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Shell Now Close to Drilling 2 Wells Simultaneously in Arctic Ocean

By Dan Fiorucci: 10:47 p.m. AKDT, September 29, 2012
ANCHORAGE, Alaska—

Shell Oil is, tonight (Saturday), close to drilling 2 exploratory wells simultaneously in the Arctic Ocean.

Drilling operations in the Beaufort Sea are currently awaiting the harvest of the third and last whale of the season by Inupiat Eskimoes. Once the final whale is caught, the drilling rig “Kulluck” can go to work.

“Kulluck’s” sister vessel, the “Noble Discoverer” has been drilling — on and off — since September 8th in the Chukchi Sea. The vessel’s operations were briefly distrupted by Arctic storms and drifting sea ice.

The company is trying to tap the 25 to 27 billion barrels of oil believed to exist in Alaska’s Arctic waters.

If those giant reserves are proven to exist, it will be a find that rivals Prudhoe Bay — the largest oil field ever discovered in North America. Prudhoe Bay, and surrounding fields, are believed to contain up to 20 billion barre;s of recoverable oil. Roughly 15 billion of those barrels have been taken out of the ground so far.

Shell once had a stake on the North Slope.  But it gave up its claim just prior to the discovery of vast oil reserves there in the late 60’s.

The company doesn’t want to make the same mistake twice. So 20 years ago, Shell drilled dozens of exploratory wells in the Arctic Ocean, and found lots of oil and natural gas.

But because the Trans Alaska Pipeline was nearly full at that time, and because there was no way to get oil to TAPS even if it wasn’t full — exploratory drilling in Alaska’s Arctic Ocean ceased in the early 90’s.

Today things are different. Not only it TAPS only one-quarter full — meaning it has plenty of room to accomodate new oil finds —  but Secretary of the Interior Ken Salazar has laid the foundation for a possible 400-mile oil pipeline across the National Petroleum Reserve-Alaska.

An NPR-A pipeline is exactly what is needed in order to get Chukchi Sea oil to market. Though it will take at least half a decade to get to that point.

In addition, new technology — such as directional drilling — has made recovering oil in the Arctic Ocean much more affordable. Today a single platform can drill multiple wells in all directions. That constitutes a vast savings for drillers.

But even though Shell is not producting commercially in the Arctic Ocean, even the current round of exploratory drilling has brought 1800 jobs to our state. Shell says many thousands more are to come if there’s as much oil and gas in the Chukchi as the company believes there is.

Despite this potential bonanza, some Alaska politicians see a problem with offshore oil.

While they welcome the jobs that Shell is bringing — and welcome the opportunity to re-fill the TAPS pipeline — they are also concerned by something the federal government has done.

The feds have said that Alaska is not entitled to any royalty money from any wells drilled more than 3 miles off of our coast.

That means the state stands to gain very little in royalty and tax revenues from the prospective Shell offshore oil fields.

Right now, Prudhoe Bay — and Alaska’s other oil fields — fill the state coffers to the tune of $8 billion dollars a year.

But the offshore fields will be lucky to provide even 5% of that, according to Oil Tax attorney Craig Richards. Richards believes that if offshore fields were pumping 525,000 barrels a day right now — at today’s oil prices — they would probably add only a “few hundred million a year” to the state treasury.

The state would get money from property taxes — since onshore infrastructure has to be built to support the offshore fields. The only other advantage the state would get — besides thousands of jobs — is cheaper operating costs for the Trans Alaska Pipeline.

Richards says the jobs provided by offshore oil would be terrific. But state government will not have the cash-cow funding it that such a large oil find might be expected to provide.

Naturally, lots of politicians feel that’s unfair. State Senator Hollis French (D-Anchorage) points out that the state of Louisiana gets a 37% cut of the federal government’s offshore royalties from drilling in the Gulf of Mexico.

He believes Alaska deserves the same cut. But French doesn’t e our state will get such a generous share of Federal Royalties.  That’s because the legislative delegations of the Gulf States banded together on Capitol Hill. With lots of lawmakers, they have more clout there than isolated Alaska — with its one Congressman and 2 United States Senators.

Nevertheless, Congressman Don Young (R-Alaska) believes Alaska will, indeed, win a portion of those federal royalties.

At distances up to 200 miles offshore, the Federal Government is entitled to 12.5% of the value of the oil pumped. Louisiana manages to garner a 37.5% share of that federal royalty.

Can Alaska get that much? Young doesn’t think so. We’ll get something, he insists. But he says it will not match the big share that states like Louisiana get.

In the meantime, State Senator Bill Wielechowski (D-Anchorage) hasn’t given up on the fight for a subatantial share of the federal royalty for Alaska.

He sponsored a resolution asking the President and the Congress to reconsider the offshore royalty issue.

Wielechowski says Alaska will be building infrastructure to support oil production. It will be at risk for damage from potential spills, and — he says — the thousands of oil workers who will pour into our state will need health care and added infrastructure.

He believes it’s only fair that we get a portion of the royalties.

In the meantime, the fight for offshore royalties is on. Even though Alaska — and Shell — can’t hope to see any revenue from Arctic Ocean oil for at least 5 to 10 years.

Contact Dan Fiorucci

Copyright © 2012, KTUU-TV

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