The Companies With the Best Kept Secret in the Arctic Refuge

The Arctic National Wildlife Refuge in Alaska.

Since the passage of the Tax Cuts and Jobs Act (TCJA) in 2017—specifically, its provision to open the Arctic National Wildlife Refuge to oil and gas drilling—the Trump administration has been in a headlong rush to hold the first of two congressionally mandated lease sales. These slapdash efforts to speed up drilling in the Arctic Refuge’s coastal plain, its biological heart, are reflected in an environmental review process that has gaping holes when it comes to data and research. The U.S. Department of the Interior (DOI) has stated that it will hold a lease sale in 2019 despite overwhelming opposition from the public and a glaring lack of knowledge about the potential effects that drilling could have on the land, water, and wildlife.

The upcoming lease sale will include lands on the coastal plain, surrounding some involved in one of the Arctic Refuge’s biggest mysteries. In April, The New York Times investigated what was found in the mid-1980’s when two oil and gas companies, Chevron and BP, drilled a test well on lands owned by the Kaktovik Iñupiat Corporation (KIC) and minerals owned by the Arctic Slope Regional Corporation (ASRC). The first and only test well drilled in the Arctic Refuge was meant to help the ASRC and the two oil majors determine what oil and gas resources lie beneath the surface. The results of the well, known as the KIC-1 test well, have been kept secret for decades. And according to the Times’ investigation, the well may have been empty.

In light of this controversy, the findings of the Times’ investigation raise important questions. Why have the corporations involved with the test well gone to such extreme lengths—including a lawsuit, a settlement, four methods of physical safe-keeping, and more—to ensure that the well’s data remain a secret? Why is the Trump administration rushing to hold a lease sale in the Arctic Refuge without this key data? And what is the American public missing out on while it’s kept in the dark to the advantage of the fossil fuel industry?

This column explores the history and status of the KIC-1 test well in the Arctic Refuge. It considers the companies involved; how those companies have managed to keep their information secret for so long; and what this says about the balance of power between the public and the oil and gas industry in the United States.

The history of the KIC-1 test well

In 1971, Congress passed the Alaska Native Claims Settlement Act (ANCSA). Among other things, this act created 12 Alaska Native regional corporations—a 13th was later formed—and deeded each of them ownership of acreage in their respective regions. One of these corporations, the ASRC, gained additional land in 1983, when the DOI engaged it in a controversial land swap. In exchange for the ASRC’s lands within present-day Gates of the Arctic National Park and Preserve, the DOI deeded the ASRC the subsurface rights to 92,000 acres within the contiguous bounds of the Arctic Refuge. To further complicate matters, the coastal plain of the Arctic Refuge—where the ASRC’s acreage lies—had a complex status, designated in 1980, that kept it closed to drilling but for an act of Congress.

The 1983 land swap conditions also gave the ASRC the right to drill an exploratory test well in the coastal plain of the Arctic Refuge, which at the time was otherwise closed off to development, and allowed it to retain the rights to the well’s data—including the right to keep the data secret from the U.S. government. This last compromise was hard-fought, given that it restricted the government’s knowledge of the Arctic Refuge’s oil and gas potential. Within a year of the exchange, the ASRC leased this acquired land to Chevron and BP; these leases are still active today.

Between 1984 and 1985, more than 20 private oil companies banded together to conduct a survey that yielded what remains the most comprehensive understanding of the oil potential beneath the coastal plain. The survey showed that the coastal plain is split by an underground ridge—the Marsh Creek anticline—that runs southwest to northeast across the plain and, at the time, was thought to hint at the location of possible oil southeast of the anticline. In 1998, the U.S. Geological Survey reprocessed this survey using more modern technology and found that more oil might actually lie northwest of the anticline.

In 1986, Chevron and BP completed the only test well ever drilled in the Arctic Refuge near the village of Kaktovik, Alaska, on the coastal plain at a depth of nearly 3 miles. The test well had a price tag of $40 million.

Alaska state law stipulates that well results for all wells permitted by the Alaska Oil and Gas Conservation Commission (AOGCC) must be reported and filed with the AOGCC. For wells that include proprietary information—such as the KIC-1 test well—the AOGCC can allow the data to be kept confidential for up to 24 months. It is then released to Alaska Department of Natural Resources (AKDNR). If the AKDNR finds that there is “significant information relating to the valuation of unleased land in the same vicinity”—as was the case with the test well—a company may apply to keep the information confidential “for a reasonable time” after the relevant land is leased or otherwise disposed of.

After completing the test well in 1986, Chevron filed confidential reports of the results with the AOGCC. By statute, the data were set to be released to the AKDNR on May 24, 1988. Curiously, even though most of the land near the KIC-1 test well was unleased and may have qualified for a confidentiality extension, Chevron and BP—at the time Standard Alaska Production Company, a subsidiary of Standard Oil that BP later acquired—took a more aggressive approach to protecting their data. On April 21, 1988, the companies filed a lawsuit seeking a permanent injunction against releasing the data to the AKDNR or the public. Their lawsuit argued that Alaska’s data disclosure provisions were unconstitutional, as releasing the data would be a taking of their property. The argument did not hold up in court: In 1991, after a lower court decision in favor of the companies, on appeal, the Alaska Supreme Court ruled against them, tossing out the injunction and citing the technicality that the issue of disclosure was not yet ripe for adjudication. In addition, the court explained that the AKDNR’s knowledge of potential oil and gas promotes the state’s economic welfare and helps the AKDNR strike the “optimum balance between development and preservation.”

After this setback, Chevron, Standard Oil, and the ASRC considered appealing their case to the U.S. Supreme Court in order to keep the results of the test well a secret. Instead, on July 13, 1992, the three companies signed a settlement agreement with the AOGCC and the AKDNR that granted unprecedented confidentiality to the companies in exchange for minimal concessions to the AKDNR. The settlement’s conditions under which the AKDNR can access the results are akin to what one may expect for state secrets at the level of nuclear codes:

  • No more than two senior geoscientists at the AKDNR can have knowledge of the KIC-1 well data at a given time, and when a new designee is appointed, the companies have “the opportunity to express their respective opinions” of the individual.
  • The AKDNR’s two representatives aren’t permitted to keep notes or other records about any of the KIC-1 well data.
  • The AKDNR is not allowed to refer to or confirm or deny anything about the data publicly in their decision-making regarding Alaska state lands.
  • If ever the AKDNR needs to reinspect the data on file at the AOGCC, they have to notify the three settlement companies before doing so.

Interest in the well has been rekindled

During discussions over the TCJA in late 2017, public interest in the contents of the KIC-1 test well heated up again. Days before the bill’s passage, an Anchorage Daily News article revealed that the data were exceptionally physically secure: “Today, the information is tightly held at AOGCC in Anchorage, contained within a locked box within a safe in a locked room in the agency’s secured area. Different people know codes for the different locks, so no one can get to the data alone.”

Then, in early 2019, newly elected Alaska Gov. Mike Dunleavy (R) fired AOGCC Chairman Hollis French after accusing him of disclosing “confidential information to the press regarding the location of, and means of accessing, secured data on the KIC test well.” In other words, a high-ranking state official was fired for discussing the data’s location and access—not the data itself—with a journalist. In his defense, French stated, “[T]his is happening because I have been firmly standing up for the public interest in oil and gas conservation.”

It is worth noting that the Alaska state government, which is in the midst of significant budget crisis, stands to receive 50 percent of all revenue from the mandated lease sales. The governor, therefore, has a vested interest in seeing the sale happen as quickly as possible. Additionally, the Trump administration’s assistant secretary of the interior for lands and minerals management, Joe Balash, served as commissioner of the AKDNR from 2013 to 2014, meaning he likely knew, or managed employees who knew of, the test well’s results.

This long saga begs the question of what the test well revealed. The best clue yet comes from the Times’ investigation, which includes an interview with a now-retired lawyer who worked for Standard Oil of Ohio during BP’s merger and acquisition of the company. He recollected that when he pressed whether BP should be offering more for the acquisition based on the oil and gas potential of their leases in the Arctic Refuge, he was told that “the discovery well was worthless.”

The current positions of Chevron and BP

Oil and gas companies, accustomed to drilling elsewhere along Alaska’s North Slope, have long been looking to gamble by leasing in the Arctic Refuge’s coastal plain in the hopes they might strike it rich. Short of hitting pay dirt, companies that bid during an upcoming lease sale for the Arctic Refuge could be speculating for the future, all while padding their books. BP and Chevron, therefore, have an incentive to keep the results of the test well private, even if the well is empty; this gives them an advantage over other oil and gas companies, the U.S. government, and the American public. Importantly, however, companies that lease are also risking reputational damage: Wilderness advocates and those to whom these lands are sacred have highlighted the fact that drilling would irreparably damage the lands.

Since drilling the test well more than three decades ago, BP and Chevron have remained cagey about their interest in oil and gas development in the Arctic Refuge. Chevron ranked as the second-largest oil and gas company in the United States in 2018, with a market value of $239.06 billion. When the DOI released its draft environmental review for a lease sale in the Arctic Refuge, Chevron weighed in with brief comments, arguing for nearly unfettered access to the coastal plain. The company asked specifically that the final DOI proposal “not prejudge hydrocarbon potential or preferred development locations” and instead leave that to a “comprehensive exploration phase.” This is notable, given that Chevron is one of the few entities with access to information from the test well. However, Chevron’s comments do not mention the KIC-1 test well.

BP is currently the fifth-largest oil company in the world—with $303.7 billion in revenue in 2018. The company has a complicated history of oil and gas engagement in northern Alaska. In 2006, BP was responsible for a 267,000-gallon oil spill from one of its pipelines in western Prudhoe Bay—less than 100 miles from the Arctic Refuge—which remains the largest oil spill on Alaska’s North Slope. In 2002, BP dropped out of Arctic Power, a powerful Arctic oil lobbying coalition pushing to open the Arctic Refuge to oil and gas drilling, saying at the time that the Arctic Refuge “has never been a part of BP’s investment portfolio.” It has been speculated that BP may have viewed Arctic Refuge development as a “public relations liability” at the time, given the potential reputational damage of indicating an interest in drilling in what was considered to be one of America’s last great wildernesses.

However, after Donald Trump was elected president in 2016, BP changed its tune. Records show that the corporation ramped up its spending on lobbying efforts for “Arctic oil and gas development” and favorably weighed in on the DOI’s initial oil and gas leasing proposal for the Arctic Refuge. Just like Chevron, however, BP made no mention of the KIC-1 test well or its confidential results.

Outside of these brief comments on the DOI’s initial plan, BP and Chevron have stayed largely silent on their intent to drill in the Arctic Refuge. All of this should be considered through the lens that Chevron and BP are two of only a few entities that have any sense of what might lie beneath the Arctic Refuge. In many ways, they are at a distinct competitive advantage not only over other companies who might consider bidding during a lease sale, but also over the federal government and the American public.

Conclusion

By any measure, Chevron, BP, and the ASRC have gone to extreme lengths in order to keep the results of the test well a secret. Some have speculated for years that the well was a dry hole: “I simply refuse to believe that if there is a huge amount of oil it could be kept secret,” said a staffer from the Alaska Conservation Foundation in 2001. In light of this, drilling proponents have more recently argued that the results of one well drilled years ago are not conclusive as to what lies beneath the Arctic Refuge.

Regardless of the well’s results, however, the situation lays bare a problematic power imbalance in which the federal government—which is making critical and consequential decisions about America’s public lands on behalf of taxpayers —has far less information than three private corporations do. Here, as is too often the case, the American public is not on equal footing with the oil and gas industry. Thanks to BP and Chevron’s deep pockets and many lawyers, as well as a state government interested in oil, data remain hidden that should have been made public decades ago in order to help strike a balance between economic development and conservation. Given that the Trump administration has no problem greenlighting a lease sale without access to the test well data, it’s clear that the interests being served are not those of the American public, but those of the fossil fuel industry.

Sally Hardin is a research analyst for the Energy and Environment War Room at the Center for American Progress.

The author would like to thank Meghan K. Miller, Jenny Rowland-Shea, and Kate Kelly for their contributions to this column.