31 MAR 1979

Joint Federal-State Beaufort Sea Offshore Lease Sale:

Testimony Before the Joint Finance-Resource

Committee Hearings

Eben Hopson

Mr. Chairman, I am thankful for this opportunity to discuss the politics of the joint Federal/State Beaufort Sea offshore lease sale planned for this coming December.

I do not expect the lease sale will be conducted as planned. We look for it to be put off, or at least greatly modified.

The Beaufort Sea lease sale must be viewed in the context of the expanding Prudhoe Bay area oil fields. And these fields must be viewed in the context of the entire Arctic oil and gas industrial region of North America. And this region must be viewed in relationship with other operational regions throughout the world. Most of the major oil corporations are organized to operate around the world on a regional basis.

Regional managers must compete with each other for the limited amount of money available to their corporations for oil field exploration and development.

The recent decision by Atlantic Richfield to invest $350 million in Kaparuk field development is an example where ARCO’s Arctic regional management was able to compete successfully with other ARCO regional investment proposals.

Naturally, all Arctic regional managers want a Beaufort Sea sale, and they must maintain an optimistic and positive public attitude toward the Beaufort Sea sale. But privately, they are pessimistic about chances the sale will be held as planned. One senior manager has predicted to us the sale will be delayed until at least 1982.

It begins to appear both the money market and the oil and gas market are not yet ready for U.S. Beaufort Sea operations. Even with Canada’s many Arctic operational and tax advantages, the Dome/CANMAR OCS operations in the MacKenzie Bay, apparently Canada’s most promising offshore project, is barely able to secure necessary investment, and has turned to Japan for money to continue.

The bankers are worried about the great economic cost of environmentally-safe Arctic offshore operations, and they see large technology gaps making Arctic offshore investment premature when compared to other oil field investment proposals from other regions, and when compared to Alaskan onshore oil field investment. It was these onshore alternatives to which Senator Ted Stevens referred when he became the first statewide political leader to publicly acknowledge the technical and economic prematurity of the Beaufort Sea sale. The fact Senator Stevens chose to take his public position against the sale in the currently depressed community of Fairbanks last month underscores the political importance for Alaska to adjust her offshore plans to meet the requirements of changed oil and gas, and money markets.

Senator Stevens’ public acknowledgement of the technical, environmental and economic problems of the Beaufort Sea sale was much needed. I hope the Senator’s example will be followed by our State administration and our regional oil and gas industrial managers. If there can be no sale, we ought to stop behaving as if there are no problems with it. It should be canceled, or it should be modified to include only tracts where safe operations can be conducted.

Because official policy continues to insist that the sale will be held, a number of difficult political and legal problems are developing for the North Slope Borough as well as the State of Alaska.

The North Slope Borough’s policy toward the sale has been one of cautious cooperation aimed at insuring adequate protection of our subsistence hunting and fishing habitat and resources. We have channeled our cooperation through participation in the Outer Continental Shelf environmental assessment program, the coastal zone management program, and the Alaska Advisory Committee on Leasing. Our specific objective in this cooperation has been to convince State and Federal lease managers to either delay the sale, or at least restrict the sale to the environmentally safer near shore tracts landward from the Barrier Islands, with buffers to protect the Kaparuk and Canning River Estuaries.

However, our ability to cooperate was badly politically damaged by the unfortunate Point Thomson lease sale announcement last summer. When our villages discovered the State could not be trusted to honor agreements and commitments made in our cooperative Beaufort Sea lease sale planning, they engaged the services of the Alaska legal Services Corporation to resist any offshore operations on existing near shore leases, and to oppose any further offshore leasing, even in the near shore area adjacent to existing leases from the 1969 sale.

Over the months since the aborted Point Thomson sale, through the work and community organization of Alaska Legal Services with the cities of Barrow, Nuiqsut and Kaktovik, widespread political opposition to any level of Borough cooperation with the Beaufort Sea lease sale has developed throughout the Borough, and my cooperative attitude is being maintained at increasing political cost.

And even my patience is wearing thin. Over the past month I have had to deal with a plot to suspend our planning and zoning authority at Prudhoe Bay and an unwarranted decision to extend pre-sale geophysical testing in spite of our opposition as well as that of the Department of Fish and Game, both justified as necessary for the Beaufort Sea lease sale.

Governor Hammond and I met yesterday to discuss the geophysical testing extension, and we were able to come to an agreement to restrict further testing to within the Barrier Islands where it will end before April 30th.

SOHIO-B.P.’s attempt to secure legislation restricting local planning and zoning authority must be viewed in national context. As SOHIO-B.P. moved against local planning and zoning in Alaska, it announced its abandonment of its California-Texas oil pipeline, blaming the Los Angeles Planning and Zoning Authority for failure of the project.

We were impressed with the national storm of political reaction against Los Angeles, and wonder if we can trust national rules to continue to trust and honor the strong American tradition of local government in the development of our national offshore oil and gas reserves. I’m hoping our State Legislature today is as strongly committed to strong local government as it was when I served in the Legislature.

I do not think I need to worry that an Alaskan Legislature will surrender local planning and zoning authority to accommodate the Federal government’s Outer Continental Shelf program. As for me, so long as I am Mayor, the North Slope borough will make a diligent effort to accommodate the great national interests vested in the Prudhoe Bay oil fields.

We have provided for this accommodation through the National Coastal Zone Management Program. Our District Coastal Management Plan will continue this accommodation by providing for effective and environmentally safe land and water uses of State concern.

This phrase “uses of State concern” will become a very familiar and controversial political term in the State Legislature, in future months and years.

We feel new national oil and gas legislation and policy will encourage the industry to try to consolidate the greater Prudhoe Bay onshore oil fields into a single production system stretching between the eastern part of NPR-A eastward to include production within the National Arctic Wildlife Refuge.

We feel the industry investment will seek to maximize proven and producible reserves able to build corporate credit at the bank, and to strengthen deregulation of the oil and gas industry. It will take between five to seven years to accomplish this scope of onshore field development. Industrial interest in Arctic offshore leasing may well be high in 1982-83.

The ARCO Kaparuk field development begins this onshore field consolidation. The process will include eastern NPR-A tract lease sales and U.S. Geological Survey managed industrial exploration of certain lands within the Arctic Wildlife Refuge. For all of the controversy and environmental challenge this course of events will mean for us, I prefer this consolidation to any offshore Beaufort Sea leasing.

But if a Beaufort Sea lease is a political necessity in an oil-best Alaskan economy, we must not lease beyond the Barrier Islands. Governor Hammond and I reached agreement on this point yesterday. And we have been assured of this by Guy Martin.

This all means we must stop wasting our time and energy preparing for premature Beaufort offshore operations, and devote it to meet the challenge of environmentally responsible onshore oil field consolidation.

Mr. Chairman, onshore consolidation will result in better short-term economic stimulation than would result from an offshore lease sale. And we will be better prepared for offshore operations in the 80’s than we are now.

Thank you, Mr. Chairman, for hearing me today about my view of the Beaufort lease sale.