It’s cold. It’s harsh. And it takes a lot of cash.

Perry Fischer

January 9, 2013

The challenges of drilling in the Arctic have become so multifaceted it’s hard to know what position folks line up behind. If it were just the usual environmentalist vs oil companies – and that fight is perennial to be sure – things would be clearer. But the Arctic environment brings so much risk – business, technical, environmental, political – that any diehard advocate can quickly do an about-face.

There’s also competition from ‘easy’ gas, which is just about anything that’s not arctic gas. Shale gas, coalbed methane, massive discoveries off Mozambique, and numerous LNG projects are sending a message to arctic operators to ‘focus on the oil!’

Finally, every country surrounding the Arctic has to resolve their border disputes for hundreds of miles offshore. The Law of the Sea Treaty addresses those issues, but despite wide, bipartisan support from Democrats, Republicans and the military, a small group in Washington has been able to hold up US ratification, calling it the ‘L.O.S.T.’ treaty. So the US has no seat at the table, and no voting rights to help settle disputes. Admittedly, these issues are mostly pointed farther offshore, and it may be a while before the technology exists to develop those resources. However, in 2007, Russia planted its flag on the seafloor under the North Pole – a clear sign of intent.

In 2003, the US began an Extended Continental Shelf Project (ECS) ‘to establish the full extent of the continental shelf of the United States, consistent with international law’. To determine the outer limits of the US ECS requires data collection and analyses that describe the ECS. The project conducted two scientific cruises last year and more are scheduled.

If scientists at the US Geological Survey are correct, the resources are there. USGS says the Arctic contains over a fifth of the world’s undiscovered, recoverable oil and gas resources (see map).

Exploitation Efforts

In Russia, the Prirazlomnoye platform came online in late 2012 – Russia’s first Arctic offshore oil field and the first arctic-class, ice-resistant production platform in the world. Commercial drilling began last year. The field is located in the Pechora Sea, east of the Barents Sea.

ExxonMobil, ENI and Statoil have signed deals to explore for oil in Russia’s Arctic waters. Statoil recently pulled out of the Shtokman development in the Barents Sea, giving its 24% interest back to Gazprom after spending $336 million. Total, which kept its 25% in Shtokman, warned against drilling in the Arctic.

In an interview with the Financial Times, Christophe de Margerie, Total’s chief executive, said the risk of an oil spill in an environmentally sensitive area such as the Arctic was simply too high. ‘Oil on Greenland would be a disaster,’ he said in an interview. ‘A leak would do too much damage to the image of the company.’ However, De Margerie said that in principle, he was not opposed to Arctic exploration. In practice, since Total has kept its 25% stake in Shtokman, this is confusing. De Margerie’s explanation was that since Shtokman was a gas field, gas leaks are easier to deal with than are oil leaks. The environmental watchdog organization, Greenpeace, was undoubtedly heartened by De Margerie’s comments.

USGS says the US Arctic continental shelf area contains nearly 30 billion barrels of technically (ie not necessarily economically) recoverable oil. Nearly three dozen wells were drilled in the Chukchi and Beaufort seas between 1982 and 1997. The huge, undelineated Burger gas field, discovered in 1989, may contain 2-65tcf of gas and millions of barrels of petroleum liquids; its structure is a major focus.

During the last seven years, Shell has spent $4.5 billion preparing for and answering the now-routine barrage of legal challenges oil companies face when trying to drill off Alaska’s northern coast. The company towed two drillships and moved more than 20 support vessels to Alaska’s northwest coast in 2012. When the flotilla arrived, fog and sea ice clung to Alaska’s shores, keeping the drillships from getting to their shallow-water drill sites. Then, the drillship Noble Discoverer briefl y fl oated out of control, dragging its anchors near Dutch Harbor, Alaska. It turned out that the Noble Discoverer could not satisfy some of the air-pollution regulations (for which they were eventually given a variance).

Next, after waiting months on numerous construction delays, Shell’s novel oil-spill containment system aboard the barge Arctic Challenger suffered damage to its undersea containment dome during testing. The first-of-its-kind spill-response system was built to comply with federal regulations. The delay caused the company to postpone full drilling operations until this year. In order to salvage what was left of the season, Shell drilled the top-hole sections on two wells, one each in the Chukchi Sea (Burger-A well) and the Beaufort Sea (Sivulliq well). Top-hole sections do not require a containment dome.

As if practicing for even more serious events, the Discoverer’s eight anchor connections and its drill pipe were pulled when the drillship was forced off location just one day after spudding the Chukchi Sea well, due to a massive 30x12-mile passing ice floe.

Shell has staked out a big position in US Arctic waters, with 408 federal drilling leases. Shell hopes to drill up to four wells over two years in the Beaufort Sea and up to six wells over two years in the Chukchi Sea using two drillships.

Shell’s knowledge from earlier drilling and from 3D seismic surveys of the Chukchi Sea have led company geologists to believe that a large subsurface structure exists that could have a multibillion-barrel potential. Then again, it could be mostly gas – all of which would be stranded without a pipeline.

Meanwhile, seismic contractor ION has been acquiring a substantial amount of multi-client Arctic data, including 23,000km in the Beaufort Sea, 3000km in the Chukchi Sea, and 12,000km off northeast Greenland, in addition to airborne data. Clearly, there is operator interest, with several other companies watching and waiting to follow Shell, including ConocoPhillips, Statoil and Repsol. Statoil said it would be 2015 at the earliest before it would drill on its own leases in the Chukchi Sea.

Cairn Energy spent $1 billion exploring off Greenland, but despite seeps and shows, did not find commercial volumes of oil. Cairn may return to Greenland in a couple of years with partner Statoil.

arctic ocean* US Geological Survey estimates 2008.

Norway’s Statoil drilled five wells in the Barents Sea last year; three were discoveries. Statoil’s recent discoveries of Havis and Skrugard fields are believed to have recoverable oil volumes of 400-600 million barrels, together. Skrugard and Havis are the northernmost field developments on the Norwegian shelf. Statoil holds a 50% stake as operator of the license, with partners Eni (30%) and state holding company Petoro (20%). Statoil says it will triple its arctic technology research budget, including the continuing development of a dedicated arctic drill unit.

The company will drill nine Barents Sea wells this year, including four wells at the Nunatak prospect, near Skrugard, and the world’s northernmost offshore drilling with two or three wells planned for the Hoop frontier exploration area. Statoil contracted Seadrill’s West Hercules drilling rig for five years, which is now being prepared for arctic conditions.

Last year, Statoil and Russian oil major Rosneft signed a major agreement for joint development of Perseyevsky and other fields in the northwestern corner of Russia’s sector of the Barents Sea. OE