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Vol. 15, No. 41 Week of October 10, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Going for the Beaufort; Shell applies for Sivulliq well in ’11

In an opening gambit for planned drilling on the Alaska outer continental shelf in 2011, Shell announced Oct. 6 that it has applied to the federal Bureau of Ocean Energy Management Regulation and Enforcement for a permit to drill a single well in the Sivulliq prospect in the Beaufort Sea during next year’s open water season.

“We have every reason to believe the administration will permit 2011 exploration drilling in Alaska,” said Pete Slaiby, Shell Alaska vice president, in a release announcing the permit application. “The president, himself, endorsed our Alaska exploration program last spring. Unfortunately, the Deepwater Horizon tragedy occurred and led to a suspension of offshore activities in Alaska. Since then, Shell has taken extraordinary steps to build confidence around our 2011 program, which involves a limited number of exploration wells in shallow water with unprecedented, on-site oil spill response capability.”

More wells possible

Slaiby told reporters that the company may also apply to drill a second well at Sivulliq and that the company has not yet discounted the possibility of drilling in the Chukchi Sea in 2011. Shell is initially targeting the Beaufort Sea for its 2011 drilling plans because court cases in Alaska District Court and in the U.S. Court of Appeals for the District of Columbia, challenging the U.S. Minerals Management Service 2008 Chukchi Sea lease sale, remain unresolved, Slaiby said.

“We’ve got, I think, clear sailing into the Beaufort Sea,” he said.

Slaiby also said that Shell’s oil spill response contingency plans demonstrate capabilities that considerably exceed the Alaska spill response planning standards for the wells that the company wants to drill.

“We’ve really built a robust plan well beyond that (standard),” Slaiby said.

Shell is basing its 2011 drilling plans on its previously approved 2010 exploration plans for the Beaufort and Chukchi seas. U.S. Minerals Management Service approvals of the 2010 exploration plans have withstood appeals in the U.S. Court of Appeals for the 9th Circuit.

Encouraged by seismic

In recent years Shell has conducted 3-D seismic surveys over its leases in both the Beaufort and Chukchi seas. The company likes what it sees in the seismic data for the Sivulliq project, Slaiby said. Sivulliq is the location of a known oil field, previously called Hammerhead, on the west side of Camden Bay, east of Prudhoe Bay.

Slaiby said that, in the Chukchi Sea, Shell is “very, very excited” about its Burger prospect. The 25-mile-diameter Burger structure, about 80 miles offshore and previously drilled by Shell in 1989-90, is known to hold a gas field with perhaps 14 trillion cubic feet of natural gas.

Regulatory certainty

In applying for a Beaufort Sea drilling permit now, Shell is laying out a path to achieve some level of regulatory certainty over its 2011 drilling plans by December of this year, thus allowing sufficient time for the planning and deployment of its 2011 open water exploration project, Slaiby said.

“We’d like to have regulatory certainty, in other words a path to get our permits done, by sometime in December. … We’ve got to get the regulatory part under our belt before we can move forward,” Slaiby said, while also commenting that there is still the risk of litigation over Shell’s plans.

Going through a major planning and deployment exercise for a project that subsequently has to be cancelled represents a major waste of resources and money, Slaiby said.

“Unless we can plan and do it right, we won’t start,” he said.

A single drillship operation in Alaska represents 600 to 800 jobs, and possibly more than that, given some new features that Shell is adding to its drilling program, he said.

Drilling suspended

In the wake of the Deepwater Horizon disaster in the Gulf of Mexico, the Department of the Interior has imposed a deepwater drilling moratorium on the U.S. outer continental shelf and has also suspended drilling in the Arctic OCS. However, although the deep water drilling ban is due to expire by the end of November, Interior has refused to set any deadline on deciding whether to allow future offshore drilling in the Arctic. Shell’s action in applying for a Beaufort Sea drilling permit presumably assumes that Interior will lift its Arctic ban by the end of this year.

Under the normal permit application procedure, Shell should have approval of its drilling permit by Nov. 5, but that timeframe could extend, Slaiby said.

For its 2011 drilling program, Shell plans to use the drillship Noble Discoverer (previously called the Frontier Discoverer), with a support fleet that will include on-site oil spill response capabilities. The company has moved its floating drilling platform, the Kulluk, to Dutch Harbor in the Aleutian Islands — during the 2011 drilling season Shell plans to position the Kulluk in readiness to act as a backup drilling facility for the drilling of a relief well in the unlikely event of a well blowout occurring.

Containment dome

And, based on lessons learned from the Deepwater Horizon disaster in the Gulf of Mexico, Shell is commissioning the construction of a containment dome for placing over a well head if necessary, to gather any oil spilling from a well, with a hose transporting gathered fluids into a surface Arctic-class barge. The dome will include technology for dealing with the formation of gas hydrates that might otherwise clog the containment system, although Shell has assessed that hydrates will not form at the subsea temperatures and pressures that exist at its Arctic drilling locations, Slaiby said.

The containment system will remain staged in Alaska, to allow for rapid deployment if necessary, Slaiby said.

Brent Ross, Shell’s operations manager, said that Shell will have two blowout preventers on site during drilling operations, with the blowout preventer stack design enabling a second blowout preventer to be bolted on top of the well’s primary blowout preventer, should the primary blowout preventer fail. The company is also putting a second set of shear rams in its blowout preventer stack, Slaiby said.

“We are hopeful that we’ve done enough work to bring us to a point where clearly stakeholders as well as our regulators are comfortable that we can do this and do this safely,” Slaiby said in summing up his company’s approach to its planned Arctic drilling.

—Alan Bailey

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DOI appeals District Court Chukchi ruling

In a court case filed Oct. 1 in the U.S. Court of Appeals for the 9th Circuit, the U.S. Department of the Interior has appealed a July 21 decision by the U.S. District Court for Alaska, in which the District Court upheld an appeal against the U.S. Minerals Management Service 2008 Chukchi Sea lease sale. The District Court has required Interior to revise the environmental impact statement for the lease sale and has meantime banned oil and gas lease related activities in the Chukchi Sea.

In a filing posted Oct. 6 in the 9th Circuit Court, Interior said that “the main issue on appeal is whether the District Court erred in ruling that Interior’s environmental impact statement was deficient for purposes of the National Environmental Policy Act.”

Supplementary EIS

However, Interior is trying to comply with the District Court ruling. On Oct. 5 the agency posted a notice in the Federal Register, stating an intent to prepare a supplemental Chukchi Sea lease sale EIS that would meet the court’s stipulations.

The 9th Circuit appeal is a procedural move to preserve Interior’s right to appeal the District Court case, Interior spokesman John Callahan told Petroleum News Oct. 6. Interior has notified the court that it is preparing a supplementary EIS, as required by the District Court, Callahan said.

In a separate court case in the U.S. Court of Appeals for the District of Columbia, involving an appeal against the MMS 2007 to 2012 outer continental shelf lease sale program that included the 2008 Chukchi Sea lease sale, the court has instructed MMS to rework its environmental analysis for the environmental impact statement for the lease sale program. BOEMRE, the new agency that has replaced MMS, issued a draft revised EIS in April 2010 and since then, in readiness for delivering a completed version of the new EIS to the D.C. court, BOEMRE has been reviewing the more than 100,000 public comments it received on the draft.

Clarification of the legal status of Chukchi Sea oil and gas leases requires resolution of both the District Court and the D.C. court cases.

—Alan Bailey

Continuing debate over Shell’s Alaska plans

Shell’s Oct. 6 announcement of its intention to drill at least one well in the Beaufort Sea in 2011 drew some perhaps predictable criticism from the environmental lobby.

“As we’ve seen this year in the Gulf of Mexico, oil development is a dangerous, dirty, and risky business,” said Cindy Shogan, executive director of Alaska Wilderness League. “The turn of events in the Gulf prove that we cannot continue to operate as if it is business as usual. Instead of continuing with bad processes and allowing Shell to move forward with its permit to drill in the Beaufort Sea, the U.S. Department of Interior should require Shell to submit a new exploration plan. … We know that blowouts can occur in shallow waters such as in the Beaufort and there is only a limited ability to respond to them under any conditions — much less with broken ice.”

On the other hand, the state administration sees Shell’s plans as supporting the future economic well being of Alaska and the United States.

“I commend Shell’s persistence in pushing federal regulators to come down on the side of Americans who want an expansion of the jobs base and greater national security through increased domestic energy production,” said Alaska Gov. Sean Parnell. “The federal government should recognize that Shell has gone above and beyond existing environmental requirements to ensure protection of our resources.”

—Alan Bailey