Friday, September 16, 2011

Deadline ahead; Shell to decide by end of October on mobilization for 2012 Arctic OCS drilling

Alan Bailey
Petroleum News

With Chukchi Sea lease sale litigation moving towards its conclusion and Shell’s Arctic air quality permits out for public review, the chips are back on the table and the bets down on Shell’s odds of finally being able to sink an exploration drill bit into Alaska’s Arctic outer continental shelf.

And on Sept. 8 Pete Slaiby, Shell’s vice president in Alaska, called the hand for this year when he told a meeting of the Alaska Support Industry Alliance that by the end of October his company would make a go/no-go decision on mobilizing the resources necessary to drill in the Beaufort and Chukchi Seas in the open water season of 2012.

“We’re beginning the process of mobilization now. However, the final decisions for Shell will come a little later, about the end of October,” Slaiby said, commenting that adequate preparations for drilling are necessary and that, given the scale of the operation required for the company’s planned drilling, “it is truly a challenge to go from a standing start to 60 miles an hour fairly quickly.”

Permits needed
Slaiby said that a decision in late October to proceed towards drilling in 2012 will depend on Shell either having the permits it needs for the drilling or being comfortable that the permits will be issued.

The company has filed exploration plans envisaging the drilling of up to six wells in the Chukchi Sea and up to four wells in the Beaufort Sea, starting in 2012. But Chukchi Sea drilling is on hold, pending resolution of an appeal against the environmental impact statement for the 2008 lease sale in which Shell purchased its Chukchi Sea leases. And the Environmental Protection Agency has yet to issue air quality permits for Shell’s Arctic OCS drilling operations — following a multiyear saga of appeals against approval of Shell’s air permits, the EPA has issued new draft permits, with the public comment period on these permits having ended in early August and early September.

In the lease sale litigation, the Bureau of Ocean Energy Management, Regulation and Enforcement has published a final version of a new supplementary EIS for the lease sale, with public comments required on this document by Sept. 26. BOEMRE has placed its review of Shell’s Chukchi Sea exploration plan on hold, pending resolution of the court case, but the agency has conditionally approved Shell’s Beaufort Sea plan.

Shell thinks that the outcome of the Chukchi Sea lease sale litigation will be confirmation of the decision to hold the 2008 lease sale — the company is guardedly optimistic about having an approved Chukchi Sea exploration plan in early December, Slaiby said.

Shell anticipates having the air permits for the drilling vessel Noble Discover by around Sept. 15, and for its floating drilling platform, the Kulluk, by about Oct. 15, Slaiby said. The company expects to use the Noble Discoverer for Chukchi Sea drilling, and the Kulluk for drilling in the Beaufort Sea. And although litigation will likely follow permit issuance, Slaiby said that he thinks that the permits will be robust and that, following the furor over past problems with the permitting process, Shell will receive a fair hearing in any future permit appeal.

$4 billion
To date, Shell has sunk a huge investment into its Alaska venture.

“We will hit the $4 billion mark sometime in the fall in what we’ve spent to be ready (in Alaska), but we’ve never felt more confident about being able to proceed,” Slaiby said. “And frankly we’ve never been more confident about the (Alaska) portfolio that we’re sitting on.”

Slaiby said that Shell is favorably impressed by the potential of the Beaufort Sea portion of its Alaska portfolio, with the company owning leases in Camden Bay, to the east of Prudhoe Bay, and in Harrison Bay, on the northwest side of the central North Slope. Shell thinks that the potential of the Beaufort Sea looks similar to that of the Mars basin in the Gulf of Mexico, a “bread-and-butter” region for Shell’s worldwide operations.

“There’s the potential for years of production at Gulf of Mexico deepwater kinds of (flow) rates,” Slaiby said.

However, the Chukchi Sea is “absolutely key” to Shell’s Alaska program, he said, citing what he characterized as the world-class potential of the Burger prospect on which Shell owns several leases. Burger, known to hold a major pool of natural gas, consists of a 25-mile-diameter structure about 80 miles offshore the western end of the North Slope. Burger could hold hydrocarbon resources in the multibillion barrel range, Slaiby said.

“We truly believe this is a game changer,” he said.

Oil for TAPS
With Shell’s Beaufort Sea leases in relatively close proximity to the existing North Slope oil infrastructure, oil production from the Beaufort could band-aid the trans-Alaska oil pipeline, where low and declining oil flow rates are causing escalating concerns about future pipeline operation.

And a future oil pipeline from the Chukchi Sea through the National Petroleum Reserve-Alaska to the central North Slope could prove to be the catalyst that enables the opening of many small and mid-sized oil fields in the reserve, Slaiby said.

The huge oil potential of the Chukchi could, in itself, prove to be of national and international significance, he said.

“The oil that we are talking about in a place like the Chukchi is really enough to change politics,” Slaiby said. “It would be enough oil, for example, for the U.S. not to require the importation of oil from a country like Saudi Arabia.”

Moving forward
Shell’s initial efforts in its Alaska outer continental shelf program focused on acquiring the 3-D seismic data needed to identify exploration drilling targets, “We’ve had three very, very good years of seismic acquisition, actually the largest seismic acquisition we have ever had at Shell on an exploration play,” Slaiby said.

However, as the company moves towards drilling in some of its prospects, the dynamic has shifted to a debate about whether the company will be able to deal with an offshore oil spill. On the basis of fortune favoring those who are prepared, and working under the imperative of preparing adequately for a low probability but high impact event, Shell has developed a very comprehensive oil spill contingency plan, Slaiby said.

“From the very beginning we identified the need to be prepared,” he said. “We prepared a multi-tiered system … offshore, nearshore and onshore to deal with a very, very unlikely event that we would have an oil spill.”

Following oil industry experience from the Gulf of Mexico Deepwater Horizon disaster, Shell is fitting its blowout preventers with double shear rams — a blowout preventer closes an out-of-control well by causing hydraulic rams to shear through and seal the drill pipe. Shell has also commissioned the construction of a “capping stack” that could be bolted on top of the blowout preventer, should the blowout preventer itself fail. The capping stack will be completed in March 2012, ready for use, Slaiby said.

Oil containment barge
Shell is converting an ice-class barge for use as an oil containment vessel that would separate oil, gas and water being collected from an out-of-control well through Shell’s capping and containment systems, and that would be capable of handling the worst case discharge of oil and gas from a well in any of Shell’s exploration prospects, Slaiby said. Gas gathered on the barge would be flared, while separated oil would be pumped into an Arctic class tanker that Shell retains as part of its Arctic Alaska oil spill response fleet. If necessary, oil could also be flared from the barge, Slaiby said.

A new 30,000 horsepower polar class anchor handling vessel, for use by Shell in the Beaufort Sea, is under construction in Louisiana and is scheduled for launch in February or March 2012, with another new anchor handler to follow if Shell’s planned drilling moves ahead. Shell’s existing anchor handler, the Tor Viking, towed the company’s floating drilling platform, the Kulluk, to Dutch Harbor in the Aleutian Islands in 2010. The Tor Viking, when in Dutch Harbor, also assisted the U.S. Coast Guard by towing a stricken vessel, the Golden Seas, to safety in severe sea conditions, Slaiby said.

54,000 jobs
On the economic benefit side of the Alaska Arctic OCS debate, there are 54,000 potential future jobs at stake in the United States, and potential government revenues close to $300 billion at today’s oil prices, Slaiby said. But there will be an immense amount of scrutiny over what Shell is doing, and the level of oppositional noise will increase as the company moves closer to drilling.

However, people in Alaska understand that there is risk involved in offshore drilling and Shell spends much time managing that risk, Slaiby said.

“We’ve only got one chance to do this right,” he said. “If it looks like we err on the side of caution, I make no apologies for it.”

Republished with the permission of the Petroleum News