Shell learning about the Arctic the hard way

Hearst NewspapersNovember 11, 2012 

Kulluk in Beaufort Sea

The Kulluk conical drilling unit works in the Beaufort Sea at a Shell Alaska prospect recently offshore from the North Slope.

PHOTO COURTESY SHELL ALASKA

CHUKCHI SEA, OFF THE COAST OF NORTHERN ALASKA -- On an all-but-invisible horizon, light gray mist meets dark gray water. Tiny, dry snowflakes and ice crystals swirl across the deck of the drill ship Noble Discoverer, driven by a wind that whips through the warmest coveralls.

Just another day at the office, 400 miles above the Arctic Circle.

"It is a challenging environment," conceded Shell Alaska Vice President Pete Slaiby, watching the waves that rocked the rig as it bored the first 1,500 feet of an exploratory well in the Chukchi Sea. "You have to plan every day, every operation."

Six years and about $5 billion into its quest for Arctic oil, Shell still struggles to overcome the obstacles of this forbidding frontier, where the cold locks up machines and blankets of fog sometime keep planes out of the sky for days at a time.

Despite exhaustive planning and simulation of the work to come, problems started even before Shell's drilling units arrived. First, stubborn sea ice clung to Alaska's shores, preventing Shell's ships from cruising to their shallow-water drill sites. Then, the Discoverer dragged its anchors and briefly floated out of control near Dutch Harbor. Later, Shell confessed it couldn't satisfy some terms of an air-pollution permit governing the Discoverer. And finally, after months of construction delays, the company's first-of-its-kind oil spill containment barge was damaged during certification tests.

Although oil companies punched nearly three dozen wells in the Beaufort and Chukchi seas between 1982 and 1997, Shell's latest Arctic venture is the first bid to find crude underneath these waters in decades and the first since the Gulf oil spill focused new scrutiny on the safety of offshore drilling.

In its return to the Arctic, Shell navigated around such obstacles as low-hanging fog and floating ice while managing more than two dozen ships and the logistics of deploying, feeding and boarding hundreds of workers at a time.

Just days after Shell left its half-finished Chukchi and Beaufort Sea wells for the winter, the company is preparing to make changes because of the lessons it learned this summer.

All too often, fog socked in the helicopters Shell used to rotate workers on and off its vessels, stranding them for extra time at sea or onshore in Barrow and Prudhoe Bay. While the choppers, operated by PHI Inc., have instrument-flying capability, they weren't equipped with critical deicing equipment that would allow them to soar into the clouds. And whenever fog rolled in -- as it does roughly half the time in the summer -- it was often impossible for the helicopters to stay below the clouds while still flying sufficiently above the water.

The solution next year will be to put rotor heating on the equipment, allowing Shell to keep the helicopters flying on a more predictable schedule.

Shell also is planning to replace the cranes on its Kulluk floating drilling unit, which worked in the Chukchi Sea. The move will allow the equipment to work in colder conditions. On the Discoverer, cranes still won't be operable in temperatures below freezing -- suspending any efforts to run the widest (and heaviest) casing in the well hole.

The cold weather also has made it difficult for the Noble Discoverer to desalinate and treat water for use on the ship, something Capt. Mike Shanley acknowledged he had not anticipated. The vessel is relying on an alternative evaporative distillation process as a workaround.

Still, Slaiby thinks Shell's logistical management was a success, in part because workers on the rigs never went without needed equipment.

For example, when rocks got caught in the wheel harrow blades of a massive, specialized drill bit on the Discoverer in mid-October, Shell was able to draw from a stash of spare parts near its helipad for repairs.

The fix took just 12 hours instead of the several days that might have been required if the equipment were on a nearby floating barge or on land.

Distance is a major foe in this barren environment. And while Shell has an armada of support ships spread across these Arctic waters, there are no nearby deep-water ports for extra supplies. The closest one, in Dutch Harbor, is more than 1,200 miles away.

Ice is also an ever-present threat.

Thirty-five years of experience in offshore exploration didn't prepare senior drilling supervisor Loyd Wallace for the perpetually overcast skies, the cold or the ice he saw one day on the horizon: "It was sticking out of the water, like a mountain of snow floating by."

On the Discoverer's bridge, an ice adviser, Capt. Doug Allen, scans an array of computer screens, constantly monitoring ice around the drillship and its support vessels. "You always have to be aware of it," Allen said.

Shell was forced to flee ice in September, just one day into drilling its Burger A well in the Chukchi Sea, after a 30x12-mile floe half the size of Houston encroached. Workers halted work, hurriedly disconnected from the ship's eight anchors and retreated until the ice floe could pass by.

That episode and others were instructive for federal offshore drilling regulators that have stationed inspectors on Shell's Arctic drilling units around the clock.

"We're no longer talking about these things in the abstract, where ... the issues seem very manageable," said Deputy Interior Secretary David Hayes. "When they actually affect operations, it's a reminder that this is ... a particularly challenging environment."

Interior Department officials expect to conduct a "lessons learned" exercise internally and with Shell in coming weeks.

Several other companies are waiting to follow in Shell's footsteps, including Conoco Phillips, Statoil and Repsol. All would be taking advantage of new sea conditions, as climate change and melting ice open areas that were once impassible.

But even as the Arctic potential widens, some in the industry are skittish. Statoil said it would wait until 2015 at the earliest to pursue drilling on its own leases in the Chukchi Sea after witnessing Shell's woes this year. And Total SA CEO Christophe de Margerie told the Financial Times last month that the environmental risks are too high to justify oil drilling in Arctic waters. Total does not have leases in the U.S. Arctic, but does own rights in other Arctic waters.

Shell's setbacks this year surprised even some veteran industry observers who were braced for problems.

"Even as a person who is thinking about what could go wrong, I was surprised at how many things went wrong," said Marilyn Heiman, director of the Pew Environment Group's Arctic Program.

Environmentalists say Shell's problem-plagued start proved the company isn't capable of safely searching for oil in the Arctic, where spill-response technology can be defeated by slushy waters and ice. They also insist that the government and public deserve more details about what went wrong with the containment system testing and the Discoverer in Dutch Harbor.

"If they don't make this information public, how can we be assured that these kinds of problems won't happen in the extreme Arctic Ocean?" Heiman asked.

Still, for Shell, an enormous prize beckons. The U.S. Geological Survey estimates that the area north of the Arctic Circle contains 90 billion barrels of technically recoverable oil, with nearly a third of them under the American continental shelf.

And Shell has staked out a big position, with 408 federal drilling leases in U.S. Arctic waters.

Armed with knowledge from Shell's earlier 1990-era drilling and from studying 3D seismic surveys of the Chukchi Sea, company geologists have identified strong indications of a large subsurface structure that they say could have a multibillion-barrel potential, possibly yielding 400,000 barrels per day. That's roughly 4 percent of current daily U.S. production.

Dave Pursell, an analyst with the Houston-based energy investment bank Tudor, Pickering and Holt, said Shell is making a big bet not just that there is oil under its leases, but also that it has the money and in-house engineering skills to develop production equipment and pipelines that can withstand Arctic conditions and churn out oil year-round.

"Shell views themselves as a kind of leading technology company," Pursell said, noting the firm's other advantage: capital. "There are significant barriers to entry. Not many guys can spend billions and billions of dollars on plays that probably require yet-to-be-developed technology."

 

 

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