AD Header Dropdowns

AD Main Menu

Lessons aplenty for Shell Oil after first Arctic 'drilling season'

Alex DeMarban
Aaron Jansen illustration

Believing the U.S. Arctic Ocean contains one of the world's richest undiscovered oil and gas plays, Royal Dutch Shell is already considering what it will take to ship vast amounts of oil across Alaska.

The oil giant might just find the bonanza next summer. In recent weeks, it's punched the first exploratory holes into the U.S. Arctic seabed in more than two decades. Federal regulators won't let Shell drill into potential oil-bearing zones this season. But that's expected to happen after the sea ice begins to melt next summer, now that the company's oil-spill containment barge has won Coast Guard certification

Shell wasn't just working offshore, though. Staff and contractors spent much of this summer on the Alaska tundra, surveying an area the size of West Virginia to better understand where to place a pipeline, staging areas, pumping stations and other facilities needed to transport oil, according to Pete Slaiby, Shell's top official in Alaska. 

As part of that effort, Shell gathered scientific information from more than 1,000 sites in the 23-million-acre National Petroleum Reserve-Alaska, Slaiby said, in testimony submitted to the Senate subcommittee on Oceans, Atmosphere, Fisheries, and Coast Guard. The NPR-A is the possible location for an onshore pipeline carrying oil from Shell's Chukchi Sea Burger prospect to the 800-mile trans-Alaska pipeline.

Developing the Arctic's resources -- said to include more than 25 billion barrels of crude -- could result in thousands of jobs and boost federal coffers for decades to come. But it's at risk of not happening without changes to the nation's regulatory environment, wrote Slaiby.  

The testimony came as part of a subcommittee hearing held Thursday by Alaska Sen. Mark Begich, subcommittee chair. He organized the field hearing to collect "lessons learned" from Shell's work this summer. None of the 14 other members attended in person or via teleconference. Slaiby spoke, along with federal officials and Alaska Natives representing organizations with a financial stake in the project.

Much of the discussion centered on federal shortcomings, such as the way the federal government divvies royalties and revenues to be had from Arctic offshore drilling. Almost all of the proceeds go to the federal government. Jacob Adams, chief administrative officer with the North Slope Borough, said leasing and production revenues should be shared with local communities and the state, as they are along the Gulf Coast. 

Not asked to speak were representatives of conservation groups. The Alaska Wilderness League's Cindy Shogan blasted the omission -- and Shell -- in a press release sent before the Thursday meeting.

"Unfortunately, the conservation community has not been invited to testify at this very important hearing about the lessons learned in America’s Arctic Ocean this year," she said. "But it's no secret what is happening in the Arctic Ocean. We have all seen Shell Oil’s mishaps and foibles on national news."

The company's problems this summer included self-inflicted stumbles -- delays associated with overhauling an ice-class barge needed for oil-spill containment, damage to the barge's containment dome during a test, and a floating drill rig that dragged on anchor in Dutch Harbor, grounding or nearly grounding, depending who you ask.

Amy Miller, Begich's spokeswoman in Alaska, said environmental groups were not included because the meeting focused on operational aspects of Shell's effort.

At the hearing, Laura Forgione, acting director of the National Weather Service, noted that the Arctic needs better satellite data to improve sea-ice forecasts, as well as updated nautical charts, some of which have been around since the 18th century and the days of Captain Cook.

And the U.S. Coast Guard's top official in Alaska, Rear Adm. Thomas Ostebo, said the agency this summer tested oil-spill response equipment for the first time in the Arctic, though not in icy waters. The test was successful, he said.  

Lois Epstein, Arctic program director for The Wilderness Society, said Begich didn't delve deep into those problems and others.

"It was unfortunate on the part of Sen. Begich and the committee that they didn't try to address certain things in depth," said Epstein. "For example, why did the (Noble Discover drill rig) drag on anchor? What has Shell learned from that mishap?"

Slaiby told Begich that the Noble Discoverer's dragging was quickly stopped, with tugs bringing it under control in 22 minutes. 

And he described the error that led to the damaged oil-containment dome as it was being tested off the coast of Washington state earlier this month. An electrical problem led to a valve failure that forced the dome to rapidly descend. The descent was stopped before the dome reached bottom but not before water pressure damaged one side of the dome and some of the buoyancy chambers.

The containment dome was created to suck up spewing oil or gas in hoses and transport it to the surface where it can be flared off. Shell conducted a "top to bottom" review to learn from that mistake and will have the containment barge and system -- an unprecedented piece of oil-spill response hardware --- ready for Arctic drilling next year, Slaiby said.

"I strongly believe we have to be our strongest critic," said Slaiby at the hearing, adding that the containment system could be a "game-changer" in offshore exploration and should have been an industry standard for decades.

Slaiby often went into more detail in his submitted testimony  than in his presentation. Since Shell began its journey to drill in the Arctic seven years ago, the company has negotiated an inefficient thicket of federal agencies, dealt with federal delays, and fended off numerous lawsuits from conservation groups. That should change, he said.

"To put it bluntly, the regulatory process for drilling in Alaska is broken; it is not efficient, it results in unnecessary and costly delays, and it needs to be fixed," he wrote.

Without sacrificing rigorous federal reviews, Shell would like to see clearer permitting rules, deadlines for processing applications, a one-stop permitting facility in Alaska, adequately staffed and funded agencies, and lease rights that extend beyond the current 10 years.

"Even better, Congress should consider creating a dedicated, focused regulatory body for Alaska's offshore oil and gas projects," Slaiby's testimony said. The resource is vast enough to warrant such a move, he wrote.

Begich introduced legislation to create a one-stop shop last year, but that awaits Senate approval, said Miller. But the Obama Administration liked the idea and last year brought together several permitting agencies into a high-level working group that can speed up reviews of Alaska drilling projects. 

Slaiby's written testimony said that's not enough to meet the growing demands of U.S. Arctic development. That could include offshore drilling by ConocoPhillips in summer 2014, not far from where Shell hopes to drill in the Chukchi.

"Going forward, Shell and possibly other companies will collectively need hundreds of government reviews, approvals and permits annually. Under the current multi-agency process, this will not work," Slaiby's testimony said.

Slaiby also called for time limits on lawsuits filed to stop projects, from the current six-year period to just 60 days.

Shell has spent $4.7 billion -- including $2.2 billion buying its original leases -- to meet federal requirements associated with exploratory drilling. It expects that federal approval would follow in an orderly manner, but that hasn't happened, Slaiby said.

Contact Alex DeMarban at alex(at)alaskadispatch.com

CORRECTION: This article was updated Oct. 12, 2012. The original article incorrectly named a Shell drillship that may have dragged its anchor in Dutch Harbor earlier this summer. We regret the error.