OTC 15: Shell talks Arctic plans

May 13, 2015

Shell’s Executive Vice President, Arctic, Ann Pickard discussed the supermajor’s investment and current challenges facing its Arctic exploration program at this year’s Offshore Technology Conference (OTC) in Houston on 5 May 2015.

In the summer of 2015, Shell will return to the Chukchi Sea with the Noble Discoverer and Transocean’s Polar Pioneer to drill two wells, a program that will cost over US$1 billion. 

With oil prices hovering around $60/bbl, the substantial investment into the operation is curious, particularly considering Shell’s postponement of drilling in the Chukchi Sea in 1991 for similar economic reason.

“Although the price of oil has plunged since last August, Shell doesn’t believe prices will remain low in the long term,” Pickard said. “As has been the case time and time again, rising global demand and the need for new supplies will remain the central drivers of the oil market.” With the combination of rising global demand and declining production in current wells averaging about 5% per year, it is necessary to invest in developing projects that will tap into new supplies.

Additionally, improved and new technologies compliment the feasibility of the current drilling program. With innovations in seismic surveying, for example, subsurface characterization are more precise resulting less exploration and appraisal wells needing to be drilled. 

“Ultimately, advances in technology provide the basis for improved safety, a reduced environmental footprint, and a more efficient operation. And these reasons give me confidence in our ability to explore responsibly in this region,” Pickard said.

Although despite Shell’s willingness to invest in the Arctic, regulatory and political factors may hamper the program.

At the time of the OTC presentation on the Shell Arctic program, the company was waiting to receive eight permits, from state and federal agencies, including permits to drill from the US Bureau of Safety and Environmental Enforcement (BSEE) and appropriate authorizations under the Marine Mammal Protection Act, before beginning the drilling program. 

Progression for the summer program took the form of conditional approval by the US Bureau of Ocean Energy Management (BOEM) for Shell’s revised multi-year exploration plan for the Chukchi Sea on 11 May. Part of the revision included the drilling of six wells within the Burger Prospect located about 70mi northwest of the village of Wainwright in the Chukchi Sea.

However, in an announcement released the same day, the Seattle City Council adopted a resolution urging the Port of Seattle to reconsider its lease at Terminal 5 – where Shell’s Arctic drilling rigs would undergo docking and repairs – putting the city on record as officially opposing federal permits and leases relating to Arctic drilling.

Prior to the announcement, on 9 May, the Seattle City Council and the city’s Mayor Ed Murray asked its Department of Planning and Development (DPD) to review the Shoreline Master Permit that was issued to the Port of Seattle. The DPD found that operations for Shell’s rigs at Terminal 5 in the Port of Seattle, which service company, Foss Maritime, has leased, is not covered under “container operations” for which the terminal is permitted, thus requiring another permit to be issued. 

In response, the Port of Seattle Commission met on 12 May to discuss the situation. The Seattle Times reported that prior to making a decision, the commission heard from 74 speakers, including Alaskan representatives who flew down to speak. In an analogy relating Washington’s involvement in Alaskan affairs, Paul Fuhs, executive director of the North Slope Port Authority in Alaska, explained that reinterpreting the permit for the lease at Terminal 5 to oppose Arctic drilling would be like Alaskans wanting the Boeing plant to be shut down. “That would be the level of what they are saying to us, to shut down oil drilling in Alaska,” Fuhs said.

The commission then voted to appeal the interpretation of the cargo use at Terminal 5. “We expect that this will also provide a fair and objective opportunity for all affected parties to participate. We will work with the City of Seattle to define ‘cargo,’ as maritime businesses need that certainty,” said Stephanie Bowman, commission co-president, in an official statement dated 12 May. The Port of Seattle commissioners also asked that the rigs arrivals be delayed while the new permit is being appealed. However, with the short window in which drilling operations can occur and the lengthy time to appeal or issue permits, the city’s request could put the operation in jeopardy.

In response to the request, Paul Stevens, CEO of Foss Maritime told The Seattle Times, “We are going to proceed… These rigs and our operation will be in and out of here before there is any conclusion on the appeal process.”

With Shell’s latest obstacle coming from Seattle, over 2000mi away from the Chukchi Sea, they are at least supported by the local populations of the North Slope, who derive over 70% of their income from oil developments and have over 40 years of experience in the oil and gas industry. Arctic Iñupiat Offshore (AIO), which represents the native Iñupiat people of Arctic Alaska, is partnered with Shell in the Chukchi Sea leases. AIO represents the Arctic Slope Regional Corporation, and six North Slope village corporations. 

“The ocean is our garden, it’s where we derive most of our sustenance,” said Rex Rock, AIO president, at OTC in Houston. “We recognize that North Slope communities bore all the risk from potential offshore development, without receiving any tangible long-term benefits. With that in mind, in 2009 we decided to approach Shell to request the opportunity to invest.

“We have considerable knowledge about what works and what doesn’t work. We determined that signing an alignment with Shell would allow us to impact their program using our traditional knowledge. In addition, AIO has the right to participate in project decisions though quarterly proactive management meetings with Shell. We are hopeful that Shell is able to drill in 2015 and look forward to our collective successes in the program,” he concluded.

Image from Shell Twitter


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