Clock stopped for Shell in Chukchi Sea


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Shell’s Arctic Challenger oil containment barge at the Port of Bellingham International Dock in Bellingham, Wash., seen in February 2013. Shell did not continue its plans for Arctic drilling in 2013 and 2014. The clock is still ticking on the company’s leases in the Beaufort Sea, although the Chukchi leases are on hold.

AP Photo/Philip A. Dwyer/The Bellingham Herald

The clock is ticking on Shell’s Outer Continental Shelf leases in Alaska’s Beaufort Sea. A large number of the company’s leases are set to expire in October 2017, federal officials said, although the leases on Shell’s two top prospects, Sivulliq and Torpedo, have been extended to July and October 2019.

Meanwhile, the U.S. Bureau of Ocean Energy Management, or BOEM, has stopped the clock on federal offshore leases held by Shell, ConocoPhillips and Statoil in the Chukchi Sea due to an ongoing lawsuit.

The Chukchi Sea has been Shell’s top priority in the Alaska OCS since 2013. ConocoPhillips and Statoil only have leases in the Chukchi Sea, and not the Beaufort Sea.

Shell drilled two partially-complete exploration wells in 2012, one in the Chukchi Sea and one in the Beaufort Sea, and had planned to return to both exploration areas in 2013 until the specialized drilling vessel Shell used in the Beaufort, the Kulluk, was damaged in a grounding near Kodiak in December 2012.

The Kulluk had been designed for Beaufort Sea conditions and had been given air quality permits by the U.S. Environmental Protection Agency. Partly because it lacked a suitable vessel that had its permits, Shell put the Beaufort Sea on the back-burner for its proposed 2013 drilling, and focused on the Chukchi Sea. The company was unable to return to the Chukchi for the 2013 and 2014 open-water drilling seasons because of pending new federal regulations on drilling.

OCS leases have 10-year terms and the Chukchi Sea sale was in 2008, but the lease clock for all three companies with leases in the Chukchi has been frozen until BOEM completes a supplementary environmental impact statement, or SEIS, for the 2008 Chukchi Sea OCS Sale 193, according to U.S. Bureau of Ocean Energy Management officials.

The revamp of the original environmental impact statement for the sale was challenged in court by environmental groups who argued the assumed size of a discovery, and the size of a possible oil spill, were underestimated in 2008 by the U.S. Minerals Management Service, the predecessor agency to BOEM.

The agency is now redoing the estimates. A draft SEIS is expected this fall and a final document by next March, BOEM has said.

“All of the Chukchi Sea leases, including the (Shell) Burger prospect, were put into suspended status. This status will remain in effect until the Bureau meets its obligations to correct the Sale 193 EIS consistent with the U.S. Ninth Circuit’s opinion and the direction of the (federal) district court,” said a BOEM official, who asked not to be identified because of agency procedures.

The revamp of the 2008 EIS, the more recent development, was ordered by a U.S. District Court judge in Anchorage after the U.S. Ninth Circuit Court of Appeals agreed with the environmental plaintiffs.

The U.S. Mineral Management Service had originally used an assumption that a 1 billion-barrel discovery could be made in the Chukchi, and further assumptions on a possible oil spill were based on that. Environmental groups said the figure was too low, and that the assumptions for the oil spill were also too low.

With the standard 10-year term leases sold in Sale 193 would have expired in August 2019. The new expiration date is unknown and will not be established until the SEIS is issued and approved, the BOEM official said.

The delay in drilling Shell’s top prospects in the Beaufort Sea has implications for Alaska. Oil from any discoveries in the Beaufort could be brought ashore to bolster Trans-Alaska Pipeline System, or TAPS, oil “throughput” much more quickly than oil from any Chukchi Sea discoveries.

The Sivulliq and Torpedo offshore prospects are in the eastern Alaskan Beaufort Sea about 15 miles north of the Point Thomson onshore oil and gas development east of Prudhoe Bay. A pipeline to shore could be built more quickly than a 60-mile Chukchi Sea pipeline to shore, and once ashore the Beaufort Sea oil could be shipped to TAPS through the existing Point Thomson and Badami liquids pipeline.

Chukchi Sea oil, once ashore, would still require a new pipeline across the National Petroleum Reserve-Alaska to the TAPS line.

It would take more than a decade for Chukchi Sea oil, once drilled and discovered, to be brought into TAPS, state officials have said. Beaufort Sea oil, once discovered, could possibly be brought to TAPS in about half the time, they said.

Getting more oil into TAPS is important because TAPS throughput has been declining to the point that there could be operating problems during very cold winter conditions. More oil volumes, no matter from what source, will ease these.

Also, although OCS oil pays no royalty or production tax to the state of Alaska it indirectly increases state revenue because the higher volumes in TAPS lowers the pipeline’s per-barrel tariff for shipping oil. Since that applies to all oil shipped in the pipeline it results in a higher value of oil from state leases on the North Slope, resulting in higher royalties and production tax payments.

Tim Bradner can be reached at tim.bradner@alaskajournal.com.

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