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Shell gears up for new Arctic quest

By Jennifer A. Dlouhy: Saturday, June 23, 2012

VALDEZ, Alaska – A new chapter in U.S. oil exploration could open within days as Shell sails into seas north of Alaska, hoping to tap into a potential 90 billion barrels of crude that have beckoned for decades.

The company has been there before, drilling exploratory wells in the 1980s and 1990s that tantalized with promise of riches deep below the freezing Chukchi and Beaufort seas.

But a decadelong slump in oil prices depressed the value of the bounty. Crude from the Exxon Valdez tanker blackened Alaska’s coast, drawing worldwide scrutiny to the potential for oil-related environmental disaster – a prospect reinforced two decades later when a blown-out well in the Gulf of Mexico claimed lives and livelihoods there.

Now, Shell is close to getting back into the Arctic waters, after working seven years and spending $4.5 billion to meet new technical challenges, comply with new rules and assuage at least some fears of skeptical environmentalists and native Alaskans who say the exploration threatens a fragile ecosystem and a centuries-old way of life.

Shell awaits only a handful of federal permits to drill as many as three wells in its Burger prospect in the Chukchi Sea and two in the Sivilluq prospect in the Beaufort Sea. If there are no last-minute legal challenges, the work is expected to begin by the end of July.

Shell’s quest shows how hard an oil company will pursue the next potential domestic discovery. It also is a case study in U.S. regulation of offshore drilling in frontier areas after BP’s deadly 2010 Gulf of Mexico oil spill.

The company spent nearly half a billion dollars renovating two drilling rigs that have been docked in Seattle, poised to rendezvous soon with a flotilla of support vessels that the company and the government say will reduce the chances of disaster and increase Shell’s capability to respond to an emergency.

Untested technology

In Valdez, about 800 miles from Shell’s planned Arctic wells, the company has spent weeks training recruits how to deploy inflatable booms to corral floating crude so skimmers can suck it up.

During one recent drill on an overcast, damp day, Shell’s trainees unwound inflatable boom from giant reels, pumped its orange pockets full of air and cast it into the water. Oil spill response vessels holding one end of the boom pulled slowly away, keeping the material taut.

But when two vessels let too much slack develop, Shell supervisors gave the trainees poor marks. “They’re moving way too fast,” said Geoff Merrell, superintendent of emergency response for Shell Alaska, as he watched from the chilly deck of a nearby vessel.

Pulling a boom too quickly can allow suction to develop and let oil slip underneath the apron of the boom and escape. “This is why we practice,” Merrell declared.

But while federal regulators have approved Shell’s broad drilling plans and signed off on the company’s emergency plans for the region, the technology for sopping up spilled oil hasn’t been tested publicly in U.S. Arctic waters in 12 years, and the results weren’t encouraging.

During that earlier test, skimmers failed and floating ice slipped under booms meant to corral crude.

“It was a perfectly calm day,” said Dan Ritzman, Alaska program director for the Sierra Club, who witnessed one of the two spill response tests in 2000. “The Beaufort Sea was glassy smooth. The ice was just sort of forming up – pancake ice – and the idea that they couldn’t do it then, you started to think about what if the water was choppy or the ice was in bigger chunks? It would just make it harder.”

Critics also have raised concerns about the two decades-old rigs Shell will be using in the Arctic: The Kulluk, a 29-year-old conical drilling unit that hibernated in Canada for more than a dozen years; and the Discoverer, a 1960s-era vessel that spent a previous life as a log carrier before being converted to a drill ship in 1976.

Shell says the drilling vessels it will send to the Arctic were among few available that could handle the region’s conditions and were capable of being moored above their drilling targets.

Other rigs stay in place with the use of global positioning systems.

Company leaders point to $480 million in recent improvements, which included installation of new engines and emission control systems, and even a fresh paint job on the Kulluk to remove an orange veneer that could frighten whales as they migrate through the waters around Alaska.

Pete Slaiby, vice president of Houston-based Shell Oil’s Alaska venture, said the company eventually may build a rig specifically for Arctic drilling, but for now, the Kulluk and Discoverer were the best options.

Mike LeVine, Pacific senior counsel for the conservancy group Oceana, said Shell should allow technical experts – beyond Coast Guard and Interior Department regulators – on the ships to verify improvements.

“Shell should be held to the highest standard,” he said, “and we all need to be sure they’re not just applying lipstick to a 30- or 40-year-old pig.”

Conservationists say an oil spill in the Arctic region could damage the fragile ecosystem irrevocably, with environmental effects eclipsing those caused in 1989, when the Exxon Valdez tanker ran aground near Prince William Sound as it was sailing from Valdez.

Fears for their ‘garden’

For native Alaskans who call the Arctic waters their “garden” because it supplies them with the fish and whale they eat, the risks are especially great.

“We’re part of the ecosystem up north,” said Earl Kingik, an Inupiat from Point Hope, who has hunted whales for 50 years. “We’re an animal too, just like the whale, just like the beluga. The bigger fish eat the smaller fish. The beluga eat the herring. A little accident could kill off the food chain of the animals. Once that food cycle is destroyed, they’re all gone.”

“If anything happens, we would lose everything, we would lose our way of life, we would lose our food,” Kingik said.

Other native Alaskans see Shell’s planned drilling as part of a continuing balancing act where oil means money – cash for indoor plumbing, local schools and community centers – even as it threatens the marine life they depend on.

Almost all of the tax revenue for the state of Alaska and the North Slope Borough is tied to oil, but that money is jeopardized by declining production from Prudhoe Bay and the threat that the 35-year-old Trans-Alaska Pipeline System could become unusable if the level of crude flowing through it dips too low. Even industry critics are keenly aware that the potential production of 90 billion barrels of oil – what the U.S. Geological Survey said could lie in all areas north of the Arctic Circle – could keep the pipeline flowing.

Shell was close to launching its Arctic exploration program in 2010, until the Gulf of Mexico spill put much U.S. offshore drilling on hold.

Precautions taken

Under pressure from regulators, Shell bolstered its plans to respond to vulnerabilities exposed by the Gulf disaster, including fresh concerns about the reliability of blowout preventers placed on wells to cut off flowing oil and gas in an emergency.

Shell added a second blowout preventer to each of its rigs, and installed a second set of shear rams on each of the devices to improve the odds of slashing through drill pipe and debris to close off a well.

The company also built a new capping and containment system, like the ones now required for deep-water drilling in the Gulf of Mexico, that could plug a runaway well. The system will sit on an unmanned barge between the two Arctic drilling sites, and could be towed to a damaged well in five to 10 days.

The wells will be in shallow waters, generally from 90 to 180 feet, and they will tap into what the company predicts are low-pressure reservoirs – although Shell won’t know for sure until it penetrates them.

Federal regulations require that Shell stop drilling before winter ice encroaches, but critics say a blowout late in the season still could trap oil under ice, making it hard to detect and even harder to remove.

The Coast Guard and Bureau of Safety and Environmental Enforcement have been inspecting the Discoverer and Kulluk, now docked in a Seattle shipyard. After testing the basic functions of Shell’s emergency equipment on land, they will monitor a deployment drill in Pacific Northwest waters in coming weeks.

Bureau director James Watson also has pledged to station inspectors on the Kulluk and Discoverer around the clock while Shell is drilling.

Lengthy timeline

Shell executives and federal regulators know the world will be watching, too.

“We will treat these wells like they are the most difficult wells we will drill in the history of Shell,” Slaiby said, although he contends they’re comparable to ones that have been drilled in the Gulf of Mexico since the 1960s.

During a recent tour of the Kulluk, U.S. Sen. Lisa Murkowski, an Alaska Republican and fervent industry backer, bluntly warned Slaiby: “We’re all going to be watching.”

As the top Republican on the Senate Natural Resources Committee, Murkowski is one of Shell’s biggest congressional champions. But on the Kulluk’s rig floor, she fired question after question at a senior Shell engineer.

Even if Shell strikes oil this summer, it could take a decade or more to begin producing. To bring the crude to market, Shell would seek to build pipelines over water and land – connecting its wells to the Trans Alaska Pipeline System.

The company is doing research now in anticipation of the massive environmental impact reports that would be required before any pipeline could be approved and construction could begin.

Oceana’s LeVine notes that Shell’s planned exploration is just one step – though a big one – in a long process that will require plenty of public scrutiny, and an honest conversation about the risks of Arctic oil production.

“There are still laws that must be upheld, there is still basic science,” he said. “We need to understand the impacts of these activities. So moving forward, we still have the opportunity to try to build a shared vision for the Arctic region, one that provides the American people with healthy ocean ecosystems and affordable energy.”


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