Long, bumpy Arctic road reaches a dead end for Shell
Alaska’s political leaders were disappointed but not discouraged when Royal Dutch Shell announced Sept. 27 that it would cease its Arctic offshore oil exploration program in the Chukchi Sea.
Gov. Bill Walker said in a press briefing later in the day that he was optimistic about what the oil giant would find under the waters off Northwest Alaska, and that Shell’s decision further highlights the need for development of the state’s known oil and gas resources.
“I first want to compliment Shell on all they have done in Alaska; all their efforts on safety and environment, and the extra mile they have gone to persevere,” Walker said. “This has not been an easy task for them. It’s one that was met with challenges along the way; their staying power is very, very impressive.”
However, the governor also called it a “very tough day” for both Shell and Alaska.
Shell said in a formal statement that broke the news of the decision that it found indications of oil and gas in the Burger J well it drilled this summer, but that there was not enough positive about the results to further explore the prospect.
Burger J, drilled to about 6,800 feet in the Burger prospect, is about 150 miles west of Barrow. The well will be sealed and abandoned.
The Bureau of Ocean Energy Management, or BOEM, estimates there are about 15 billion barrels of oil and more than 76 trillion cubic feet of natural gas in the Chukchi federal lease area. However, how much of that is economically recoverable depends on many factors.
Shell said in its statement that the large basin is “substantially under-explored.”
The company also noted a “challenging and unpredictable federal regulatory environment” overseeing work in the region.
“The Shell Alaska team has operated safely and exceptionally well in every aspect of this year’s exploration program. Shell continues to see important potential in the basin, and the area is likely to ultimately be of strategic importance to Alaska and the U.S.,” Shell Upstream Americas Director Marvin Odum said in a release. “However, this is a clearly disappointing exploration outcome for this part of the basin.”
The company holds a 100 percent working interest in 275 Outer Continental Shelf, or OCS, lease blocks in the Chukchi.
Shell’s Arctic saga
Shell has spent approximately $7 billion on its Arctic OCS drilling program since the 2008 lease sale and encountered a bounty of challenges since in the effort that ultimately produced a single well.
Its struggle to explore beneath the Arctic waters was a modern-day melodrama filled with fights in court, fights against Mother Nature and most recently a standoff with Greenpeace activists. It was preparing to mobilize for drilling in 2010 when the BP Deepwater Horizon disaster happened in the Gulf of Mexico, leading the government to halt all offshore operations including Shell’s Arctic exploration program.
After a partial season in 2012 when Shell was only allowed to drill topholes at its Beaufort and Chukchi prospects because its spill response barge and capping stack hadn’t passed inspection, the Shell drill rig Kulluk broke free from its tow vessel on New Year’s Eve in high seas near Kodiak Island and grounded on a nearby small island.
The U.S. Coast Guard successfully airlifted the Kulluk’s crew off the stranded vessel and thankfully the hull of the Kulluk, carrying more than 150,000 gallons of fuel and petroleum products, was not damaged to the point of spilling its cargo.
The drillship was on its way from Dutch Harbor to Washington state, the timing of which was influenced by avoiding state property taxes had it remained in Alaska on Jan. 1.
Ultimately, the massive drill ship was a total loss following the incident.
Shell’s drill contractor Noble Drilling was fined $12.2 million late in 2014 for environmental violations on the Noble Discoverer during the 2012 season. Noble Drilling also operated the Kulluk for Shell, although the unpowered drill rig was being towed by Edison Chouest Offshore when it broke free.
Shell was also fined $1.1 million in 2013 by the Environmental Protection Agency for air permit violations by the drill ship Noble Discoverer and the Kulluk while working in the Chukchi and Beaufort seas in 2012.
Arctic OCS exploration was suspended for 2013 as Shell regrouped and prepped to try again later. Late in the year the company announced plans to focus on the Chukchi and delay its Beaufort Sea exploration.
Environmental groups, which sued the federal government for underestimating the size of the Arctic OCS oil resource, and the subsequent spill potential in the region, managed to halt work in 2014 as BOEM revamped the environmental impact statement needed for Shell’s leases.
With the supplemental EIS approved earlier this March, Shell appeared to be back on track in 2015. This time, it brought the Polar Pioneer drill rig leased from Transocean as well as the Noble Discoverer.
By early May, Shell and its tug contractor Foss Maritime Corp. were in a fight with Seattle Mayor Ed Murray, who attempted to block the companies from docking the Polar Pioneer at the city’s port while preparing for the upcoming Arctic drilling season.
Under pressure from environmental groups, Murray claimed the Port of Seattle terminal Foss had a lease for was strictly a cargo terminal, and thus prohibited the maintenance intended for the Polar Pioneer from being performed while docked there.
Foss insisted its lease was in good standing and called the mayor’s bluff.
A flotilla of kayakers protesting Shell’s Arctic exploration then attempted, ultimately unsuccessfully, to block the Polar Pioneer from entering the Seattle port May 18.
The drill ship eventually made its way out of Seattle to Dutch Harbor, but in the meantime the U.S. Fish and Wildlife Service restricted Shell’s drilling plans by requiring simultaneous drilling efforts be kept 15 miles apart in the Chukchi to not disrupt walruses and polar bears in the area.
Shell had originally planned to drill the Burger V and Burger J wells — nine miles apart — at the same time. It chose to drill Burger J.
Shell hit another pothole July 3 when the Fennica, a 380-foot ice-capable vessel, struck an uncharted shoal exiting Dutch Harbor on its way to the Chukchi. The Fennica was carrying an underwater well capping system required to be on-hand for any drilling in the event of a spill or well blow out.
After the three-foot gash to its hull was patched in Dutch Harbor, the Fennica set out for permanent repairs in Portland, Ore., again slowing Shell’s progress.
The Fennica tried to leave a Portland shipyard and return to Alaska in late July, but was turned back by Greenpeace activists hanging from a bridge across the Willamette River in Portland.
U.S. District Court of Alaska Judge Sharon Gleason, ruling from an Anchorage courtroom on activity in Portland, heard arguments by phone from Greenpeace attorneys in Boston and Shell counsel in Seattle, and found Greenpeace in contempt of a prior injunction that prohibited the environmental group from impeding Shell’s work.
Greenpeace was initially fined $2,500 per hour until the dangling protestors were pulled from the bridge.
Then, on July 30, Shell finally “spudded” the Burger J well and drilling was underway. The company drilled above oil-bearing layers until the Fennica arrived in the Chukchi.
Good news, bad news
All that led to Shell calling off its Arctic plans. The results from the Burger J drilling were not known until Shell’s Sept. 27 announcement — an announcement heralded by environmental supporters.
“Moving to develop this oil, the production of which would still be decades away, would be feeding our addiction to fossil fuels at a time when we should be developing and moving clean, cheap and efficient forms of renewable energy into the mainstream,” Alaska Wilderness League Executive Director Cindy Shogan said in a formal statement. “With this announcement, President (Barack) Obama should seize on this historic opportunity to look forward and protect the Arctic for our children.”
The Wilderness Society Arctic Director Lois Epstein said the news means Arctic coastal villages and wildlife are safe from a major offshore oil spill.
“Hopefully, this means that we are done with oil companies gambling with the Arctic Ocean, and we can celebrate the news that the Arctic Ocean will be safe for the foreseeable future,” Epstein said.
To the contrary, House Speaker Mike Chenault called Shell’s decision “a punch in the gut” in a statement from the House Majority caucus. He blamed a restrictive federal regulatory process for stymieing Arctic offshore oil and gas development.
Majority Democrat Rep. Ben Nageak of Barrow echoed Chenault’s message.
“Our people have been paying close attention to Shell’s actions and plans, and (the announcement) is heartbreaking for us,” Nageak said. “We stood on the cusp of another economic boom that could have propelled our young people and their children to better futures. Instead, due to strangulation of Shell’s proposal by our draconian and poisoned federal government, one well coming up dry is all it took for the company to say it’s not worth it anymore in the Alaska Arctic.”
The sentiment of Alaska’s congressional delegation regarding Shell’s exit from from the state was summed up by Rep. Don Young.
“I’m sure somewhere (Interior Secretary) Sally Jewell and President Obama are smiling and celebrating Shell’s decision to cease operations off the coast of Alaska. For Alaskans, this announcement is a major blow to our local communities, the future of Alaska’s economy and the Trans-Alaska Pipeline,” Young said in a release from his office.
Sen. Dan Sullivan noted the likelihood of other countries, specifically China and Russia, developing Arctic resources “with little regard for the environment,” regardless of what happens in the U.S.
And Sen. Lisa Murkowski, chair of the Senate Energy and Natural Resources Committee, called for a strong federal lease program in the future, offshore revenue sharing for Alaska and developing the non-wilderness — 1002 coastal plain — portion of the Arctic National Wildlife Refuge.
Walker said he talked with Jewell Sept. 24 and planned to meet with her in the near future to discuss other opportunities to develop the state’s oil.
He said Shell’s decision to halt exploration “underscores the critical importance that we make sure that we monetize, we develop our known resources.”
The governor added he saw a “glimmer of hope” that Shell hopes to extend its federal Arctic OCS leases — its Beaufort leases expire in 2017 — and that the company may someday return to the prospects.
Finally, Walker noted that it was just speculation to wonder if Shell would have stayed longer had it been allowed to drill multiple wells at once but said, “Do I think it hurt the prospects? Absolutely.”