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Vol. 13, No. 6 Week of February 10, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Chukchi Sea ‘next step’

Norway’s StatoilHydro teams with Italy’s ENI in Alaska OCS lease sale

Eric Lidji

Petroleum News

With 16 successful bids in the Chukchi lease sale on Feb. 6, StatoilHydro, the world’s largest offshore oil and gas producer, finally arrived in Alaska, home to some of the most promising and challenging offshore prospects in the world.

The bids follow a string of complex projects for the Norwegian oil company, and StatoilHydro sees the Chukchi Sea as a natural progression, according to Halvor Engebretsen, vice president for StatoilHydro’s Arctic growth theme, who spoke to Petroleum News by e-mail on Feb. 7 from his offices in Norway.

“StatoilHydro sees this as an opportunity to achieve a competitive position in a new frontier basin with long-term growth potential, while also advancing the Arctic initiative,” Engebretsen wrote.

StatoilHydro continues partnership with ENI

StatoilHydro, through its U.S. subsidiary StatoilHydro USA E&P, Inc., bid nearly $57 million on 33 leases in OCS Lease Sale 193 for the Chukchi Sea on Feb. 6.

The company partnered on 14 of its 16 high bids with ENI Petroleum USA LLC, the U.S. subsidiary of Italian super major Eni S.p.A.

The winning leases sit about 37 miles north of the Burger gas prospect.

Under the joint bids with ENI, StatoilHydro will become the operator of any licenses in the Chukchi Sea and will maintain a 60 percent working interest in the leases. ENI Petroleum will hold the remaining 40 percent.

StatoilHydro and ENI currently work together on Arctic projects in the Barents Sea and the Norwegian continental shelf.

Engebretsen said the two companies made “a strong team.”

ENI Petroleum recently began developing the Nikaitchuq field in the Beaufort Sea off the northern coast of Alaska.

StatoilHydro was created in October 2007 with the merger of Statoil, the national oil company, and Norsk Hydro, a private company. The two companies date back to the start of the Norwegian oil industry.

Today, the Norwegian state owns 62.5 percent of StatoilHydro.

The company employs around 30,000 people in 40 countries and produced 1.7 million barrels of oil equivalent per day in 2007.

StatoilHydro recently announced plans to drill 35 exploration wells in 2008 in Africa, the Gulf of Mexico and South America, northern Europe, Central Asia and India.

Bids end a year of speculation

Over the past year, StatoilHydro has given several indications of plans to come to Alaska.

The company hired former state Division of Oil and Gas Director Ken Boyd as a local consultant, joined several local industry groups and addressed the Alaska oil industry directly at the Meet Alaska energy conference in January.

At a conference in Norway in January, the company came out and formally announced plans to bid in the Chukchi lease sale.

The harsh Arctic waters of the Chukchi fit with StatoilHydro’s growing portfolio of technologically complex international projects like those in Russia, the Gulf of Mexico and the Canadian oil sands, meant to offset declines in aging North Sea oil fields.

Although Engebretsen would not comment on “internal evaluations” used to justify the bids, he did call the Chukchi Sea “an Arctic area with already proven hydrocarbons, in an open transparent bid round in a politically and fiscally stable regime.”

Chukchi follows several tough projects

“We see this as the next step after Ormen Lange, Snohvit (and Shtokman), advancing along the learning curve of harsh environments through new opportunities when they are available,” Engebretsen said about the Chukchi Sea.

Those three projects share many traits with any potential development in the Chukchi Sea off the northwest coast of Alaska: harsh conditions, isolated areas and the possible need to find partners.

Ormen Lange is a gas field on the Norwegian continental shelf believed to contain 14 trillion cubic feet of natural gas reserves.

The company discovered the field in 1997 and brought it into production last year.

Snohvit, or “Snow White” in Norwegian, is the first offshore development project in the Barents Sea north of Norway.

The liquefied natural gas project has faced objections from the environmental community similar to those currently being debated over the Chukchi Sea.

StatoilHydro developed both Ormen Lange and Snohvit without visible platforms, instead using underwater production facilities and pipelines.

Shtokman is a large natural gas field in the Barents Sea off the northern coast of Russia.

StatoilHydro is currently developing the field with the Russian gas company Gazprom.

“With more than 30 years of offshore experience from the Norwegian continental shelf we believe we can build on this and develop our capabilities further by involving us in the future oil and gas development in the Chukchi Sea,” Engebretsen said.

StatoilHydro already working with stakeholders

Any companies hoping to develop reservoirs under the Chukchi Sea will contend with opposition and skepticism from environmental organizations and Native groups.

The waters of the Chukchi Sea are considered prime polar bear habitat and as the polar bear is up for listing as a threatened species under the Endangered Species Act, many have protested the U.S. Minerals Management Service’s decision to go ahead with the lease sale.

Engebretsen said StatoilHydro has already “started the process of stakeholder identification and issue analysis” in the area.

“In this respect dialogue and information exchange is important to allow an evidence-based discussion, identify suitable solutions and areas where win-win situations could be created,” Engebretsen wrote.

“As we see it, we have successfully cooperated with local communities and environmental groups in Norway when developing Ormen Lange and Snohvit LNG in the Barents Sea.

“We will build on this expertise when establishing the stakeholder dialogue in Alaska while at the same time be open for new experiences and learning.”

All bidders waiting for MMS approval

It could be a while before StatoilHydro or any other of the successful bidders start on-the-ground work in Alaska.

“There is a lot of work to do before we get to that stage,” Engebretsen wrote.

He added “We already have a liaison officer in Anchorage, and it was yesterday we got these blocks. Now we will evaluate the results and the way forward. Opening of an office is a natural part of that evaluation.”

The U.S. Minerals Management Service still needs to review and approve the winning bids in the sale before the companies can go forward.

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