Providing coverage of Alaska and northern Canada's oil and gas industry
November 2005

Special Pub. Week of November 31, 2005

THE EXPLORERS 2005: Mega-major initially focused on Beaufort Sea OCS leases, but also looking for other opportunities

Kay Cashman

Petroleum News

Shell Oil returned to Alaska in March 2005, taking 84 leases for $44 million in a U.S. Minerals Management Service Beaufort Sea lease sale.

Shell’s leases are along a trend stretching east from Harrison Bay to an area north of the Arctic National Wildlife Refuge and lie north of a structural high called the Barrow Arch where traditional exploration plays in northern Alaska have focused. The Arch, a subsurface tectonic “bump” that runs southeast from Barrow, parallels the Arctic coastline, goes right through Prudhoe Bay and points directly at the 1002 area of ANWR.

Exploration in the northern part of Alaska is currently moving west into the National Petroleum Reserve-Alaska along and just to the south of the Arch, so Shell’s acquisition could signal a new era of exploration in Alaska.

The leases Shell picked up in the Beaufort include Unocal’s mid-1980s Hammerhead discovery and ARCO Alaska’s early 1990s Kuvlum discovery, both on the eastern side of the North Slope and both with reservoirs in Brookian fault blocks. (Shell made its biggest bid of $12 million-plus for the block containing Hammerhead.)

Hammerhead is some 10 miles off the undeveloped Point Thomson unit and Kuvlum about 15 miles off ANWR’s coastal plain, the 1002 area. MMS data indicates that neither reservoir has been fully delineated, but the agency estimates 100 million to 200 million barrels of oil at Hammerhead and 160 million to 300 million barrels at Kuvlum.

Initially, Shell is focusing its attention on its Beaufort acreage, planning a 3-D seismic shoot over the leases in the summer of 2006.

But company executives say Shell is on the lookout for other opportunities across the state, seemingly paying special attention to the Chukchi Sea and Bristol Bay OCS.

Shell opens Alaska office

Formerly a Cook Inlet producer, Shell left Alaska in 1998 after more than 40 years of activity in the state that included exploration drilling in the Chukchi Sea, the Gulf of Alaska and the discovery of the Beaufort Sea’s Northstar and Liberty fields. Within a few months of winning the Beaufort OCS leases, Shell opened an office in Anchorage and hired Tom Homza, formerly with EnCana in Alaska, to manage it.

What brought Shell back to the state?

Shell’s global exploration director, Matthias Bichsel, told Oil Daily in September 2004 that Shell sees Alaska, along with North Africa, the Russian Arctic and the global deepwater, as an area of key upstream potential.

Bichsel also mentioned Shell’s continued interest in Sakhalin and West Siberia.

“You have a bit of a theme there — Sakhalin, West Siberia and Alaska — which is the Arctic, which requires big funds, which requires technology, tenacity, staying power, which I think companies like ours are very well suited to,” he said.

Excited about Alaska’s hydrocarbon potential

On a visit to Anchorage in August 2005, Annell Bay, Shell’s vice president of exploration for the Americas, said Shell is “really excited” about Alaska’s geologic potential.

“We believe that Alaska certainly has the large resource base that we need and we want to see grow for our company,” she said.

The company did an extensive review that encompassed all aspects of doing business in Alaska, Bay said, including “geological, technical, environmental, political, social and certainly commercial. We have re-looked at the elements and the opportunities in Alaska and feel like now is the time to come back” and build “another successful venture.”

The company’s “ambition and plan” is to make “additional investments here in Alaska,” she said. “And we think we have the experience … to build a significant position and make a significant presence for Shell here in Alaska.”

The position the company took in the Beaufort outer continental shelf lease sale includes “some stranded discoveries” and the company also hopes “to make some new discoveries here,” Bay said, calling the Beaufort lease position “a platform for us to build on from here.”

Chandler Wilhelm, Shell’s Houston-based exploration manager responsible for Alaska, called Alaska “a great and vast land. It’s for people who think big; it’s for people who are not afraid to face big challenges, and we recognize that that’s what we are doing.”

Wilhelm said Shell plans “to be a responsible operator and we plan to be an active and constructive member of the communities in which we operate …”

Joint venture possible

Shell executives have also mentioned an interest in acquiring a joint venture partner to explore and develop its Beaufort acreage, but as of Oct. 7, 2005, a company source said it did not have a signed deal with a partner.

Why did Shell leave Alaska in the 1990s?

In 1997, a Shell spokesman told Petroleum News that the main reason the company was pulling out of Alaska after almost 35 years was because, “Shell has such a small position, land holdings, in Alaska. It’s not strategic to take a small position a zillion miles from Houston and develop it. You need a critical mass to make it strategic.” He explained that traditionally Shell moves into an oil and gas province in a big way or not at all.

—Kristen Nelson contributed to this article

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