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Slaiby: Shell still plans OCS drilling Company is preparing new exploration plans and hopes for resolution of the problem court has cited in MMS lease sale program Alan Bailey Petroleum News
Undaunted by an appeal against approval of its Beaufort Sea exploration plan, another appeal against its drillship air quality permit and an April 17 court decision rescinding the current U.S. Minerals Management Service outer continental shelf lease sale program, Shell still hopes to drill on the Arctic Alaska outer continental shelf within the next couple of years.
“We still have every intention of pursuing a drilling program in 2010 in both the Beaufort and the Chukchi (Seas),” Pete Slaiby, Shell’s Alaska general manager, told the Anchorage Chamber of Commerce on April 20.
Slaiby said that, in addition to impacting Shell’s Chukchi Sea leases that cost $2.1 billion in bonus bids, the April 17 court decision impacts $6.5 billion in Shell leases in the Gulf of Mexico. But the question over the individual environmental impacts of a lease sale program that the court had raised in its decision has been an issue in the past, he said.
“If there are some structural issues with the way that the five-year lease plan was put together, we’re hopeful that they can be addressed,” Slaiby said.
New plans And, reflecting on a March 6 announcement by the U.S. Court of Appeals for the 9th Circuit that the court is reconsidering its decision on an appeal against MMS approval of Shell’s Beaufort Sea exploration plan, Slaiby said that Shell is “proceeding with new plans of exploration for other areas in the Beaufort and Chukchi.”
The exploration plan that is the subject of the 9th Circuit appeal includes a plan for drilling at the Sivulliq prospect, a known oil pool on the west side of Camden Bay, offshore the eastern end of the North Slope. But Shell has a substantial portfolio of leases across the Arctic Alaska OCS.
“We have a very robust portfolio,” Slaiby said.
In the past three years Shell has conducted seismic surveys in the Beaufort and Chukchi Seas and the company “likes what it has seen,” Slaiby said.
At the same time, the company does not think that its seismic program has caused problems for subsistence hunters from North Slope communities.
“We’ve gotten what we have needed out of the program and we believe that the subsistence hunt and the subsistence lifestyle have not been adversely impacted in the North Slope Borough and the Northwest Arctic (Borough),” Slaiby said.
And, if offshore development proves viable, Shell is confident that purpose-designed, gravity-based platforms that sit on the seafloor could withstand the ravages of sea ice, given that the water is less than 150 feet deep in most of the Beaufort and Chukchi Sea areas that the company is interested in. Platforms in challenging regions such as Sakhalin and the North Sea have demonstrated the ruggedness of the gravity-based structures, Slaiby said.
Need to drill But a development program cannot move forward until some wells have been drilled and lawsuits have stymied Shell’s drilling plans since 2007, Slaiby said.
At the same time, drilling at remote Arctic offshore locations requires a major logistical operation entailing costs that build at the rate of tens of millions of dollars per month, a cost build-up that requires a go or no-go decision around Jan. 1 for drilling in the coming summer open water season. And, with lawsuits still unresolved, Shell decided several months ago not to drill in 2009.
On the other hand, Shell has used the hiatus in its drilling plans to continue discussions with people in North Slope communities who are stakeholders in OCS activities — many North Slope residents worry about the potential impact of offshore oil and gas development on subsistence activities, particularly the hunting of bowhead whales.
“Stakeholders have legitimate concerns about what we’re doing and what we’re coming into,” Slaiby said. “They see this as a huge potential impact to their way of life. We’ve spent a lot of time on the slope and in the Northwest Arctic Borough, listening to what stakeholders have been telling us. And as a result of that we’ve really changed a lot of what our program was going to look like.”
Changes to Shell’s plans include using just one drilling rig, rather than two rigs; delaying any delineation drilling until after 2011; and postponing any further seismic work until after 2010, Slaiby said.
“We make no bones about it,” Slaiby said. “We’re looking to try to wedge open the door, to prove that we can go up there and work, prove that we can continue to reflect on the success we’ve had on our seismic activity up there. … And we’re really trying to work ourselves into a place where the stakeholders can be comfortable that we are doing the right thing and, more importantly, acknowledge that their needs are being addressed with Shell’s programs.”
Regulatory challenges Slaiby also reflected on the regulatory challenges involved in obtaining the multiplicity of permits required to explore in the offshore. There are problems both with the capacity of agencies to deal with the permitting workload and with the litigation that tends to follow permit issuance, he said.
“The logical termination for every permit we put out there is that we will be challenged in court,” Slaiby said. “That creates a lot of anxiety with the people who write the permits. It creates a lot of anxiety for us. And we obviously have a huge problem in deciding how we’re going to go ahead and launch our programs.”
Shell supports the need for regulation and the need to comply with regulations, Slaiby said.
“But we have to recognize that the regulators are experts. The NEPA process has been in place since the early 1970s. It’s robust. It’s managed by professionals,” Slaiby said. “… At the end of the day I think you have to have some really hard conversations. Does the nation want to see energy? … You’ve got to start from the desire that you are going to see development move forward in certain instances, with certain realistic and prudent controls.”
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