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The Explorers 2008: Shell still positive on Alaska Massive lease purchase in the Chukchi supplements Beaufort holdings; drilling remains on hold Alan Bailey Petroleum News
Commitment to an exploration strategy doesn’t come much stronger than the $2.1 billion payment that Shell sent to the U.S. Minerals Management Service for oil and gas leases that the company bought in the February 2008 Chukchi Sea lease sale.
“Internally we use words like ‘well thought-through’ to describe the lease sale,” John Hofmeister, the then president of Shell Oil Co., told participants in the Alaska’s Energy Challenge summit meeting in Anchorage a couple of weeks after the sale. “Externally I’ll stretch it and say it was a bold move by Shell.”
Shell had announced its re-entry to Alaska back in 2005 after an absence of a few years by spending more than $44.4 million on 84 leases in an MMS Beaufort Sea lease sale. The company then moved ahead rapidly with its new Alaska plans by appointing an Alaska management team; opening an office in Anchorage; initiating a program of seismic data acquisition in the Chukchi and Beaufort Seas; and planning some Beaufort Sea exploration drilling.
The drilling would target a known oil pool in the Sivulliq prospect, formerly called Hammerhead, due north of Flaxman Island on the west side of Camden Bay. Shell planned to use two drilling vessels, the Kulluk and the Frontier Discoverer, to start the drilling in the summer of 2007.
The company assembled a small fleet of vessels for its Beaufort Sea program. And to support Shell’s Beaufort Sea oil spill contingency plan, the fleet included a purpose-built oil spill response vessel, an oil spill response barge and a 500,000-barrel double hulled tanker.
Court injunction During the 2007 open water season Shell acquired some seismic data in the Chukchi Sea. But the company’s drilling plans came to naught when in August of that year the U.S. Court of Appeals for the 9th Circuit placed a temporary injunction on the Beaufort Sea drilling activities, pending a decision over an appeal to the court against MMS approval of Shell’s Beaufort Sea exploration plan.
The North Slope Borough, the Alaska Eskimo Whaling Commission and several environmental organizations had launched the appeal because of concerns about the potential impact of drilling activities on subsistence resources, including bowhead whales. The borough and a group of environmental organizations also appealed the Environmental Protection Agency approval of air quality permits for Shell’s drilling vessels.
But Shell vowed to continue its efforts to find a way to progress with its Beaufort Sea exploration.
“There’s a lot in the future for the OCS in Alaska and we want to be part of it. We’re very focused on getting the job done in the Beaufort Sea,” Rick Fox, Shell’s Alaska asset manager told the Resource Development Council in November 2007. “… We’re here for the long term and we’re going to work things out; that’s our belief.”
On Dec. 4, 2007, the 9th Circuit court heard oral arguments in the appeal against the exploration plan approval but, as of October 2008, the court had still not issued a decision in the case.
The EPA’s Environmental Appeals Board did, however, essentially find in favor of Shell over the air quality permit appeal and in June 2008 EPA issued another air quality permit for the Kulluk — Shell now hoped to use the Kulluk for a scaled-down drilling program at Sivulliq during the 2008 open water season. However, several organizations including the North Slope Borough, the Alaska Eskimo Whaling Commission, the Alaska Wilderness League and Resisting Environmental Destruction on Indian Land subsequently launched an appeal against the new air quality permit. That appeal had still not been resolved in October.
And at the end of June 2008, with no decision from the 9th Circuit court on the exploration plan appeal, Shell nixed its 2008 drilling plans.
Moving ahead But the company has been moving ahead with several components of its Beaufort and Chukchi Sea programs, Pete Slaiby, Shell’s Alaska general manager, told Petroleum News Sept. 23.
“We’ve had a good year in the Beaufort with respect to acquiring a lot of shallow-hazard survey data for future drilling sites on such prospects as Sivulliq and Torpedo in the Camden Bay area,” Slaiby said.
In fact 2008 proved to be the most successful year to date for getting shallow hazard work done, Slaiby said. The year also saw an excellent safety record for the company’s operations, he said.
Shell also completed some preliminary survey work for a subsea pipeline route from Sivulliq to shore, including investigation of beach scour and beach erosion along the shore. Offshore, the company obtained information about ice gouging and gouging from river water that drains through cracks in the sea ice.
“It’s been a good year for that,” Slaiby said. “We’ve been working to try to get that data, I think, for the last two or three years. This year we’ve got it so we’re quite happy.”
Good preparation
Slaiby attributed success this summer to effective and timely preparation.
“We had crews ready,” Slaiby said. “The equipment worked pretty well. The permitting was done on time. There was good cooperation with the North Slope Borough and the Alaska Eskimo Whaling Commission.”
Gathering of baseline data about marine mammals also has continued, with a special emphasis on gaining insights into bowhead whale migration.
“We’ve got these acoustic monitors that we’re putting in on the seafloor in both the Chukchi and the Beaufort,” Slaiby said. “… We’ve got a number of good years of that, so we’re continuing to develop a really strong data set with respect to understanding the migratory pattern of bowheads and even other marine mammals.”
Shell is also pushing ahead with evaluating the use of unmanned aerial vehicles, or drones, for offshore marine mammal monitoring, by test-flying drones from one of its Beaufort Sea vessels, Slaiby said. Drone technology has seen extensive use by the U.S. military in Iraq and Afghanistan and might provide a means of observing pods of whales and other wildlife far out at sea, without incurring the risks associated with manned flights over remote Arctic waters.
Seismic acquisition Western Geco’s MV Gilavar has also carried out a successful program of seismic data acquisition for Shell in the Chukchi and Beaufort seas, Slaiby said. The Gilavar collected quite a bit of data in the Chukchi Sea during the first part of the 2008 summer season, he said.
The vessel subsequently moved to the Beaufort Sea, to acquire data in the Camden Bay area, before transiting to Harrison Bay, offshore the central North Slope. In Harrison Bay the vessel surveyed in an area of Shell and ENI joint-venture leases, before returning to the Chukchi in mid-October, after the Barrow subsistence whale hunt.
In the Chukchi, Shell hoped that ice conditions would enable some seismic surveying of the Burger structure that lies about 50 miles offshore and contains a known major gas field. An extensive amount of sea ice in the Chukchi earlier in the season had prevented seismic data acquisition in some target areas, including Burger.
Although Shell expects to be operating a long way offshore in the Chukchi Sea, the company has been working with the Alaska Eskimo Whaling Commission to avoid impacts on subsistence hunting, Slaiby said. And for the past two exploration seasons the company has set up communications centers in the North Slope villages.
“We’ve worked very closely through our communications centers … with the whalers and with the local communities to make sure we minimize the imprint,” he said.
The company uses marine mammal observers and acoustic monitoring equipment to detect wildlife, so that a seismic operation can be shutdown if an animal comes close to an area where seismic sound exceeds a specified level.
But Slaiby sees a need to review the sound thresholds used as criteria for a shutdown. At the moment levels of 160 decibels and 120 decibels are used, depending on the type of animal encounter. That 120 decibel requirement was established in the 1980s and has become outdated in the light of current knowledge, Slaiby said.
Conflict avoidance agreements
Shell also wants to revisit the intent of conflict avoidance agreements with subsistence hunters, to use language that emphasizes performance in conflict avoidance rather than prescriptive language such as blackout dates for oil industry activities. For example, the company thinks that the plotting of noise levels would be more helpful in avoiding problems than arbitrarily specifying that only one or two operations can occur concurrently. And Shell wants to investigate how to optimize the use of open water time, Slaiby said.
“We really want to change some of the language on the CAA and we’re going to be very strong on that point in 2009. … I think we need to have a more open dialogue on what this looks like. I think there needs to be a lot of discussions,” Slaiby said, adding that those discussions need to involve the oil companies, the Alaska Eskimo Whaling Commission, the U.S. Minerals Management Service and the National Marine Fisheries Service.
Slaiby also thinks that there is a need to allay people’s fears with respect to oil drilling in places like the Beaufort Sea.
“The Beaufort is never going to be another Gulf of Mexico with 3,000, 4,000 structures, 200 operators etc,” Slaiby said. “It will always be on a smaller scale. People need to understand that.”
Oil spill concerns When it comes to the concerns that people have voiced about potential oil spills, Shell makes spill prevention a top priority, Slaiby said. At the same time, the company maintains an oil response capability for operating in the Arctic offshore and in the broken sea ice conditions that have become a focus of concern, he said.
“We are looking at that and we’ve already built one purpose-built vessel, the Nanuq, that can handle a certain amount of ice,” Slaiby said. “We’re looking at the next generation that would be classed to handle much more ice. The whole issue is that you do indeed send these vessels into broken ice with the ability to churn things apart in the ice and mechanically clean up at that point.”
Not only that, but ice can act as natural boom, thus simplifying the entrapment of ice on the water surface, he said.
Slaiby emphasized Shell’s commitment to work with local communities on the North Slope and said that he has been visiting those communities on a regular basis. And the company tries to operate as a “good neighbor” on the slope — in September a Shell search-and-rescue helicopter picked up a boy injured in a four-wheeler accident at Point Hope, Slaiby said.
“In the early hours of the morning they cranked up one of our Cougar SARs and brought it down to Point Hope and saved the boy’s life,” Slaiby said.
Disappointed But what of the long wait for a ruling by the 9th Circuit court on the appeal against exploration plan approval?
Shell is disappointed that the court has not yet issued its decision, Slaiby said.
“Each delay we’ve got means a delay on first oil and that impacts consumers,” Slaiby said. “… A season clicks by. The first time we’ll be able to put a bit in the ground, assuming we get favorable approval, will be 2009.”
Slaiby also commented on the expense of keeping crews on hold, waiting to see if drilling can proceed. “Getting a signal from the 9th” is especially important to Shell this year, so that the company can plan its 2009 program, he said.
“We waited to June 20 last year,” Slaiby said. “We will really need to consider how long we will wait this (coming) year.”
And then there’s the as yet unresolved appeal against the air quality permit for the Kulluk floating drilling platform. It’s an argument that has been going on for about two and a half years and is about emissions equivalent to those from about 50 sport utility vehicles, Slaiby said.
Other opportunities As the delays continue Shell needs to consider its other investment opportunities, Slaiby said.
“Shell as a whole has got many, many other places where it can invest. We do have other opportunities,” Slaiby said. “We’ve just had a major acquisition in Canada.”
Unconventional gas opportunities in Shell’s portfolio also compete with Alaska, he said.
“I really think this is an opportunity for the State of Alaska and the people of Alaska to get Shell in here,” Slaiby said. “Shell’s experience in the Arctic and Shell’s commitment to local business development and the development of these resources in a responsible and safe, ecologically sound manner is huge.”
Shell strongly supports revenue sharing between Alaska and the federal government for oil and gas revenues from the outer continental shelf, he said.
“Shell is absolutely committed to doing everything in our power to make sure that revenue sharing gets a really thorough hearing with everybody in Congress,” Slaiby said. “We think it’s the equitable way to ensure that there is real ownership and that people really do feel that this is part of the value proposition for Alaskans.”
And Shell remains optimistic about progressing its Alaska operations.
“We’re very hopeful that we’re going to have another good year in 2009,” Slaiby said.
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