Circling around Arctic prospects

Andrew McBarnet
Tuesday, February 9, 2010

Offshore Arctic seismic exploration is not getting quite such a cold reception these days. Andrew McBarnet explains why.

Frozen assets take on a whole new meaning when it comes to considering the purportedly huge oil and gas reserves in the Arctic Ocean region. The prize is potentially enormous but so are the obstacles blocking the route to successful exploitation, of which the environmental/climate challenges, available technology and the remoteness from markets are the most obvious. The region as a whole also has some fundamental sovereignty issues to resolve between the competing claims of Russia, the USA, Canada, Denmark and Norway which could take decades to sort out.

Estimates of Arctic oil and gas resources almost always take their cue from the US Geological Survey Circum-Arctic Resource Appraisal, most recently updated in 2008. It suggested that the area north of the Arctic Circle contains an estimated 90 billion barrels of undiscovered, technically recoverable oil, 1670 trillion cubic feet of technically recoverable natural gas, and 44 billion barrels of technically recoverable natural gas liquids in 25 geologically defined areas thought to have potential for petroleum.

As such the resources would account for about 22% of the undiscovered, technically recoverable resources in the world. The Arctic on these estimates is said to account for about 13% of the undiscovered oil, 30% of the undiscovered natural gas, and 20% of the undiscovered natural gas liquids in the world. Some 84% of the estimated resources are expected to occur offshore. More than half of the undiscovered oil resources are likely to be located in just three geologic provinces - Arctic Alaska, the Amerasia Basin, and the East Greenland Rift Basins, says USGS. On an oil-equivalency basis, undiscovered natural gas is estimated to be three times more abundant than oil in the Arctic, and more than 70% of the undiscovered natural gas will be found in three provinces – the West Siberian Basin, the East Barents Basins and Arctic Alaska.

As of 2008, exploration for petroleum had already resulted in the discovery of more than 400 oil and gas fields north of the Arctic Circle, according to USGS, made up of approximately 40 billion barrels of oil, more than 1100 trillion cubic feet of gas, and 8.5 billion barrels of natural gas liquids.

The USGS 2008 best guesses for the Arctic were lower than its previous figures issued in 2000, and followed a more sobering second opinion from Wood Mackenzie and Fugro-Robertson in a 2006 study Future of the Arctic. The headline message was that the US could no longer consider the Arctic as a long-term strategic energy supply source. The report concluded that the Arctic potential was significantly less than previous assessments suggested with much less oil and more gas likely to be the mix. It could only confirm one quarter of the oil volumes previously assessed in key North American and Greenland basins and insisted that the Arctic would turn out to be a gas province with 85% of the discovered resource and 74% of the exploration potential being gas. Under the most optimistic case Wood Mackenzie/Fugro-Robertson projected that production from the Arctic would contribute some 4.6mmboe/d liquids and 9.7mmboe/d gas at peak, with the proportion of production from US basins lower than previously anticipated.

The oil industry clearly remains largely unconvinced that the moment has come to focus serious money and resources unlocking the Arctic’s offshore hydrocarbon riches, not that anyone doubts it will happen. One cynical view is that the improving access to the maritime Arctic afforded by the impact of global warming on the ice pack could be the determining factor in the timing of the investment needed. The oil companies had a good look in the 1970s and 1980s with seismic and drilling programmes and decided to spend their money elsewhere. Because of the lack of infrastructure and market access, probably only a series of huge finds would persuade companies to change their mind. Devon Energy knows to its cost. In 2005 the company started an expensive drilling programme in Canada’s Beaufort Sea hoping to find natural gas reserves; but the Pak-toa C-60 well came up instead with a substantial oil discovery, estimated at roughly 240 million barrels, which because of its location could remain uneconomic to develop for many years to come.

Despite overall caution about major Arctic offshore exploitation any time soon, Wood Mackenzie/Fugro-Robertson advised that there was ‘great potential for individual oil and gas companies with the advanced technology, money and time to develop the challenging resources and build the infrastructure required to transport it’.

First start
If there is going to be an early breakthrough, the betting must be offshore Greenland where there has been an unmistakeable build up of activity in the last decade. In the early 1970s almost 21,000 line km of reflection seismic data were acquired. Then in 1975, six groups headed by Amoco, Chevron, Arco, Mobil, Total and Ultramar were granted licences and in the following two years, five exploratory wells (two low Arctic and three sub-Arctic) were drilled. Interest in further exploration died when the wells turned out to be dry and oil company operations were diverted to more accessible offshore provinces, like the north west European continental shelf. In the late 1990s the Geological Survey of Denmark & Greenland (GEUS) began efforts to resuscitate industry enthusiasm in hydrocarbons prospects with its own studies offshore Greenland to the extent that Statoil drilled a well (sub-Arctic) in 2000.

A number of exploration licences have been awarded since with EnCana, ExxonMobil, Chevron, Dong, Husky Energy and Cairn among the recipients. Greenland is probably pushing its case for unusually strong economic and political reasons tied up with the tiny population’s desire for full independence from Denmark, which would certainly be made easier if hydrocarbon revenues were forthcoming.

The response to recent licensing initiatives has been patchy. Undeterred the authorities are going ahead with licensing rounds scheduled for 2010 in the Baffin Bay area covering some 151,000km2 and rounds in 2012/13 covering areas offshore Northeast Greenland (the Greenland Sea). Thirteen international oil companies are said to have registered interest to be operators in the 2010 round, which appears to be a good omen. Greenland authorities have been dangling the prize suggested by the most recent USGS estimates. The figure for undiscovered oil and gas resources in the subsurface in the sea north of the Arctic Circle between west Greenland and eastern Canada, which includes the Baffin Bay licensing area, is more than 18 billion barrels of oil equivalents.

Applicants for the first of the 2012 licensing rounds will have to be members of, or partners with, the Kanumas Group, which is made up of most of the industry’s heavy hitters, such as ExxonMobil, Statoil, BP, Japan National Oil Corporation (JNOC), Chevron and Shell. The publicly owned company Nunaoil is also a member.

Among oil companies the pace of offshore activity is being set by Cairn Energy, the niche player which was ahead of the field in spotting opportunities offshore India. Subsidiary Capricorn Oil was awarded six licences in 2008, and a year earlier than expected the company is bringing in two semisubmersibles, Stena Forth and Stena Don, for a drilling programme in the Disko West area, offshore Western Greenland.

Progress or otherwise of exploration offshore Greenland depends in the first instance on the results of new data acquisition by the marine seismic industry which is beginning to test the limits of carrying out surveys with towed streamers in Arctic ice conditions. By far the biggest contributor of data in recent years has been TGS-Nopec Geophysical Company, the multi-client seismic acquisition company. It has stuck to its guns in believing that Greenland would eventually come back on to the radar of oil exploration companies. This year it will embark on its eleventh year of consecutive 2D multi-client seismic programmes. As a result the company which has worked closely with the Greenland authorities boasts the best modern geoscientific database for offshore Greenland. By the end of the 2009 season its data library included approximately 90,000km of 2D seismic data and 300,000km of aeromagnetic and gravity data in the Greenland area.

Last year TGS acquired 9600km of 2D seismic data off the west coast of Greenland in the Baffin Bay. The survey was intended to infill previous 2D programmes to provide a continuous regional grid of data designed to assist in the evaluation of the Baffin Bay area prior to the major bid round closing in May 2010.

TGS has not been particularly adventurous from a technical point of view in its Greenland surveys. That’s to say, it has simply made use of the short, late summer weather window when the ice breaks up sufficiently to operate. Its technique has been to deploy a fairly conventional single long offset 2D towed streamer in order to resolve some of the imaging issues in a region characterised by volcanic rock. This is not to understate the logistical challenges in operating in such remote and potentially hazardous conditions which TGS has successfully overcome.

A number of the marine seismic companies are beginning to acknowledge that the search for Arctic hydrocarbon reserves, not just off Greenland, could present a significant opportunity and as a result are beginning to polish their credentials. Once the results of the Greenland licensing round are known, there is bound to be survey work required to meet licence commitments. The US Department of the Interior’s Minerals Management Service (MMS) has a number of lease sales north of Alaska in the Chukchi and Beaufort Seas planned between now and 2012 which may lead to seismic if sensitive environmental issues can be over overcome. Norway is gradually moving north with its exploration programmes in the Barents Sea, and Canada seems likely to consider further Arctic-related exploration in the not too distant future. Meanwhile there have been mixed messages of late about the extent to which Russia might invite international oil companies to assist in the appraisal of its Arctic resources, believed to be massive, mainly gas.

It all adds up to potential opportunities. The emerging Dubai-based marine seismic contractor Polarcus is one company which plans to exploit them. It has even signalled its intent by including Polar in its name and is already marketing its vessels as the best equipped for Arctic operations. Until someone comes up with a completely revolutionary marine acquisition method as cost effective as towed streamers, the technical challenge for seismic companies such as Polarcus is to find ways of extending the period in which they can operate in Arctic waters with towed cable. In addition the permitting authorities have to be satisfied that their increasingly stringent environmental and safety requirements for seismic operations are met.

Polarcus believes that its customised vessels will have an edge. For example, the soon to be launched Polarcus Asima, is being built to DNV ICE-1A certifying standards equipped with, among other things, a double hull for vessel integrity and mitigation of pollution in the event of a hull rupture. It will tow up to 12 solid streamers, which are best for high quality data acquisition and least threat to the environment compared with the liquid filled alternative. Numerous other winterisation measures have been incorporated to enable its vessels to arrive earlier at survey locations and leave later providing a more cost effective window compared with less well equipped competitors.

The most adventurous approach to extending actual seismic operations in waters complicated by free ice was demonstrated last year by OCTIO Exploration’s Geo Explorer. Recently upgraded to ICE-1A standard, the vessel carried out a 5300km 2D seismic survey off north east Greenland. This was the latest addition to GXT’s ArcticSPAN multi-client programme designed to understand the regional geology and less explored basins of the Arctic. The survey covered the south Danmarkshavn Basin, Thetis Basin and the northern section of the northeast Greenland volcanic province and used a Polar Class ice-breaker vessel to clear the floating ice ahead of the seismic vessel, believed to be a first.

Purpose-built modifications were made to fend off ice from the in-sea recording equipment. In addition, OCTIO equipped Geo Explorer with virtually the full suite of Intelligent Acquisition [IA] marine technology developed by ION Geophysical, GTX’s parent company to help image under the polar ice in what is a notoriously difficult area for towed streamer operations. This included ION’s recently introduced DigiStreamer, designed to provide continuous recording capability and an environmentally friendly, low-noise solid cable that enables operations in a wider weather window. Also deployed were DigiFin, DigiBird, and the Orca command and control system to actively steer around and beneath any ice encountered. During the seven week survey OCTIO says that downtime for the whole operation was an impressive 4%, and early data quality reports are believed to be favourable. It is now at work developing a system which would allow for multiple towed streamer 3D seismic acquisition in similar conditions, but admits this could be several years into the future. Meantime the company expects more takers for its current configuration.

A first 3D seismic survey offshore Greenland but not in such an extreme environment was in fact acquired last year for Canadian company Husky Energy by the Petroleum GeoServices vessel Atlantic Explorer towing six 7000m cables. It was a chance for PGS to prove the benefits of its new GeoStreamer design in terms of being able to tow deeper thereby avoiding flows of sea ice, handle harsher sea conditions and thus extend the survey window.

One thing that can be said about these various efforts being made to improve the technology and logistics of seismic exploration in offshore Arctic regions is that they may help to overcome oil company reluctance to at least revisit some vast frozen assets. OE

Categories: Arctic North America Geophysics Geology

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