Providing coverage of Alaska and northern Canada's oil and gas industry
September 2020

Vol. 25, No.37 Week of September 13, 2020

Shell touts drilling experience in Alaska

Although not interested in operating in Alaska again, major brings extensive technical expertise to West Harrison Bay partner

Kay Cashman

Petroleum News

As reported in the Sept. 6 issue of Petroleum News, Shell Offshore Inc. filed an application with the State of Alaska to form the West Harrison Bay unit in order to save 18 leases from expiration in 2022.

The leases, totaling 86,400 acres, are in state nearshore waters in the vicinity of the two largest Nanushuk oil fields under development - directly north of ConocoPhillips’ Willow project and northwest of Oil Search’s Pikka project.

Shell is 100% holder of the leases but expects to bring in a partner in 2021 to share the risks of exploration and possible development, designating its unnamed partner as the unit’s operator.

Shell’s lack of interest in operating in Alaska again was confirmed in a Sept. 9 email to Petroleum News from company spokeswoman Cincy Babski: “Shell has applied for an extension and unitization of our 18 Alaska (shallow water) leases, referred to as West Harrison Bay, in order to preserve the option to further extend our ownership of our lease holdings. We have sold or relinquished all of our frontier licenses in Alaska. We have no further plans for frontier exploration offshore Alaska.”

The application for the West Harrison Bay unit was filed Aug. 27 with the Alaska Department of Natural Resources’ Division of Oil and Gas.

(See the non-confidential portions of Shell’s application on the division’s website at http://dog.dnr.alaska.gov/Library/, which include a map (figure 1) that shows the proposed unit’s location and Pikka-Horseshoe and Willow, as well as a “North Slope chronostratigraphic diagram indicating the reservoirs of interest and the LCu” (figure 2)).

Drilling commitment

A unit plan of exploration attached to the application asked for a five-year term given the current uncertain market conditions related to the Covid-19 pandemic and the resulting collapse in oil prices allowing Shell “the time necessary to secure a partner, develop additional information regarding the hydrocarbon potential of the West Harrison Bay leases.”

In its exploration plan for the unit Shell said the operator will drill the first well in the 2023-24 winter drilling season and, assuming success, drill a sidetrack well to evaluate the Nanushuk.

During the 2024-25 winter drilling season, the unit operator will complete another exploration well and possible sidetrack.

After evaluating the results of the completed well(s) Shell said the operator will submit either a further plan of exploration for the unit or a plan of development no later than Dec. 31, 2025.

Unit area history

In its application Shell provided a background and description of the area it wants unitized, an abbreviation of which follows.

Shell’s first exploration programs in Alaska were conducted in the Cook Inlet basin in the 1950s.

The company’s investment expanded in the early 1980s when it acquired leases in the Beaufort and Chukchi seas and drilled seven wells in the Beaufort from 1982 to 1985 and four wells in the Chukchi from 1989 to 1991.

Shell renewed its investment with the purchase of a block of offshore leases at the 2005 Beaufort Sea sale. The company conducted seismic acquisition programs in the Chukchi and Beaufort seas in 2006 and initiated a two-rig program in the Beaufort in 2007.

The federal permitting process was challenging, followed by lengthy litigation from environmental NGOs. However, both Shell and ConocoPhillips received federal permits to conduct a joint 3D seismic program in the Chukchi Sea and a Shell-only 3D survey in the Beaufort.

Shell purchased additional Beaufort Sea acreage in 2007 and the 18 West Harrison Bay leases in 2012 for $2.6 million. (At end of 2007 Shell owned 139 leases in the Beaufort Sea, assimilated at a cost of about $80 million.)

In 2008 Shell picked up leases in the federal Chukchi Sea Lease Sale 193 for approximately $2.1 billion.

Foiled by complex, evolving regs

During the 2015 open-water season Shell executed an exploration drilling operation in the Chukchi Sea. The company safely drilled into targeted zones 134 miles northwest of Utqiagvik on the Burger prospect in a single season. This was accomplished with no significant downtime events, no major HSEE incidents, and no environmentally significant issues.

Shell’s team safely managed two drill rigs and three ice management/anchor handling vessels, with a well-integrated relationship among all supporting contractors.

Environmental challenges were managed successfully but were complicated by a complex and evolving regulatory framework, including regulator imposed limited drilling season length and severe restrictions associated with distance between drill ships and limiting ice reconnaissance that could have resulted in an unintended safety issue. There were many unsupported restrictive regulatory requirements from federal agencies following the 2010 Deepwater Horizon Gulf of Mexico incident.

One positive stakeholder development was the formation of Alaska Inupiat Offshore LLC, which Shell believes resulted in a paradigm shift in how North Slope communities, Native corporations, and the North Slope Borough Municipality and Wildlife Department viewed offshore drilling. This was accomplished in part by the establishment of a science collaboration between the North Slope Borough and Shell, which created a common basis for evaluating environmental issues and analysis.

Following the 2015 Chukchi drilling season, Shell withdrew from its federal lease position due to discouraging well results, high logistic and technical costs, and a challenging and unpredictable federal regulatory environment.

Large seismic, well database

The technical risk associated with Shell’s West Harrison Bay leases decreased due to a string of discoveries in the vicinity, including five standalone Nanushuk reservoirs and multiple leads in both the Torok formation and Jurassic Alpine-like plays.

Starting in 2013 with the Qugruk No. 3 well (Pikka unit), efforts in the Nanushuk dominated exploration activity on the North Slope and resulted in the discovery of billions of barrels of recoverable light oil.

To support the West Harrison Bay effort, the company purchased all available 2D seismic data in the area and five 3D seismic surveys.

Although no wells have been drilled on Shell’s leases, several were drilled in close proximity as part of the multi-decade U.S. Navy NPR-A drilling program, and these wells, notably Atigaru Pt. No. 1, North Kalilkpik No. 1, and Cape Halkett No. 1, contributed to Shell’s interpretation, providing excellent geologic control regarding the reservoir, source, and seal characteristics of the rocks they penetrated.

Shell’s work at West Harrison Bay included the creation of a robust regional geological model (extending from the Mackenzie delta area in the east to the Russia/U.S. border in the west), a thorough “dry-hole” analysis of why the Nanushuk was overlooked for so long, and investigations into the petroleum systems that could yield light oil at anomalously shallow depths.

This work, together with ongoing discoveries, indicated attractive leads on the West Harrison Bay acreage and justified more comprehensive multi-disciplinary analyses there. Detailed geological, petrophysical, and geophysical work included the integration of new well data and discoveries into a sequence stratigraphically based, and geophysically supported, holistic interpretation that ultimately led to designation of Shell’s prospects.

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