1. What is the Arctic National Wildlife Refuge and has it always been open to oil and gas leasing? Why are oil and gas leases being offered in the ANWR now?

The Arctic National Wildlife Refuge (ANWR) was established in 1960 by President Dwight Eisenhower. In the 1980s, the area was expanded to its current size of 30,500 square miles and nearly 40 percent of the area was designated as Wilderness, making it the largest refuge within the National Wildlife Refuge System. The 1980 Alaska National Interest Lands Conservation Act (P.L. 96-487) mandates that potential oil reserves in the refuge’s 1.5-million-acre, non-Wilderness coastal plain be considered for development, but only if Congress authorizes it.

The 2017 Tax Act (P.L. 115-97), the budget reconciliation bill for FY2018, authorized a federal program to manage the “leasing, development, production, and transportation of oil and gas in and from the Coastal Plain” of the Arctic National Wildlife Refuge. Specifically, the tax bill required the Bureau of Land Management (BLM) to hold two lease sales within seven years of enactment, each of which with at least 400,000 acres up for auction. The bill stipulated that no more than 2,000 acres of surface development could be allowed throughout all stages of production. This provision was originally proposed as a revenue raiser that would generate almost $1 billion to offset the legislation’s $1.9 trillion price tag. However, the first lease sale result has proven the revenue estimates to be laughably off.

2. Who is responsible for oil and gas leasing in the Arctic National Wildlife Refuge?

The Bureau of Land Management (BLM) within the Department of Interior (DOI) is responsible for leasing oil and gas for development throughout the federal onshore mineral estate.

Under the Mineral Leasing Act (MLA), the Secretary of the Interior is required to hold leases sales at least quarterly in every state where unleased lands are available. For ordinary oil and gas leases, the area to be offered in each lease tract is to be no more than 2,560 acres. For leases in Alaska or in “tar sands,” each lease tract may be up to 5,760 acres.

The MLA requires that leases go to the highest bidder who offers at least a “national minimum acceptable bid” per acre. The statutory minimum bid is $2/acre. For the December 2021 lease auction in the ANWR, the minimum bid was $25/acre for each parcel. These “bonus bids” are an amount per acre that the potential lessee pays to receive the lease.

Typically, the highest bid from a qualified bidder wins the lease to the parcel, but the Bureau of Land Management is not required to accept a bid. In the Arctic National Wildlife Refuge (ANWR) lease sale, bidders who tied for the same parcel had the opportunity to submit additional bids two weeks after the original sale.

Before the Bureau of Land Management issues a lease, the winning bidder (assuming they meet all other requirements) must pay the entire bonus bid, the filing fee of $170/parcel, and the first year’s rent for the parcel, which is set at $10/acre.

Half of all revenues from the lease sale (and any later production) are shared with the State of Alaska. E.g. If bid revenues total $20 million, the federal Treasury receives $10 million and the state gets $10 million.

3. When oil and gas leasing in the Arctic Refuge was included in the tax bill, how much revenue was it estimated to raise? And why did TCS think that amount was unlikely?

The Senate Energy and Natural Resources Committee included leasing in the ANWR Coastal Plain as a way to generate $1 billion in revenue in response to budget reconciliation instructions in the FY2018 budget resolution. It was ostensibly included as an offset for the $1.9 trillion dollar tax bill.

When the leasing authorization eventually passed as part of the 2017 Tax Bill (P.L. 115-97 §20001), the Congressional Budget Office (CBO) estimated it would raise $910 million. That reflects only the federal portion of receipts, meaning they expected the two lease sales to generate $1.82 billion total in revenue over 10 years.

The Congressional Budget Office noted that its final estimate of $910 million in federal revenue from leasing the Coastal Plain (with another $910 million going to Alaska) was based on conversations with industry officials and the results of auctions for high-value oil and gas leases in the Lower 48.

In June 2019, the CBO slightly modified their original estimate of $1.82 to $1.81 billion in bonus bid and rental revenue, resulting in federal receipts of $905 million over the next 10 years.

TCS examined what oil and gas companies – the same companies likely to bid for ANWR leases – paid to lease land and water immediately adjacent to the Coastal Plain since 1999. Only a dozen parcels were ever sold for more than $30/acre. Only one was sold for more than $100/acre and that was back in 2002. The average for all ANWR-adjacent parcels since 2000 is $24/acre, which is an order of magnitude less than what would be needed to get to the CBO’s estimated revenue of $1.81 billion.

Put simply, all of the available evidence from the closest comparable lease sales indicated bidding levels would not approach the level needed to generate the estimated revenue.

The lease sale result confirmed our analysis (see more in Q4) as the auction only brought in $16.5 million in revenues, less than 1% of what CBO estimated. In November 2021, the CBO further lowered their original estimate of federal receipts to $35 million.

4. What were the day of results for the first oil and gas lease sale in the Arctic Refuge? How much revenue did the lease sale actually generate?

In January 2021, the Bureau of Land Management (BLM), under the U.S. Department of the Interior (DOI), held the first of two auctions for leases to develop oil and gas resources in the Coastal Plain of the ANWR in Alaska.

The lease sale offered 22 parcels covering 1,089,053 acres (see map). About half, or 11 parcels, were bid on. Of those 11, nine were won by the Alaska Industrial Development and Export Authority (AIDEA). AIDEA is a public corporation of the State of Alaska. All 9 parcels bid by AIDEA received the minimum acceptable bid of $25 per acre. Just two valid bids were submitted by private parties – Knik Arm Services LLC and Regenerate Alaska. Knik Arm Services is a privately held limited liability company that holds oil and gas properties. Regenerate Alaska is a subsidiary of 88 Energy Ltd., an oil and gas company. The two bids from Knik Arm Services LLC, and Regenerate Alaska averaged $33.22/acre. In total, the sale bids averaged $26.07/acre.

According to the day of bidding results, the lease sale generated less than $20 million in total: $14.4 million in bids and $5.5 million from the first year’s rent, with half of all proceeds shared with the State of Alaska.

Two weeks after the auction results were posted, the AIDEA decided not to pursue two of the parcels they bid on, resulting in a total of 9 parcels covering 437,804 acres being sold.

Therefore, the total revenue was reduced to $16.5 million, making the federal receipts just $8.2 million, or less than one percent of the $905 million taxpayers were promised when Congress authorized the sales. Since then, new developments have further lowered the lease sale revenue.

5. What has happened since the January 2021 oil and gas lease sale in the Arctic Refuge?

There are currently no active leases in the Arctic Refuge.

A week after the Bureau of Land Management announced the final auction results, President Biden entered office and issued an executive order pausing all implementation of the Coastal Plain Oil and Gas Leasing Program in ANWR. In June 2021, Secretary of the Interior Haaland issued a Secretarial Order confirming the pause pending the completion of new analysis of the program’s potential environmental effects. The Bureau of Land Management posted official notice of its intent to prepare a Supplemental Environmental Impact Statement (SEIS) for the program in line with the Secretarial Order on August 4, 2021. A draft SEIS was scheduled to be done in June 2022 but has since been delayed.

Regenerate Alaska canceled its 23,000-acre lease in May 2022. Regenerate Alaska was the only oil and gas company that bid during the first ANWR auction. According to the Interior Department, the company was refunded its full bonus bid and first year rentals, approximately $1 million, bringing down the total revenue gained from the sale.

In August 2022, Knik Arm Services LLC also canceled its 48,603-acre lease and requested a full refund. If the company is refunded its full bonus bid and first year rentals, approximately $2.1 million, the total revenue from the original sale will be further reduced to just $13.4 million, less than three quarters of one percent of what taxpayers were promised. Federal receipts were reduced to $6.7 million. Only the Alaska Industrial Development and Export Authority (AIDEA) still holds leases in the ANWR.

These announcements come on the heels of two other oil companies with existing leases within the nonfederal lands portion of the Arctic Refuge, Chevron and Hilcorp, exiting their claims in 2021. Chevron was designated as a lease operator in 1984 and Hilcorp in 2019 after purchasing BP’s exploration lease interests. Other oil and gas developers have also expressed disinterest in pursing new projects in the region; in April 2023 ExxonMobil informed shareholders that the company “does not hold any active leases and is not pursuing any active developments within the Arctic National Wildlife Refuge.”

Similarly, major U.S. banks -including Wells Fargo, Goldman Sachs, Morgan Stanley, CitiBank, and Chase- and an increasing number of insurance companies -including U.S.-based Chubb- have announced that they will no longer finance oil businesses in the Arctic Refuge. These decisions are further evidence of waning industry interest and poor prospects for oil and gas development in the area.

In September 2023, the Department of the Interior announced the rescission of the remaining 7 federal oil and gas leases in the Arctic Refuge. The Department of the Interior pointed to serious flaws and legal deficiencies in the underlying analysis for the January 2021 lease sale.

6.  When is the second oil and gas lease sale in the Artic Refuge, as required by the 2017 Tax Act, scheduled?

Under current law, the Bureau of Land Management must hold a second lease sale by the end of 2024. In September 2023, the Department of the Interior released a Supplemental Environmental Impact Statement (SEIS), determining which parcels can be offered at auction. There current timing for the remaining lease sale is unknown.

7. What liabilities do taxpayers have to worry about if drilling in ANWR moves forward?

There is evidence that spills are likely if development proceeds in the Coastal Plain. In a 2018 study, the Bureau of Land Management (BLM) noted that small spills “are inevitable” in the nearby National Petroleum Reserve in Alaska (NPR-A). NPR-A is a roughly 23 million acre area located along the western third of Alaska’s Arctic coast that was designated the emergency reserve of producible petroleum for the U.S. Navy but has been managed by the Bureau of Land Management since the 1970s.

The US Energy Information Administration estimated that a total mean of approximately 3.4 billion barrels of oil could be produced in the Arctic Refuge by 2050. Using this projection of potential oil produced from the Coastal Plain and the Bureau of Land Management’s spill rates for NPR-A development, there would likely be 8+ medium spills of between 2,100 to 36,000 barrels.

In the inaccessible, extreme climate of the Coastal Plain, clean-up would be difficult and costly, making oil and gas development in the region highly risky. Many major banks, insurance companies, and other financial institutions have steered away from developing in the area due to risk concerns. Cleanup liabilities created by oil and gas companies often get passed down to taxpayers. Besides any potential future cleanup liabilities, taxpayers should also be concerned about long-term climate liabilities associated with drilling in a remoted and sensitive region.