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IF SHELL FINDS OIL IN CHUKCHI SEA, WHAT NEXT?

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Screen Shot 2015-06-13 at 09.26.5318 September 2015

The short drilling season for oil exploration in U.S. Arctic offshore waters will reach one stopping point Sept. 28 and a complete halt Oct. 31 for Royal Dutch Shell Plc. The company has been drilling since July 30 at the Burger prospect in the Chukchi Sea north of Alaska. If oil is discovered, it will require some very interesting and complicated development decisions and regulatory considerations.

Shell has come a long way to get this far. It acquired a set of leases over the Burger prospect in 2008 and has spent about $7 billion on trying to develop the leases. Shell, operating through its subsidiary Shell Gulf of Mexico Inc., did not report a discovery from the well it drilled in 2012, and no one has ever yet discovered oil in the Chukchi — not oil in commercial quantities, at any rate. A dry hole is always a possibility.

Shell has not said how it will develop an oil field in the Chukchi Sea, and federal and state regulatory agencies have not said how it should be done. The Burger prospect is more than 70 miles from the coastal town of Wainwright, and it is about 300 miles from the Prudhoe Bay start of the Trans-Alaska Pipeline. An onshore pipeline would need to cross about 250 miles of the National Petroleum Reserve-Alaska. In the NPR-A, disputes over regulation for environmental protection can consume years.

The Bureau of Land Management, as the leasing agency in the NPR-A, and the U.S. Army Corps of Engineers, as the regulator of impacts to rivers and streams, would be central players in the determinations. ConocoPhillips Co., with partner Anadarko Petroleum Corp., has spent years wrangling with the BLM and the Corps over development terms for a couple of sites in the NPR-A.

The distance from Burger to a pipeline hookup would be shortened somewhat by infrastructure spreading westward. The Alpine field, on the edge of the NPR-A, already is piping crude to the Kuparuk River field and from there to the Prudhoe Bay area and the Trans-Alaska Pipeline. ConocoPhillips, operator of the Alpine field, is now drilling Colville Delta 5 (CD5), the first commercial well inside the NPR-A, in an extension of the Alpine field. First production from CD5, just a few miles inside the federal reserve, is expected in the fourth quarter. It is about 50 miles from Prudhoe Bay.

Eight miles west of CD5 in the NPR-A, the Greater Mooses Tooth 1 site awaits drilling by ConocoPhillips on the edge of what was named the Lookout prospect. No date has been fixed for when drilling may start at GMT1. On Aug. 24, ConocoPhillips filed an application for a permit to drill at GMT2. So development edges westward, very slowly.

Environmental activists have not given up efforts to block Shell’s work through litigation. Four activist groups suing under the Marine Mammal Protection Act sought an injunction against the drilling but were turned down by the U.S. District Court for the District of Alaska earlier this year, so they appealed to the U.S. Court of Appeals for the Ninth Circuit (Alaska Wilderness League v. Jewell, 9th Cir., No. 15-35559, 7/28/15).

The appellate court scheduled oral arguments for Nov. 16, after the end of the drilling season. For now, that means geology and the skills of Shell could determine the next news from the Arctic offshore. Then, if something of value is found, will come the many decisions on what to do next.

by Alan Kovski

SOURCE

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