The biggest and best hopes of full-scale oil and gas exploration in the Canadian North have received a sharp reversal, with an Imperial Oil-led partnership joining a separate venture by Chevron Canada on the shelf for an indefinite period.
In a filing with Canada’s National Energy Board, Imperial and BP said they need more time to study the challenging Arctic operating conditions in the Beaufort Sea and are seeking an extension of their exploration permits to 2028.
Lee Smith, Imperial’s exploration operations manager, said in the letter that his company, along with ExxonMobil (which owns 69.6 percent of Imperial) and BP, believes more technical and research work is necessary to “ensure a viable program” that is “specific to the unique operating conditions for drilling in the deepwater Beaufort Sea, with its limited drilling season.”
He said that “under the current license term, there is insufficient time to conduct the necessary technical work and complete the regulatory process.”
Licenses expire in 2019, 2020
The current nine-year exploration licenses are due to expire in 2019 and 2020. Imperial and BP want to add seven years to the terms on their adjoining parcels, which were combined in a single joint venture almost five years ago.
Exploration License 449 was acquired by BP in 2008 for a work commitment of C$1.18 billion, while EL 446 was secured a year earlier by Imperial and ExxonMobil for a pledge to spend C$585 million.
The parcels are in water depths of 265 feet to 4,000 feet and are about 70 miles to 85 miles north of Inuvik, Northwest Territories.
Last year, Chevron Canada put its Beaufort drilling plans on hold, citing economic uncertainty.
NWT Industry Minister Dave Ramsay has been full of hope for several years that Imperial was about to submit a regulatory application to start drilling, although Imperial has been consistently guarded, saying it was continuing to assessment options and develop plans.
Ramsay was not available to comment on Imperial’s decision, or the outlook for northern resource development, now that the Beaufort has been shelved and Husky Energy has opted to drop the highly-prospective Canol play in the Central Mackenzie Valley from its list of active operation areas.
Heavy blow to Tuktoyaktuk
But the body blow landed heavily in the hamlet of Tuktoyaktuk, which was seen as a major staging point for any Beaufort exploration, especially with an all-season road between Inuvik and Tuktoyaktuk due for completion in 2020.
Businessman and former Tuktoyaktuk Mayor Merven Gruden said the Imperial announcement is “obviously not good news for employment or business-wise for the whole Arctic.”
The costs and challenges of operating in the Arctic are influenced by historical well records that establish a harsh environment, where drillships have been forced off station by heavy ice and where numerous well kicks and wellhead gas and water flows have been encountered and controlled.
Issues with NEB
Also, still to be resolved is an agreement between the operators and the NEB over how a well blowout would be handled.
The NEB has favored a same-season relief well policy to kill an out-of-control well in the same drilling season, insisting that any operator must explain how it would meet that objective, while Chevron in particular has argued that “in the unlikely event of an uncontrolled blowout” the long period associated with completing a same season relief well “would result in an unacceptably high release of hydrocarbons into the environment.”
Chevron has proposed an alternative well secure system by deploying an Arctic capable drillship as well as up to three icebreaking vessels.
Imperial had been expected to share its plan this quarter on how it would respond to an oil spill with the NEB and the Environmental Impact Review Board.
It is not clear whether those discussions will continue in the face of an industry pullback from major frontier exploration in the Arctic and the Alberta oil sands.
Imperial retaining office
However, the Imperial partnership has indicated it will retain its office in Inuvik to collect data on sea ice and prepare NWT communities for employment and business opportunities should the Beaufort program get revived.
Doug Matthews, an analyst and former oil and gas director for the NWT government, told the Canadian Broadcasting Corp. that any commercial production from the Beaufort would be so far into the future that today’s oil prices are not a relevant part of decision-making.
But he suggested the Imperial-BP decision might have been partly influenced by growing concerns among energy companies over climate change, with the Beaufort postponement a potential indication of a step toward “a post-petroleum world.”
Environmental issues
On the environmental front, the complications of operating in the Beaufort have been exacerbated by a new paper published in the journal Oceanography, which suggests the Canadian Beaufort is becoming acidic faster than any other ocean in the world, pointing to a side effect of climate change.
“As goes the Arctic, so goes the rest of the oceans,” said lead author Jeremy Mathis of the U.S.-based National Oceanic and Atmospheric Administration.
In about 10 years, he told the Canadian Press, Arctic waters off the NWT will be more acidic for most of the year than ever before, although the impact on sea life is unclear.
Acidification results from an abundance of carbon dioxide in the atmosphere, which results in too much gas being dissolved into sea water and the process happens fastest in the Arctic where waters are already low in chemicals that serve as a buffer against the process.
Mathis and his research team initially collected water samples in 2011 and 2012 from the Chukchi Sea between Russia and Alaska to the western edge of the High Arctic islands in Canada.
The results indicate that by 2025 the Beaufort’s acidity will be outside the normal range for most of the year and, within 40 years, will average permanently higher than even the highest current level, or sooner than the Chukchi or Bering seas.
Mathis said changes in the Beaufort can be measured over shorter period than any other ocean, pointing to “how the rest of the ocean will respond over longer time scales.”
