A U.S. affiliate of Royal Dutch Shell plc is hopeful that the federal government will allow it to begin drilling for oil and natural gas in the Alaskan Outer Continental Shelf (OCS) next year, and believes that moving forward with exploration and production would boost the Trans-Alaska Pipeline (TAP) and make the case for construction of a pipeline to transport natural gas.
“We’ve looked at Alaska as a big bet for ourselves,” Pete Slaiby, vice president of Shell Alaska, said Tuesday at the United States Energy Association’s Annual Energy Supply Forum in Washington, DC. “Alaska ranks consistently as one of the top two areas for us to potentially explore and develop.”
Slaiby said the company has a predominant position in Alaska — with 275 leases in the Chukchi Sea and 137 leases in the Beaufort Sea — making Shell the largest leaseholder in the Alaskan OCS. He added that the company’s drilling plan for 2012 is to drill up to three wells in the Chukchi and up to two wells in Beaufort, with two drilling rigs working in parallel.
“We are very, very optimistic about being able to drill in 2012,” Slaiby said. “Our desire is to begin to drill and explore. Obviously, we’re doing this all in an atmosphere of a post-Macondo world. We believe we’re very close to being able to drill. It’s been a test of nerves over the last few years with issues in the permitting process, despite what I think is a world-class program.”
Shell was awarded conditional approval by the Department of Interior (DOI) to drill up to four exploratory wells over two years in the Beaufort Sea, where it has invested more than $3.5 billion in leases and predevelopment (see Daily GPI, Aug. 5).
Slaiby said Shell believes the Alaskan OCS holds 25 billion bbls of oil and 127 Tcf of natural gas, citing data from the U.S. Geological Survey. “There is a prize there,” Slaiby said. “The offshore is hugely significant in the Alaskan gas story and in any kind of pipeline project. These are all molecules that will be essential to anybody making the big bet on a potential pipeline [to transport natural gas].”
This week the DOI filed a record of decision over a 2008 federal oil and natural gas lease sale in the Chukchi, affirming the sale of 487 leases covering 2.8 million acres to Shell over the objections of environmental groups (see Daily GPI, Oct. 5).
Slaiby added that according to data from the University of Alaska, development in the Chukchi and Beaufort seas could create up to 54,000 jobs averaged over a 50-year time frame, which could mean $145 billion in payroll and $200 billion in federal tax revenue. “This is generational,” Slaiby said. “These projects are large enough to create employment for the next generation and the generation after that.”
Slaiby cautioned that the industry is facing an issue with TAP production. He said the pipeline, which at its peak was producing 2.1 million b/d of oil, is now down to about 600,000 b/d. “This has become an issue and the sustainability of this pipeline is in question,” Slaiby said. “So what we do right now in the offshore materially matters in this discussion. The business in the Chukchi is truly game changing. They are world class fields.”
Slaiby said Shell believes the Chukchi could produce 18 billion bbls of oil.
“The work that’s going in Alaska right now is really just putting Band-Aids on the TAP,” Slaiby said. “It’s finding fields that are smaller in nature and able to throw off 10,000, to 20,000 b/d. Chukchi would throw off significant amounts of oil, 700,000 b/d, which would more than double what we’re producing today.
“We understand the geology and frankly we’ve got some advantages of working in the Chukchi over other areas. There’s less ice cover, it’s a shallow shelf and there is less of an impact on subsistence hunting. These fields are potentially large enough to have a real and material impact.”
Mindful of last year’s Macondo well blowout in the Gulf of Mexico (see Daily GPI, April 22, 2010), Slaiby said Shell has developed a response system that would deploy assets within 60 minutes of an incident cite. Those assets include a capping stack and demolition tools to remove any debris within a few hours.
“Alaska is defined by its remoteness,” Slaiby said. “This a remote area that will not be able to deploy 4,000 or 5,000 vessels of opportunity. Frankly the stakeholders in this area would not look kindly on that in their backyard. Those assets will have to be deployed in an hour because we will not be able to chase oil up and down the Beaufort and Chukchi coasts.
“We would not be in Alaska if we did not believe we could do it safely. We have been there before. We were the largest operator on those offshore wells in the 80s and 90s and we believe that we can repeat the success we had.”
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