Shell forges ahead in Arctic with exploratory well

WASHINGTON — Shell launched Arctic drilling on Thursday by sending a specialized bit spinning into the bottom of the Chukchi Sea, as critics protested against the campaign.

The company now has until Sept. 28 to drill the top portions of up to two wells at its Burger prospect about 70 miles northwest of the Alaska coastline, but after fixing a damaged icebreaker is hoping to convince regulators to let it go deeper this year.

The company is hoping to net a multibillion barrel oil discovery that could deliver a swift boost to its balance sheet and yield production decades from now.

“The prospect . . . has the potential to be multiple times larger than the largest prospects in the U.S. Gulf of Mexico, so it is huge,” Royal Dutch Shell CEO Ben van Beurden told reporters in an earnings call Thursday. “If, indeed, we do find oil, and if we find an acceptable path to develop it, it will start to produce in 2030.”

For now, Shell Oil Co.’s first test is excavating a 20-foot wide, 40-foot deep cavern in the seabed that can shelter an emergency device known as a blowout preventer from passing icebergs.

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Such mud-line cellars are relatively rare — and building the one at Shell’s Burger J well requires the Transocean Polar Pioneer to employ a specialized 20-foot-wide drill bit. It turns at three revolutions per minute, with discs plowing up mud as it burrows down.

Before that work could begin, the rig was anchored over the target and then drilled a pilot hole at the site to check for the presence of gas hazards.

“A big part of our well construction is the mud-line cellar,” said Shell drilling superintendent Eric Whatley.

The company has scheduled about nine days for the mud-line cellar excavation — but the timeline is unpredictable. During the last sustained round of drilling in U.S. Arctic waters, in the 1980s and 1990s, the mud-line cellars were frequently completed in three days.

By contrast, it took Shell weeks to drill a mud-line cellar at a half-finished Chukchi Sea well during its last attempt in 2012, partly because a floating iceberg forced the company to temporarily flee the site. And as Shell’s newest Arctic rig, the Polar Pioneer has never drilled a mud-line cellar before.

That means there’s not an extensive track record from which to base expectations, said Ann Pickard, Shell’s executive vice president for the Arctic.

“That’s an unknown piece,” she said, during a May interview. “I don’t have 10,000 wells to say boom, boom, boom, boom, it should look like this.”

The amount of time Shell spends on the mud-line cellar could be pivotal, affecting the company’s ability to complete a well this year, before the government-imposed Sept. 28 deadline.

“If it takes 30 days again we’re definitely in to a two-season well,” Pickard said. “So that to me is the big wild card, that mud-line cellar. That’s such an important piece to get right.”

Shell is already limited to drilling the initial top portions of its wells into the Burger prospect — and it can only use one of its two Arctic rigs at a time.

The Interior Department’s Bureau of Safety and Environmental Enforcement gave Shell permits to drill those initial “top holes,” but said the company must halt thousands of feet above potential oil-bearing rock.

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The restriction stems from regulators’ insistence that Shell have emergency equipment on site to combat a blown-out well. One such device — a capping stack — is aboard the MSV Fennica, a damaged icebreaker whose hull has been repaired in a Portland shipyard.

The Fennica left Portland Thursday, after more than a dozen Greenpeace protesters tried to thwart those plans by rappelling from the St. John’s bridge, while self-proclaimed “kayaktavists” also took to nearby waters.

Shell won a court order earlier this year barring Greenpeace from encroaching on some of the company’s Arctic assets. And on Thursday, a federal judge in Alaska ordered Greenpeace USA to pay $2,500 per hour that the dangling protesters keep the Fennica from departing.

Annie Leonard, the executive director of Greenpeace USA, initially said the activists would remain in place.

“Shell is still trying to circumvent the growing global call to preserve the Arctic, and has turned to the courts for help,” Leonard said. “While we respect the courts, we also respect the increasingly urgent science that tells us Arctic oil needs to stay underground.”

Shell spokesman Curtis Smith emphasized that the company respects “the right of individuals to protest our Arctic operations so long as they do so safely and within the boundaries of the law.”

“The staging of protesters in Portland was not safe nor was it lawful,” Smith said. “Furthermore, Greenpeace demonstrated a complete lack of regard for the authority of a U.S. federal court.”

Shell is planning on asking the safety bureau for modified drilling permits that allow it to penetrate deeper into the Burger prospect — a request regulators say is contingent on the repaired Fennica’s presence in the Chukchi Sea.

In focusing on the Burger J well, Shell officials appear to be confident the Fennica will be in those waters soon and regulators will modify the drilling permit for that well. Although the company has a permit to drill the Burger V well, about nine miles away, it is focusing on J, van Beurden said Thursday.

That well won’t be enough to appraise the size of an oil discovery at the site, but “very disappointing” results there could be enough to discourage future drilling at Burger, van Beurden said.

“We will probably, on the basis of one well, be able to condemn the prospect if it is very disappointing, but not really figure out how big it is and whether we should go about the development,” he staid.

Absent a real defeat at the Burger J well, Shell executives have committed to continued drilling in 2016, a point Van Beurden stressed again Thursday.

Shell drilled wells into the same area decades ago, but abandoned the projects in the face of high costs and low oil and gas prices. The drilling now is designed to prove the resource and determine whether it is big enough to justify continued development.

Shell’s Arctic drilling campaign comes as the company sheds jobs worldwide and sells some assets amid a crude price downturn. But van Beurden emphasized that Alaska is “a long term play” that requires ” a long-term view.”

“We cannot be driven by today’s tomorrow’s or next year’s or last year’s oil price to determine whether a project that will start up in 2030 will be attractive,” he said. “You commit to a project like this for two years, you hire yourself an armada of ships and rigs and helicopters and everything else and you cannot turn it off and on whenever you feel like it.”

Environmentalists say Arctic drilling is inherently risky and have challenged the government’s approval of Shell’s broad plan for exploration as well as responding to any oil spill.

They point to mishaps during Shell’s 2012 operations as evidence of the challenge in mounting a big drilling campaign in Arctic waters more than 1,000 miles from the nearest deep-water port. In 2012, the drillship Noble Discoverer briefly drifted out of control near Dutch Harbor, Alaska, Shell’s vessels emitted more air pollution than permitted and the Kulluk drilling unit ran aground near an uninhabited Alaska island.

On Thursday, three Democratic lawmakers pushed the Securities and Exchange Commission to scrutinize whether oil and gas companies exploring in U.S. waters — especially the Arctic Ocean — have adequately disclosed risks associated with that work.

“The risks in offshore oil and gas operations are great and many, as was unfortunately demonstrated in the Arctic in 2012,” said Rep. Alan Lowenthal, D-Calif. “The SEC has a vital role to play in ensuring that investors have all of the information to make sound decisions.”

The move dovetails on a petition the conservation group Oceana filed with the SEC earlier this year questioning the adequacy of Shell’s disclosures in annual reports and quarterly earnings.

Shell’s Pickard has said she hopes to “rewrite the story of 2012.”

In the three years since, Shell has brought maritime experts into its Arctic program and intensified oversight of contractors, while flattening the internal management structure so key responsibilities are more evenly distributed.