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Shell’s Arctic saga moves ahead again Company still sees the Arctic Alaska offshore as presenting a strategic opportunity for major new oil reserves in the years to come Alan Bailey Petroleum News
After several months of silence following the misadventure involving the grounding of the Kulluk, the company’s Arctic floating drilling platform, Shell has confirmed with the filing of a new Chukchi Sea exploration plan its commitment to the Arctic Alaska offshore as a strategic exploration play, a region where the company hopes to find a significant part of its future oil supplies.
And, as reported in the Nov. 3 issue of Petroleum News, Simon Henry, the company’s chief financial officer, characterized Arctic Alaska as “the largest single exploration project in the Shell group.”
Chukchi Sea The company has made it clear that it sees the huge but largely untested petroleum province of the Chukchi Sea, with its immense area of geology similar to that of Alaska’s North Slope and with giant geologic structures that could host oil and gas, as its primary focus. And as its first objective, the company is targeting the Burger prospect, a 35-mile diameter structure about 80 miles offshore the western end of the North Slope.
Shell has already drilled a single exploration well into the structure. That drilling, which took place during an earlier exploration program in the late 1980s, discovered a pool of natural gas amounting to perhaps 17 trillion cubic feet in sands roughly equivalent to the reservoir sands of the Kuparuk River field in the central North Slope.
In the age of cheap shale gas no one has any interest in developing natural gas in such a remote and expensive place as Burger. But, following a program of 3-D seismic surveying over the prospect during its current exploration program, Shell said that it thinks there is oil in the structure. Since the original Burger well did not determine what lies below the gas, could Burger hold a giant oil field akin the Kuparuk River or Prudhoe Bay fields on the North Slope?
However, since it is not possible to use seismic data to directly detect the presence of oil beneath the ground, Burger presumably remains a multibillion-dollar gamble for Shell, with no guarantee of success.
Beaufort Sea Following the drilling of a number of exploration wells in the Alaska Beaufort Sea quite a few years ago, this region, where Shell is pursuing part of its Alaska exploration program, is known to hold several oil pools in the strata beneath the sea floor.
These known pools, while all modest in size, present the advantage of being relatively close to the existing North Slope oil infrastructure. Shell has particularly been targeting the Sivulliq prospect, on the west side of Camden Bay, to the east of Prudhoe Bay. Sivulliq has a known oil pool, thought to be around 100 million to 200 million barrels in size. Shell has also been targeting a nearby prospect called Torpedo.
2005 lease sale In fact Shell’s current Alaska exploration program initially targeted the Beaufort Sea, after the company picked up some Beaufort Sea leases in a 2005 lease sale. And as the company progressed its exploration plans, it appeared to try to maintain a relatively low profile in Alaska while also moving forward with very aggressive Beaufort Sea drilling concepts. But North Slope communities, becoming aware of Shell’s intent and alarmed about potential impacts on their subsistence hunting activities, raised objections to what Shell was attempting. At the same time, environmental organizations, most of which were adamantly opposed to any offshore exploration and development, started lining up to block Shell’s plans.
Shell took action to accommodate the concerns of North Slope residents. And over time, while North Slope communities have remained divided over the pros and cons of offshore development, the company has achieved cooperative relationships with several North Slope organizations, including the North Slope Borough. But some North Slope groups together with a long list of environmental organizations have launched a series of lawsuits targeting the permits that Shell needs and delaying Shell’s planned drilling.
Chukchi lease sale In a 2008 lease sale Shell spent $2.1 billion on a series of Chukchi Sea leases, thus kicking off the company’s Chukchi Sea exploration efforts. That lease sale is still the subject of an unresolved legal challenge.
In the summer of 2012 Shell finally managed to obtain all of its needed permits and deployed drilling fleets to the Chukchi and Beaufort seas. But, because an oil containment system that the company had committed to deploy as a safety precaution for its Arctic venture took longer to construct than anticipated and then failed in its initial testing, Shell was limited to the drilling of two top-hole well sections, one at the Burger prospect and one at Sivulliq. Then the grounding and damaging of the Kulluk in the Gulf of Alaska after the end of the drilling season caused Shell to pause its plans in 2013.
Shell now says that it hopes to resume drilling in the summer of 2014, but that it will only drill in the Chukchi Sea, placing its Beaufort Sea plans on hold for the time being. The company plans the use of two rigs, having contracted a semi-submersible drilling rig, the Polar Pioneer, as a replacement for the Kulluk. Drilling in 2014 will depend on the challenging prospect of permitting the company’s substantial drilling fleet before the drilling season.
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