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Shell bullish on Chukchi oil and gas potential

Reuters: Shell bullish on Chukchi oil and gas potential

Sat Apr 5, 2008 1:32am BST 
By Yereth Rosen

ANCHORAGE, Alaska, April 4 (Reuters) – Alaska’s Chukchi Sea, the remote region separating North America’s northwestern tip from northeastern Siberia, is one of the “potentially most prolific oil fields” left in the world and could ultimately compare to the Gulf of Mexico as a source of domestic energy, a Shell (RDSa.L: Quote, Profile, Research) official said Friday.

“We estimate maybe 100 different (geologic) plays out there,” Rick Fox, Alaska assets manager for Shell, said in a speech to the World Affairs Council of Alaska. But only a few of them attracted bids in a record lease sale in which Shell put up $2.1 billion for exploration rights, he said. “Only about 14 of them got attention in the lease sale,” he said.

The U.S. Minerals Management Service estimates the Chukchi holds 15 billion barrels of recoverable oil and 76.7 trillion cubic feet of natural gas. The February lease sale held by the MMS, the first for the Chukchi since 1991, drew $2.66 billion in high bids, the highest total for any Alaska lease sale.

Along with Anglo-Dutch Royal Dutch Shell, ConocoPhillips (COP.N: Quote, Profile, Research), Repsol (REP.MC: Quote, Profile, Research), Eni (ENI.MI: Quote, Profile, Research) and StatoilHydro (STL.OL: Quote, Profile, Research) were active bidders in the Feb. 6 lease sale.

Oil exploration is just in its infancy in the Chukchi, Fox said.

While 50,000 wells have been drilled in the Gulf of Mexico, only five have been drilled in the comparably sized Chukchi, four of them by Shell in past decades, he said.

“If we think of it as a potential replacement for the Gulf of Mexico as a source of oil and gas for the nation, we’re just getting started,” he said.

Shell was active in Alaska’s offshore provinces until the 1990s, when it sold off its Alaska assets. But now the company expects Alaska to become a key part of its global operations, Fox said.

“We rushed back into Alaska with the idea of Alaska as a possible heartland for us,” he said. By “heartland,” the company means “a long-term investment, a major play, a big part of our business,” he said.

Shell hopes to do some exploratory drilling on leases in the Beaufort later this year, Fox said. Earlier plans to drill at the company’s Sivulliq prospect were foiled by an environmental lawsuit and court order.

Fox said plans to conduct an on-ice seismic testing program this winter were dashed by poor ice conditions.

Shell had planned on-ice seismic work from about February or March, a time when the pack ice was expected to be its thickest, Fox said. “The ice did not cooperate,” he said.

Ice is currently very sparse in the Beaufort, so much so that Inupiat Eskimo whalers have started their spring hunt early, he said.

In the Chukchi, “There was no good flat spot where we needed it,” he said.

To allow for seismic testing, sea ice has to be flat and thick enough to support work crews and camps, Fox said. But the Chukchi ice that formed was in parts jumbled by the wind and too rough to be safe, and in other places too thin to support such work, he said.

Shell has opted for on-ice seismic work rather than open-water testing, in response to concerns from North Slope villagers about potential disturbances to whales and other marine animals, Fox said.

(Reporting by Yereth Rosen; editing by Gary Hill)

© Reuters 2008 All rights reserved.

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