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Vol. 17, No. 39 Week of September 23, 2012
Providing coverage of Alaska and northern Canada's oil and gas industry

No oil this year

Following damage to containment dome Shell opts for top hole drilling

Alan Bailey

Petroleum News

Shell’s plans to complete at least some oil exploration wells in Alaska’s Chukchi and Beaufort seas this year have finally come to naught, following damage to the company’s new Arctic oil containment dome during testing of the Arctic Challenger containment barge, the company announced Sept. 16.

The company has decided not to proceed with the complete drilling of two planned exploration wells, one in the Chukchi Sea and one in the Beaufort Sea, and is instead going to drill a series of “top holes,” the upper sections of wells that terminate a long way above any likely hydrocarbon zones. The drilling of top holes will enable the more rapid completion of wells during the 2013 drilling season.

“Over the last several days, Shell has successfully completed a series of tests of the first-ever Arctic containment system,” Shell said in a Sept. 16 press release. “However, during a final test, the containment dome aboard the Arctic Challenger barge was damaged. It is clear that some days will be required to repair and fully assess dome readiness. We are disappointed that the dome has not yet met our stringent acceptance standards; but, as we have said all along, we will not conduct any operation until we are satisfied that we are fully prepared to do it safely.”

Delays

This latest setback comes after a series of delay-causing glitches, starting with an abnormally large amount of sea ice in the northern Chukchi Sea at around the time that Shell had planned to send its drilling fleet north into the Arctic in early July.

The company had hoped to drill up to three wells in the Burger prospect in the Chukchi Sea, about 80 miles west of the northwestern end of the North Slope, and up to two wells in the Sivulliq and Torpedo prospects, on the western side of Camden Bay in the Beaufort Sea. But with the Arctic Challenger stuck in Bellingham, Wash., while a retrofit of the containment system was being completed, Shell had to further delay the start of drilling. And in early August Shell announced that, because of the delays, it was trimming back its drilling plan to a single well in the Burger prospect and a single well in the Sivulliq prospect.

But the approval of drilling permits by the Bureau of Safety and Environmental Enforcement, or BSEE, depended on the successful testing of the Arctic Challenger and Coast Guard certification of the vessel.

The retrofit of the Arctic Challenger began last December and, although Shell had presumably expected to have the vessel operational and certified before the start of the drilling season, apparently some design issues emerged late in the retrofit process, pushing back project completion.

Drilling starts

Meanwhile, around the beginning of August, three vessels from Shell’s fleet departed Dutch Harbor for the Chukchi and Beaufort seas to start preparing Shell’s drilling sites. On Aug. 20 Shell’s floating drilling platform, the Kulluk departed Dutch Harbor for the Beaufort Sea and on Aug. 25 the Noble Discover left for the Chukchi Sea. And, following a request by Shell, on Aug. 30 BSEE issued a drilling permit, enabling the drilling of the top section of Shell’s first Burger well without the containment barge in place, with drilling limited to depths substantially above any potential hydrocarbon bearing zones.

With all of the permits now in place to at least start drilling in the Chukchi, Shell moved the Noble Discover into place at Burger and finally started drilling at 4:30 a.m. on Sept. 9. But with time running short before a Sept. 24 drilling deadline in Shell’s Chukchi Sea exploration plan, Shell asked BSEE if, in the light of up-to-date Chukchi Sea ice forecasts, the deadline could be extended by nearly two weeks — the purpose of the deadline was to allow sufficient time to drill a relief well before the encroachment of winter sea ice at the drilling site, should there be a well blowout.

While drilling started in the Chukchi Sea, the Kulluk sat in a holding position in the Beaufort Sea, waiting for the completion of the annual subsistence whale hunt near Shell’s planned drilling sites. Shell is allowed to continue drilling until the end of October in the Beaufort.

Ice floe

On Sept. 10, less than two days after the start of drilling, Shell had to move the Noble Discoverer off the well site, as a 12-mile by 30-mile ice floe started drifting towards the Burger area. The company had been tracking the floe using satellite images, radar and reconnaissance, and decided to move the drilling fleet out of the area when there was a shift in the wind direction.

A few days later, following the damage to the containment dome, the company finally gave up on trying to drill into any potential oil-bearing reservoir rocks in 2012.

Shell spokesman Curtis Smith told Petroleum News in a Sept. 17 email that 1,800 to 2,000 people are involved in the company’s offshore drilling program and that, with the drilling of top holes potentially continuing until the end of October in both the Beaufort and the Chukchi, the decision not to drill into oil would have very little impact on this year’s employment levels. Smith would not speculate on which specific top holes Shell would drill this year but he said that this year’s drilling “will position us nicely for total depth drilling in 2013.”

Although Shell must have gleaned some satisfaction at having finally negotiated the regulatory process and litigation-related hurdles to reach the point of starting a Chukchi Sea well, the company must also be very disappointed not to complete any wells this year.

This year’s drilling project will end up costing several hundred million dollars, Smith said. In May Shell said that, at that point, the company had invested about $4 billion in its Alaska venture, since returning to the state in 2005.

Environmentalist response

Environmental groups have seized on Shell’s problems to bolster their arguments that oil drilling in the Arctic offshore poses unacceptable risks to the Arctic marine environment.

“Responding to an oil spill in frigid Arctic waters is nearly impossible, as Shell’s announcement today makes clear,” said Nicole Whittington-Evans, Alaska regional director for the Wilderness Society, in response to Shell’s announcement about the damage to the containment dome. “If they couldn’t operate the spill response ship in the comparatively calm waters of Bellingham, Wash., what hope could they have had in the rough seas of the Arctic Ocean? Things go wrong during complex technical activities, so for Shell to say they can drill in the Arctic Ocean without a problem isn’t just wrong, it’s dangerous.”

“Shell spent nearly $5 billion to exploit global warming for profit this summer, but the Arctic is proving to be the company’s Waterloo,” said Greenpeace U.S. Deputy Campaigns Director Dan Howells. “History will show what a catastrophic miscalculation the company has made in the region, and that it has ignored the world’s top scientists as well as the nearly two million people around the world who have joined the Greenpeace’s Save the Arctic campaign at its peril.”



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Interior reviewing Shell applications

The Bureau of Safety and Environmental Enforcement, or BSEE, is reviewing nine Shell applications for permits to drill top-hole wells in the Chukchi and Beaufort seas, Marcilynn Burke, acting assistant secretary, lands and mineral management, U.S. Department of the Interior, told the Arctic Oil and Gas Congress on Sept. 18. Shell submitted applications for 10 wells and BSEE has already issued one of those permits, Burke said, presumably referring to the permit for the Burger-A well that Shell has already started drilling.

“Shell submitted a total of 10 APDs (applications for permits to drill), six for the Chukchi, four for the Beaufort, and BSEE is reviewing now the remaining nine APDs,” Burke said.

BSEE will have an inspector on board Shell’s drilling vessel for each of the drilling operations, she said. Shell, having abandoned its plan to complete some exploration wells in the Beaufort and Chukchi seas this year, now wants to drill some top-hole wells to depths above any hydrocarbon bearing zones, to enable wells to be drilled more quickly in 2013.

“We will continue to work with Shell as we oversee that drill work and also gather more information in preparation for next year’s season,” Burke said. “While many are disappointed in the sequence of events that occurred, we are still moving forward with Shell … with some activities, and that is something that will be useful for all of us in the future,” she said.

Burke said that both BSEE and the Bureau of Ocean Energy Management are continuing to hold conversations with ConocoPhillips and Statoil about their future submissions of exploration plans and oil spill response plans for Chukchi Sea drilling. ConocoPhillips is interested in drilling in 2014, while Statoil may drill in 2015.

“We’ll all sit back and look at what we’ve learned this year and be prepared to move forward,” Burke said.

On Sept. 20 BSEE announced that it had issued a permit, allowing Shell to prepare mudline cellars and to drill and set the first two strings of casings in shallow non-oil-bearing zones for wells in the Beaufort Sea. Mudline cellars, in the seafloor, accommodate the wellhead equipment for subsea wells.

“BSEE has set the bar high for exploration activities in the Arctic, and any approved operations must meet those standards,” said BSEE Director Jim Watson in announcing the issue of the permit. “BSEE continues to closely monitor Shell’s ongoing approved preparatory drilling activities in the Chukchi Sea, and today’s approval of limited work in the Beaufort Sea must also meet the same rigorous safety, environmental protection and emergency response standards.”

—Alan Bailey