THE EXPLORERS 2007: Shell never really left Alaska
2007 Beaufort drilling plans on hold due to a court order, Odom says will continue to listen, learn, work with local people
Kay Cashman
Petroleum News
When Shell re-entered Alaska in October 2001 with the $2.4 million acquisition of 56,000 acres on the North Slope, Alaskans watched to see what the U.S. E&P arm of Royal Dutch Shell would do next.
Formerly a Cook Inlet basin producer, Shell left Alaska in 1998 after more than 40 years of activity that included exploration drilling in almost all of the state’s offshore basins with oil and gas potential, including the Chukchi Sea, Beaufort Sea, Gulf of Alaska, Bering Sea and Cook Inlet.
But Alaskans were disappointed because a year after Shell’s return the mega-major put its new North Slope leases up for sale.
Land and exploration staff from three oil companies told Petroleum News that Shell had said the Alaska leases, which were south of the Kuparuk River unit, didn’t “stack up against Shell’s deepwater Gulf of Mexico holdings as an investment.”
There were no takers for the leases, so in 2004, Shell surrendered them to the State of Alaska.
Remained AOGA member
“We felt that the potential of the area did not meet our investment criteria,” Shell spokeswoman for EP Americas Kelly op de Weegh told Petroleum News in October 2004. “But I want to stress, our decision to surrender what we consider to be a small, non-material leasehold does not affect our goal to continue evaluating investment opportunities in Alaska.”
“That specific area” of the North Slope does not interest Shell, she said, asking Petroleum News to “stress that we do not view this as an exit from Alaska.”
“Even though Shell sold its last producing asset in 1998, Shell has remained an AOGA member,” she said, which the Alaska Oil and Gas Association confirmed.
Sakhalin, West Siberia, Alaska
Op de Weegh’s assertion that Shell was still interested in Alaska coincided with remarks made a month earlier to Oil Daily by Shell’s global exploration director, Matthias Bichsel.
He said Shell had completed an 18-month, “thorough evaluation” and that the company “wants to develop a bigger exploration position in Alaska,” which it sees — alongside North Africa, the Russian Arctic and the global deepwater — as “one of the key areas of upstream potential for the international oil and gas industry.”
Bichsel also mentioned Shell’s continued interest in Sakhalin and West Siberia.
“You have a bit of a theme there — Sakhalin, West Siberia and Alaska — which is the Arctic, which requires big funds, which requires technology, tenacity, staying power, which I think companies like ours are very well suited to.”
Wins Beaufort leases
In March 2005 Shell won 84 Beaufort Sea leases in a U.S. Minerals Management Service lease sale. (MMS estimates suggest that about 7 billion barrels of oil and 32 trillion cubic feet of gas can be recovered from under the Beaufort Sea.)
Within a few months of winning the outer continental shelf tracts, the company purchased EnCana’s Beaufort leases, opened an office in Anchorage, and hired Tom Homza, formerly with EnCana in Alaska, to manage it.
On a visit to Anchorage in August 2005, Annell Bay, Shell’s vice president of exploration for the Americas, said Shell had done an extensive review that encompassed all aspects of doing business in Alaska, including “geological, technical, environmental, political, social and certainly commercial. We have re-looked at the elements and the opportunities in Alaska and feel like now is the time to come back” and build “another successful venture.”
She described Shell’s Beaufort lease position as “a platform for us to build on.”
Fox, Toohey, Ahmaogak
In January 2006, Shell named three top officials for its Alaska operation in Anchorage: Rick Fox, asset manager; Cam Toohey, government and external affairs manager; and George Ahmaogak Sr., community affairs manager.
At the time of the appointments, Alaska Exploration Manager Chandler Wilhelm said, “Although production is years away business planning and stakeholder engagement work is already under way.”
In 2006, Fox had been with Shell for 30 years. Earlier in his career he worked in Alaska’s Bering, Beaufort and Chukchi seas, and was lead drilling foreman on the Chukchi Sea exploration team led by Shell.
Toohey, a lifelong Alaskan, most recently had been special assistant to the secretary of the U.S. Department of the Interior.
Ahmaogak, a lifelong Alaskan and Barrow whaling captain, had just finished two terms as mayor of the North Slope Borough.
Vision for Bristol Bay
Shell said it was interested in other parts of Alaska, not just the far north.
In October 2005, Anchorage Daily News fisheries and oil reporter Wesley Loy attended a meeting that gave a glimpse of how Shell would communicate with people in areas it was interested in exploring and developing.
“Major oil companies often prefer to hold their cards close to the vest,” Loy reported. “But in the first week of October a land agent from Shell International Exploration and Production in Houston candidly laid out the company’s Bristol Bay vision for commercial fishing representatives meeting at the Hilton Anchorage Hotel.”
Shell’s plan, Loy wrote, would involve two to four “offshore production platforms in the bay’s fish-rich waters — which are now off-limits to drillers — and piping natural gas across the rugged Alaska Peninsula to a new processing plant and tanker port on the Gulf of Alaska.” Gas would be super chilled into liquefied natural gas, or LNG, for shipment to the West Coast via Mexico or Canada.
Shell would face many regulatory, geologic and business hurdles to move forward, a federal official told Loy. “But it does demonstrate rising industry interest in a place that historically has shunned drillers. And it signals a new chance for Alaska to cash in on the great global competition to supply the energy-hungry Lower 48 with gas.”
The Shell land agent, Gregg Nady, said fishermen and oilmen have peacefully coexisted offshore for decades around the world, and the same could hold true in Bristol Bay.
Nady said Shell was among several oil firms that in 1988 spent more than $95 million for Bristol Bay leases, only to see spill-wary fishermen, environmentalists and Alaska politicians persuade the federal government to buy back the leases in 1995.
That lease sale was nearly 20 years ago, Nady noted. “That’s 20 years of track record for the industry operating offshore that we didn’t have back then. We feel it’s a great track record.”
Since 1988 Bristol Bay residents “have warmed to oil and gas, mainly due to salmon prices collapsing in the face of competition from foreign, farm-raised salmon. A harvest that was worth more than $200 million at the docks in 1990 has dwindled to less than half that, causing major job and public revenue losses for local people and governments,” Loy wrote.
Nady said Bristol Bay gas could sustain a liquefaction plant in Balboa Bay, near Sand Point, for 25 years.
What’s more, he offered, oil industry helicopters have been known to save fishermen in distress, and Shell has a “good neighbor policy” — in case of damage to fishing equipment.
Eye on Chukchi
Early on, Shell was telling the Native people, governments and special interest groups of northern Alaska that it was i