention to Alaska, the state is incredibly rich in natural resources. Compared to other states in the country, Alaska is incredibly rich in both natural gas and oil. Alaskan oil is particularly beneficial to the local economy, with the North Slope producing around 18 billion barrels of oil since it was discovered.

The North Slope is an incredibly vital resource to the state as production has averaged at almost 500 thousand barrels a day. However, the uncertainty around oil and gas leases in Alaska has caused many to doubt the future of the industry. This uncertainty also passes down the local economy, with people unsure of their futures.

This is because the oil industry in Alaska is responsible for around 25% of all jobs in the state. This means that if something were to happen to the oil industry, 25% of people in the state would suddenly find themselves unemployed.

While the Trump-era policies were far from perfect, the new policies put forward by Biden’s administration need to be incredibly careful and well-planned to somehow keep the jobs.

In addition to the jobs, the income and operations within the oil industry are responsible for around 50% of the Alaskan economy. This means that if the oil industry suddenly disappears, so does 50% of the local economy.

What Is Oil and Gas Leasing in Alaska?

Alaska is not just rich in oil, it’s also rich in natural gas as well. The natural gas industry is not as large or dominant as the oil industry, but significantly contributes to the local economy. While the exploration and drilling companies are all privately owned and operated, the government does play a role in controlling the operations in the area.

This is done through the Bureau of Land Management within the U.S. Department of the Interior. This department is responsible for managing the Federal onshore oil and gas leasing program. They also issue permits for companies to explore and drill wells for both gas and oil.

Leasing land for the purpose of oil and gas exploration is essential as most of the oil reserves are on Federal land. This means that legally, all the oil and mineral resources found there belong to the Federal government. However, the government created the leasing program to allow private companies to use their own money to extract oil and gas from the land.

How Leases Work

When it comes to oil and gas leases in Alaska, the government grants annual leases that require companies to pay for the use of the land. This payment comes in the form of an annual fee and a royalty. There are a few different regions that the state leases, each with its own unique set of payment plans.

The State of Alaska collects 90% of the rent and royalties from the Cook Inlet Region while the state only collects around 50% of the bids, rents, and royalties from the other two regions. This payment plan secures a set fee for using the land and also gives the state additional funds depending on how much oil was taken out of the ground.

The Trump Administration

Trump was incredibly vocal about his desire for America to be energy-independent. Here’s a quick look at Trump’s oil and gas policy in Alaska.

Trump’s Oil and Gas Policies

The Trump administration loved how the Alaskan lease agreements were set up. The financial upsides made it a viable plan for the state, leading to Trump wanting to double down on the program. This is why Trump announced that he would actively begin the process of selling even more leases to oil companies in and around the Arctic National Wildlife Refuge in Alaska.

Selling Oil Rights in the Arctic National Wildlife Refuge

While the lease agreements in Alaska were doing just fine, the Arctic National Wildlife Refuge was a controversial move for Trump. This is because even though the land is Federally owned, the area is home to polar bears, caribou, and other wildlife that requires protection.

On top of this, the land is also incredibly sacred to the indigenous people of Alaska. This land spans 19.6 million acres and is incredibly special to the Gwich’in communities in the area. Due to this, Trump’s policy action was seen as insensitive at the time.

Even though Trump wanted to sell off these leases, major oil companies actually declined the offer. This is because the oil companies could see the potential fallout with local communities that would ultimately cost them in the long run. 

The Biden Administration

Trump’s last push to sell the oil leases happened incredibly late into his presidency. This effectively meant that Biden was handed the responsibility to execute the policy in Alaska. However, Biden decided to rather put a stop to it altogether.

Alaskan Oil and Gas Policies

While Trump wanted to expand the oil exploration in Alaska to strengthen America’s energy independence, Biden took a step back to review the entire situation. Biden then took the advice of experts in the area to restore certain restrictions that Trump got rid of.

This effectively worked to undo the damage to the environment that Trump’s policies would have caused. This policy reversal also saw the Arctic National Wildlife Refuge regain its protected status for both the animals and the heritage that reside there.

Offering Offshore Drilling Opportunities

Biden did not just stop the expansion of drilling opportunities onshore, he also proposed an alternative for oil companies in the area. This plan includes the opportunity for oil companies to lease the rights to drill in Federal waters around Alaska.

This plan would see the government sell oil and gas leases from 2022 to 2027, with the core focus being to retain jobs in the area. The leases would be concentrated in two areas, the Cook Inlet in Alaska and the Gulf of Mexico.

While Biden still wants to scale back all drilling activities due to climate change, the current political climate requires a balance that he needs to strike with locals in the area. With gas prices rising like never before, energy independence is vital to national security.

The War In Ukraine

It’s without a doubt that the war in Ukraine had a major impact on the energy decisions within the United States. The war caused Russian oil to exit the market, raising prices in the process. This raised prices around the world, adding stress to the economy of the United States.

These events showcased the fragile nature of the United States' energy sector, leading to Biden striking a deal in the middle for offshore oil and gas leases.

Impacts of Biden on Oil and Gas Leasing

When it comes to the impact Biden will have on the local oil and gas industry, it’s too early to say anything for sure. However, the call to suspend leasing onshore land for oil exploration was welcomed by environmentalists and local communities.

One of the best things Biden did with his plan is that he did not simply cut it without offering an alternative. This way, the oil industry has the chance to adapt and evolve, keeping thousands of people employed in the process.

The Future of Oil and Gas Lease Sales in Alaska

While the Trump administration sought to boost oil and gas lease sales in Alaska, the Biden administration quickly stepped in to undo the policy. Biden acted quickly to reverse the plans Trump set in motion and has since taken his time to draft a new way forward. This new path includes offshore drilling options for energy companies in an eco-friendlier way.

Energy companies can now effectively analyze the situation to plan and execute new projects to make the most of the new policies.

Halsell offers deal flow management tools such as CRM and Project Management for oil and gas companies worldwide. To learn more about optimizing your oil and gas acquisitions and divestitures please check out how our Oil & Gas CRM has helped thousands of oil and gas companies drive revenues by closing deals faster than ever before.

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