When Shell announced its re-entry to the Alaska oil and gas industry through its purchase of a swathe of leases in the March 2005 Beaufort Sea outer continental shelf lease sale, many people speculated on the mega-major’s intentions. Those intentions became crystal clear on Jan. 20 when Rob Ryan, Shell Exploration and Production’s vice president for corporate affairs, addressed the Alaska Support Industry Alliance’s Meet Alaska conference in Anchorage.
“We’ve been watching for the right opportunity to re-enter the Alaska scene, and we believe that time has come,” Ryan told the conference attendees.
Ryan cited new technology and available capacity in the trans-Alaska pipeline as key factors in Shell’s decision.
“Shell’s re-entry focuses on the outer continental shelf with 102 leases now in the Beaufort,” he said. “We’re looking to try seismic this season (summer) and we’re hoping to drill our first well of this modern campaign no later than next year.”
Shell also purchased 33 nearshore and onshore leases in Bristol Bay in the state of Alaska’s fall 2005 lease sale Ryan said.
But Shell is no newcomer to Alaska.
“Since the 1950s Shell has explored almost all of the major Alaska basins,” Ryan said.
Ryan explained that in the 1980s Shell was a partner in six of the 12 Beaufort Sea discoveries and drilled four of the five exploration wells in the Chukchi Sea. But oil prices had not been high enough to justify development of any discoveries and the company relinquished all of its leases.
Ryan pointed out that, whereas Shell has not been active in Alaska in recent years, the company has been involved in some major Arctic projects in Russia, the Mackenzie Delta and Norway.
Global agendaAlaska dovetails right into Shell’s current global business strategy.
That strategy consists of three themes: new material oil; more unconventional oil; and more integrated gas — Alaska enjoys huge potential to support all of these themes, Ryan said.
“We need to make Alaska one of Shell’s production heartlands in support of this strategy,” he said.
From the point of view of material oil, “there are still many unexplored and underexplored basins in Alaska,” Ryan said. There are major discoveries for those willing to make the commitment and develop them in a responsible manner, he said. And unconventional oil, especially in the form of heavy oil deposits, exists in billions of barrels.
Additionally, Alaska is rich in gas.
“We are excited about the positive steps to see that gas eventually gets to market,” Ryan said.
Ryan said that Shell also sees potential for a world-class liquefied natural gas project in the Bristol Bay area.
“One area that could provide relatively direct access to the U.S. and Asia-Pacific LNG market is Bristol Bay,” he said. “We look forward to the opportunity to one day acquire seismic and explore in the shallow ice-free waters of this prospective basin. We believe it can be done with no adverse impact on the fisheries or the marine mammals.”
Ryan emphasized that Shell did not see that type of LNG project competing with or undermining the proposed North Slope gas line development.
Shell sees new technology as a key component of Arctic exploration and development, especially in the ice-prone and stormy outer continental shelf offshore northern Alaska. Recent advances in subsea technology may, in particular, unlock oil and gas deposits in this challenging environment.
“Long distance subsea projects can extend our onshore reach without the need for permanent offshore structures,” Ryan said.
Ryan particularly cited the Ormen Lange gas field, offshore Norway, where subsea completions are being tied back 75 miles to onshore facilities. State-of-the-art remote operated vehicles have also made deep-sea work possible. In the United States, for example, Shell has used remote operated vehicles to repair the Mars field export pipelines that were damaged in last year’s Gulf of Mexico storms.
“You can imagine 3,000 feet of water and doing the repairs on two pipelines which were damaged by the storm entirely with remote operated vehicles,” Ryan said.
Shell’s experience in deep waters of the Gulf of Mexico also gives the company confidence that it can maintain product flow through pipelines in frigid water — the water temperature at depths of 8,000 feet in the Gulf of Mexico is similar to that in the Arctic, Ryan said.
“Over the past 10 years our deep-water operations have taught us much about how to keep oil and gas flowing in such frigid conditions,” he said. “Much of this technology is directly applicable to the Arctic subsea.”
But sea ice remains a major challenge, especially when drilling wells. Shell hopes to try the use of air cushion supported drilling rigs, with a hovercraft-like rig design pioneered on the Siberian tundra back in the 1960s. This type of rig could perhaps hover over ice after the end of the open water season.
“In areas where the open season is very short this type of drilling platform might be able to extend the drilling season by more than 50 percent, and so reduce exploration and development time and cost,” Ryan said.
Shell is also investigating the use of ice-resistant tension leg drilling platforms. Ryan said that this technology did not exist in a mature form when Shell last explored offshore Alaska. A study has now indicated that a flexible structure using a tension leg platform designed for Arctic applications could withstand sea ice up to six feet thick, he said.
The environment and communitiesRyan said that in addition to having clear oil and gas business objectives in its new foray into Alaska, Shell views environmental protection and the interests of local communities as top priorities “to cause no long term harm to the environment and to make a positive impact on the community.” Protecting the environment involves operating in the most responsible and safest manner, and leaving as small a footprint as possible, Ryan said. Working with local communities means being a good corporate citizen, providing jobs, respecting cultures and enhancing the lives of people.
“For Shell it just makes good business sense,” he said.
Ryan cited Shell’s Athabasca oil sands project in Canada as an example of community involvement. There the company worked with the local First Nations community to establish contracts for services such as heavy trucking, he said. That has resulted in local long term employment, with $1 million per year in local services 10 years ago growing to more than $20 million per year now.
And in the massive Sakhalin-2 project, in the Russian Far East, more than 75 percent of the 17,000 project workers are Russian and more than 40 percent of the workers are from Sakhalin Island, Ryan said. Shell has a 55 percent interest in that project, he said.
Ryan also described Shell’s efforts to minimize the impact of gas development around Wyoming’s environmentally sensitive Pinedale anticline, a critical habitat area for deer, antelope and other wildlife. He said that Shell has minimized the footprint of operations that produce 150 million cubic feet per day of natural gas from more than 60 wells. Additionally the company has funded local wildlife protection initiatives and taken other measures to minimize environmental impacts.
“By deploying portable gas processing units Shell has reduced flaring during completion operations 98 percent in just three years,” Ryan said. “… (That was) something that needed to be done and we’ve started to do it.”
And for Alaska, Ryan said that Shell is designing new and better emergency response systems for ice-covered seas and finding ways to protect endangered marine mammals.
Alaska communitiesShell has already started talking to local communities in Alaska about the company’s plans, Ryan said. In particular the company has been working to complete a conflict avoidance agreement with the communities for the upcoming exploration season. Ryan said that Shell pioneered this type of negotiation back in the 1980s.
“We have great respect for the people who live in the area in which we plan to operate, generations of whom have developed a livelihood and a culture in these extreme conditions, and for whom the Arctic is home,” Ryan said.
He said that Shell will also develop contracting strategies to support its exploration programs. The company anticipates development opportunities and jobs in the communities where it operates and sees many opportunities for local people if the company’s operations prove commercially successful.
Meantime the company has been moving ahead with a program of Alaska hire in support of its growing Alaska operations. Earlier in January the company announced the hiring of an Alaska management team consisting of Alaska Asset Manager Rick Fox; Alaska Government and External Affairs Manager Cam Toohey; and Community Affairs Manager George Ahmaogak Sr. Fox has previously worked in the Bering, Beaufort and Chukchi Seas; Toohey is a lifelong Alaskan; and Ahmaogak is a lifelong Alaskan, who was formerly mayor of the North Slope Borough, president of Ukpeagvik Inupiat Corp. and Piquniq Management Corp. and a member of the Interior’s National Outer Continental Shelf Policy Committee.
“We’re not done hiring,” Ryan said, adding that Shell also looks forward to working with Alaska Support Alliance companies. Shell wants to employ Alaskans with the critical skills needed to operate its future assets, Ryan said.
“To achieve this we will partner with the University of Alaska, the community colleges, industry liaisons and other as we search out proactively staff that can fill our needs,” he said. Meantime the company expects to hire about six interns this year, with a need for more interns in future as the operations mature.
“We really are glad to be back in Alaska,” Ryan said. “… The world needs energy and it’s no secret that Shell is in the energy business … and we believe responsible development of Alaska’s resources is in everyone’s best interests.
Ryan said that Shell wants to set the standard for socially responsible and environmentally mindful development.
“Alaska is a place of great vision, commitment and stamina,” he said. “We see how the land is and we intend to be part of it.”