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Tantalizing possibilities The Chukchi Sea could hold 15.5 billion barrels of technically recoverable oil, 60 tcf natural gas: This time explorers will drill deeper, says MMS Alan Bailey PNA Contributing Writer
With the possibility of more than 15.5 billion barrels of technically recoverable oil and more than 60 trillion cubic feet of gas, the Chukchi Sea overlies unproven reserves that rival those of the Arctic National Wildlife Refuge.
Yet the daunting challenges of the remote location, severe weather and Arctic icepack have so far proved too much of an obstacle for any major attempt at oil and gas development.
“There’s no question there’s oil and gas out there,” Mark Myers, director of the Alaska Division of Oil and Gas, told PNA in early December. “The question has always been — is there oil and gas in commercial quantities, given where the accumulations might sit.”
The U.S. Minerals Management Service, in charge of the resources which lie in federal waters, has done extensive studies into the oil and gas prospects in the Chukchi.
“We’ve got some world-class prospects out there to be drilled,” Kirk Sherwood, a geologist with MMS, told PNA recently. “That’s why the (oil and gas) resource numbers are so high.”
Invitations for interest In January 2003, as part of its 2002 to 2007 lease sale program, MMS will invite initial interest in the purchase of exploration leases in the Chukchi Sea and Hope Basin. This invitation for interest forms part of a new procedure that will speed up the lease sale process and focus effort on those areas that are of particular interest to the oil industry.
“In recent times the petroleum industry hasn’t been particularly enthusiastic about even asking us to schedule sales in these kind of areas,” Tom Warren, leasing activities chief for the Mineral Management Service Alaska OCS Region, said, “so we’ve been reluctant to go through the process of regularly scheduling sales.”
The invitation for interest will avoid expensive and time-consuming lease development work, if there is no real possibility of making a sale — if no companies respond to the invitation, MMS will place the lease program on hold for a year.
MMS will repeat its invitation for interest annually, until someone responds.
If anyone expresses an interest in the lease program, MMS will ask them to narrow down the area of interest and indicate the terms and conditions required for viable exploration. This initial investigation will enable MMS to focus its efforts on those areas where companies are likely to purchase leases, thus reducing the time and cost of preparing the leases for sale.
Intent to focus area of interest “Our intent is to get some focus to their area of interest, as opposed to the (other) several million acres that are out there,” Warren said.
In order to proceed to a lease sale, MMS will do an environmental assessment for just those areas where there’s interest.
“That process will take about 18 months from the initial query to industry ... to going to sale,” Warren said.
By contrast, an environmental impact statement for a the whole of a large lease program area might take two to three years or more to develop, Warren said.
Warren also thinks that, by inviting interest annually, MMS will enable companies to take advantage of changing oil prices and evolving technologies — a company that declines interest one year can become involved in the program in a later year.
Drilling activity by Shell After the last lease sales on the Chukchi Shelf in 1988 and 1991, Shell drilled four offshore exploration wells. All of the wells produced hydrocarbon shows and one of the wells encountered a substantial gas accumulation.
However, Shell did not make any commercially viable discoveries and interest in the area waned.
Sherwood said that the focus of the Shell drilling was the Sadlerochit formation that extends across from the Prudhoe Bay field. With what appeared to be a mirror image of Prudhoe Bay geology, people had expected a big oil find in the Sadlerochit under the Chukchi.
Unfortunately the drilling results showed that the Sadlerochit changes from an oil-bearing sandstone at Prudhoe Bay to a barren shale formation in the Chukchi Shelf.
“That was a big disappointment out there,” Warren said, “and I think that really threw a wet blanket on the whole thing.”
Tremendous potential Although Shell’s exploration drilling failed to find oil in the Sadlerochit, there are promising formations below the depths that these wells reached, Warren said.
A combination of extensive seismic surveys and Shell’s well results has provided a pretty clear picture of the geology of the region — MMS specialists have identified nearly 900 prospects, some of them very large in size.
One of Shell’s exploration wells “penetrated a really nice source rock about 1,000 feet thick — we’ve been able to map this formation using the seismic,” Warren said. By investigating the thermal history and the structure of this source rock, MMS estimates that as much as 3 trillion barrels of oil may have migrated into the Chukchi Shelf area.
And the area contains an abundance of geological structures to trap this migrating oil. A map of the base of the stratified column shows long linear structures that could act as traps. Faults crisscross the area, just like at Prudhoe Bay.
“The other thing that makes for prospects is all these faults — it’s just chopped up like crazy,” Warren said.
In fact the geology looks very similar to that on the North Slope. For example, the Hanna Trough in the Chukchi Shelf forms an extension of the Arctic Alaska Basin. The Arctic Alaska Basin contains the sediments that created the big oil fields on the North Slope.
“There are other formations that ... are present in vast abundance out there ... and are involved in all these huge traps that are right where the oil should have migrated to,” he said.
Another Prudhoe Bay? So what’s the chance of finding another Prudhoe Bay field in the Chukchi Sea?
It’s possible.
From its analysis of the Chukchi geology, MMS has estimated the sizes of 600 of the 900 possible oil pools. Statistical analysis points to the possibility of one or two pools that are 3 billion barrels in size, Warren said. However, this type of analysis doesn’t really tell you whether a giant oilfield exists, partly because statistics tend to average data out rather than pinpoint individual exceptions. A field like Prudhoe Bay forms an anomaly that sits right off the end of a statistical chart — it all depends on hitting the optimum combination of field-producing factors, he said.
Challenging economics And then, of course, there’s the economics of developing oil and gas reserves in the Chukchi’s remote and harsh environment.
MMS has looked at construction scenarios for offshore oilfields in the Chukchi, in order to estimate economically recoverable reserves at different oil price levels.
The most likely scenario is a pipeline going east to Pump Station 1. The pipeline would be buried sub-sea and then go above ground after it reaches land, Larry Cooke, a supervisory geologist with MMS, said.
“As far as offshore, I think we’re just building immense concrete structures out there, that can withstand the ice and the sea,” Cooke said. Based on this type of scenario and a sustained oil price of $30 per barrel, the technically recoverable Chukchi reserves of 15.5 billion barrels drop to 6.1 billion barrels of economically recoverable oil. At an oil price of $18 per barrel the economically recoverable reserves drop to around 1 billion barrels. These oil prices assume the year 2000 value of money and don’t take inflation into account. The MMS models indicate that oil development in the Chukchi would be uneconomic at sustained oil prices below about $14 per barrel.
Land-based production facilities? Although this economic assessment emphasizes the sobering realities of oil and gas development in such a challenging location, future technical advances might impact economic feasibility. For example, new technology might enable a land-based location for the production facilities.
“That hasn’t really entered our models yet,” Cooke said.
The future possibility of a gas pipeline from the North Slope throws another intriguing unknown into the economic equation. The ability to sell gas would surely improve the economics.
“Even though we had 60 trillion (cubic feet) there for the conventionally recoverable (gas), we didn’t include it in our assessment for the economic recovery because we don’t have a pipeline yet,” Cooke said.
However, given the cost of exploration drilling in the Chukchi, the short ice-free season and the high development costs, it will be interesting to see what happens in the upcoming rounds of lease sales.
“It’s got all the right elements and it’s been over 10 years since there’s been a round of exploration,” Cooke said. “Time’s gone by and it’s ready for a second look.”
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