Chukchi thaw: drilling returns to the region after 25 years
Shell bets big in Chukchi offering
Shell expects to drill a wildcat in the Chukchi Sea around the turn of the decade following the oil and gas industry’s 25-year absence from the region.
The operator paid $2.1 billion in apparent high bids at last week’s Lease Sale 193 covering blocks in the Chukchi off northwest Alaska, placing the high bids on 275 of the 488 blocks receiving bids.
The tally included the highest single bid in the sale, a $105.3 million outlay on tract NR05-02 6367 and follows the operator’s big spending in Alaska’s last two Beaufort Sea lease sales, in which it was the overall high bidder.
Shell’s vice president of Americas exploration Annell Bay said the supermajor “was very well prepared for this sale” and added: “The effort came from four years of working Alaska pretty hard.
The Chukchi Sea is one of the most proven, prolific, but undeveloped hydrocarbon basins in the US.”
The US Minerals Management Service (MMS) estimates the Chukchi holds 15 billion barrels of conventionally recoverable oil and 77 trillion cubic feet of conventionally recoverable natural gas.
Shell has carried out a great deal of subsurface work in the region, including evaluation of a number of seismic shoots, and two full seasons of seismic work in the Chukchi.
Bay said the shoots concentrated on “one particular area”, but did not elaborate.
However, she added that more seismic is needed over the remainder of the blocks not covered in the initial dual-season shoot.
“As far as a decision on drilling timing, we would look at the regulatory timeline and then we look at our local community engagement plan,” said Bay.
“Putting those two things in there, we could drill in the next few years. That is possible.”
Shell is no stranger to the Chukchi, having drilled four of the only five wildcats drilled in its US waters with the Popcorn, Crackerjack, Klondike and Burger wells in the late 1980s and early 1990s.
Pooled oil was found at three locations, but the targeted sections showed no reservoir rocks.
Burger hit a 107-foot thick section with gas and condensate shows and was thought by some to potentially hold between 2 Tcf and 10 Tcf of gas, but was ultimately deemed not commercial.
Bay said there will be “a lot of opportunities to evaluate and appraisal those wells” and the company is “going to have to drill more wells to do that, but I think the opportunity is there and the risk/reward is there. It is an incredible potential basin”.
In all, the first Chukchi Sea lease sale since 1991 drew 667 bids on 488 blocks, both record-setting totals.
The auction attracted $2.66 billion in high bids, another record, from only seven participants.
After Shell, ConocoPhillips submitted high bids totalling $506.4 million, Norway’s StatoilHydro placed $14.4 million, Spain’s Repsol YPF also submitted $14.4 million and Italy’s Eni offered $8.9 million in high bids.
The sale was also dogged by controversy, with protesters braving sub-zero temperatures to voice their disapproval of the sale.
Environmentalists and some members of the US Congress argued that oil and gas activity in the region could further endanger marine life and polar bears.
MMS director Randall Luthi said recently the agency will continue working with the State of Alaska, local communities, whalers, and industry to help minimise any impact industry activity may have on subsistence hunting.
Leases issued from Sale 193 will include stipulations for protection of biological resources, including marine mammals and migratory and other protected birds, and methods to minimise interference with subsistence hunting and other subsistence harvesting activities.
Luthi also said that if the Department of Wildlife & Fisheries ultimately adds the polar bear to the endangered species list, then further consultation will be required as the agency evaluates exploration and development projects in the area.
