Untested opportunities

Meg Chesshyre

December 4, 2013

E&P majors BP and Statoil presented their views on future exploration prospects in the Arctic. Meg Chesshyre reports.

Representatives from BP and Statoil discussed both the challenges associated with and future plans for developing Arctic properties at a conference held at Imperial College London this fall.

“The biggest issue for international oil companies, in terms of Arctic exploration, is the public response, both to the exploration itself and to the companies that work there, according to Dr. Michael C. Daly, BP’s vice president of exploration.

“The Arctic is perceived as the last pristine part of our planet,” he said at the event, called 100 Years and Beyond: Future Petroleum Science and Technology Drivers.

“The Arctic has specific technical challenges to overcome. In particular, the industry should seek to assure proper oil spill response capability in ice-bound marine environments. Yet many of the owners of the Arctic waters and the communities along the Arctic littoral [part of the sea, close to shore] want investment and development.

“It is widely acknowledged that the Arctic is a sensitive natural environment, upon which some communities depend for subsistence and cultural heritage. Therefore, an open and transparent dialogue is required, based on good science and knowledge transfer, between all stakeholders.”

He noted that, “from an engineering perspective the issue is clearly the ice, the temperature, and to a lesser degree, the lack of daylight for half of the year. To access these great, partially ice-bound prospects will not be easy, cheap or fast.”

The ice-bound continental shelf and slope of the Arctic remains largely unexplored, yet 10% (19) of the world’s rivers discharge into the Arctic and some have formed huge Tertiary delta systems. Those in front of the Canadian Mackenzie, Russian Lena and other rivers are well known. There are also the prolific West Siberian and Timan Pechora basins, which plunge northwards below the icy Kara Sea.

The latter basins, together with the fact that 60% of the Arctic continental margin is in Russian waters, explains the dominance of Russia, in terms of estimates of yet to be found resources.

The Kara Sea contains an estimated 127 billion boe compared to 62 billion boe estimated in the Barents. Alaska, Beaufort, North Slope and Chukchi Seas contain approximately 72 billion boe, according to figures from the United States Geological Survey.

Russia has recently licensed much of its frontiers at favorable terms, with drilling scheduled to commence next year, potentially making Arctic exploration a Russia-led exercise.

The opportunity in the Kara Sea aside, Daly says that the Arctic possibility is significant, citing two untested basins; the Laptev Sea, in Russia, and the deepwater Beaufort, in Canada. The Laptev Sea basin is an up to 10km-deep completely- unexplored rift basin, well-illuminated by seismic reflection data. Its age is uncertain, but regionally, prolific Mesozoic source rocks are well known.

The challenge is that the Lapdev Sea is covered in multi-year ice, nine to ten months a year. This basin is due to be tested by the end of the decade by the Rosneft and Exxon partnership.

Single year ice covers the Beaufort Sea for nine months of the year, and BP’s 3D seismic coverage remains the northern-most survey yet acquired. The geology seems favourable, even outside the Kara Sea, responding well to modern seismic and with some big unknowns to be explored.

Daly concludes: “The Arctic has significant potential, but the license to operate remains uncertain outside Russia. Rosneft, in Russia, will lead in Arctic offshore exploration, but it is unclear how fast the rest of the world will follow?” OE

Statoil— The Barents Sea

“The Barents Sea seems to be finally taking off, 30 years on into the exploration of the province,” Tony Doré, Statoil senior advisor and a member of the international exploration management team, told the conference.

Statoil made the Skrugard discovery in 2011, and the Havis discovery in 2012, in the western part of the Barents Sea. This is now classified as one province—Johan Castberg, containing 400- 600 million bbl of light oil—and it is a potential hub for other discoveries. Two more very different oil discoveries were announced this year— Tullow’s Wisting (7324/8-1), in which Statoil has a 15% stake, and Lundin’s Gohta (7120/1-3).

Giving an overview of recent activity in arctic waters, he said Cairn has been drilling an eight well program off West Greenland, from 2010. The Norway- Russian border settlement in Barents Sea came in 2010, allowing exploration in that area. The East Greenland licensing rounds were in 2012 and 2013. Norway followed up with a successful Barents Sea licensing round last year. Then there have been big license awards in Russia—a landmark award to an ExxonMobil joint venture with Rosneft in South Kara Sea in 2011, with the first well due to be drilled there next year, followed by Statoil and ENI agreements with Rosneft in the former Barents disputed zone in 2012. The biggest award, to the ExxonMobil and Rosneft partnership, was then made in the North Kara, Laptev and Chukchi Seas.

“The Arctic is an area where the geology is seductive, but there have been setbacks, largely through cost issues,” Doré says (see pages 60-62).

Yet, the Arctic is already a major province, Doré says. There have been 200 billion bbl of discoveries so far, almost all on land—in Siberia, and the North Slope. There is high potential, he says, but also high uncertainty.

”Geology isn’t the main challenge in the Arctic,” he says. ”Geology basically gives the bottom of the pyramid, the resource base, but all the other things—environment, technology, market and infrastructure, license terms, stakeholders, and having enough money—have to be in place before we get to the top of the pyramid in order to go out and explore.”

He stressed that the focus in the Arctic has been on environmental protection. “People say we don’t know about oil spills in ice. Actually, that’s not true. We’ve studied it for a long, long time. There are research consortia who have been working on this for decades. There is a lot of information. On the other hand, we have not actually had a real one.”

Image Caption: Statoil Arctic presence – significant drilling campaigns in Barents Sea and Grand Banks. All images: Statoil.

He pointed out that Arctic development takes time. There had been a quarter of a century between discovery and development of the Snøhvit field, in a relatively shallow water area of the Arctic Barents Sea was opened up for exploration in 1980. The Askeladd gas discovery was made in 1981. Albatross in 1982, and Snøhvit in 1984. The Snøhvit project was finally approved in 2002, and started up in 2007.

“There is not just one Arctic,” he added. There are different types ranging from the workable, where solutions can be based on existing technology, such as the Barents Sea, through to the stretch, where solutions are expected to be achieved with focused technology investment in the medium to long-term, e.g. the Beaufort Sea, to the extreme, requiring long-term focus and investment in technology, to achieve solutions, such as northeast Greenland.

Another difficulty is the length of the licensing periods. Is there enough time to operate? The license term for the US offshore (Gulf of Mexico and Alaska) is 10 years, but during that decade the effective operating period in the Chukchi Sea is only two and a half to three years. The license term offshore Canada is nine years, but the effective operating period is only one and half to two years.

Doré concluded that Arctic exploration and development will be stepwise and that nobody can do it alone. Partnership models are critical, company plus government, company plus company, company plus local stakeholders.