|  April 24, 2014  |  
Mostly Cloudy   40.0F  |  Forecast »
Bookmark and Share Email this page Email Print this page Print Feed Feed

Is Liberty Dead?

An ambitious Alaska North Slope drilling project stalls as BP reconsiders

A 2010 aerial shot of BP’s Liberty rig, standing on the Endicott satellite drilling island west of the Liberty deposit.

A 2010 aerial shot of BP’s Liberty rig, standing on the Endicott satellite drilling island west of the Liberty deposit.

© CNN

On a manmade island in the Beaufort Sea, a colossal drilling rig billed as one of the most powerful in the world juts 240 feet into the Arctic sky.

BP installed the rig to punch horizontal holes of unprecedented length to a rich, offshore oil accumulation known as Liberty.

Under the original plan, crude from Liberty should have started flowing in 2011, helping to stem the worrisome production decline from Alaska’s North Slope.

But the big blue super rig so far hasn’t sunk a single hole, standing idle for months in a mystery that seems almost as deep as the wells it was supposed to drill.

No one, it seems, is willing to say much. But the best available evidence suggests BP’s $1.5 billion Liberty project is hung up in tough circumstances, including fallout from the Deepwater Horizon disaster and an apparent conflict with the rig’s builder, Parker Drilling Co. of Houston, Texas.

 

The situation begs the question: Is Liberty dead?

“We are in a review stage on this project that has been under way for some time now,” Steve Rinehart, spokesman for BP Exploration (Alaska) Inc., said in a June 5 interview. “When we’re ready to say more, we will.”

What began as a decent oil find evolved into a highly ambitious project.

Liberty is located on federal leases in shallow water, about 20 feet deep, in the Beaufort Sea about six miles offshore and 15 miles east of Prudhoe Bay.

The BP Liberty rig is located east of Endicott on the SDI (satellite drilling island) west of the Liberty deposit.

Map courtesy of BP

BP drilled and tested Liberty No. 1, the discovery well, in early 1997. On May 2 of that year the company announced a commercial discovery estimated at more than 100 million barrels of recoverable oil.

A find of that size is modest compared to Alaska giants such as the BP-operated Prudhoe Bay field, which has produced more than 12 billion barrels of oil to date, and the ConocoPhillips-operated Kuparuk River field, which has produced nearly 2.5 billion barrels.

But make no mistake, a field capable of producing 100 million barrels is a huge prize. BP has said production could plateau at 40,000 barrels per day. Overall North Slope production through the first five months of this year averaged less than 600,000 barrels per day.

The question for BP was how to produce the offshore discovery. The initial idea was to build a gravel island at Liberty with production facilities and a buried subsea pipeline to carry the oil to shore. That’s what BP did for its Northstar field, which sits in federal and state waters northwest of Prudhoe Bay. Northstar has produced 154 million barrels of oil so far.

Later, BP would come to favor a different approach.

With new drilling technology, the company determined it could tap Liberty by boring extended-reach wells from its existing Endicott offshore field to the west. The rig would operate on a satellite drilling island built as part of the Endicott installation.

This approach offered real advantages. By not constructing a new island farther offshore at Liberty, BP could limit its footprint and avoid potential impacts to bowhead whales vital for Native subsistence hunters, and a unique kelp bed known as the Boulder Patch.

From a practical standpoint, BP could use the existing processing facilities and pipeline at Endicott to produce the Liberty oil. Plus, a causeway connects Endicott to the mainland, providing handy road access.

But the drilling BP contemplated for Liberty would be something truly bold. These would be ultra extended-reach wells, going down two miles and bending out horizontally for six to eight miles to tap the oil reservoir. The Liberty wells would be the longest extended-reach wells ever attempted, BP said. And to drill them would take a monster rig powerful enough to rotate the long drill pipe. Up to six wells would be needed to develop the field.

“This is an incredible project,” Andy Inglis, then BP’s exploration and production chief, said in 2009 in an in-house magazine feature on Liberty. “In the past, a new island and offshore pipelines would have been required. This project is an example of what BP can deliver, bringing technology and capability together to do what, not long ago, was considered impossible. This is BP at its best.”

In January 2008, Interior Department drilling regulators approved BP’s Liberty development and production plan.

Parker Drilling went to work fabricating the drilling rig for BP at Vancouver, Wash., at a cost of hundreds of millions of dollars. The rig components arrived by barge on the North Slope in July 2009, completing a 3,300-mile sea voyage, and workers began the job of assembly, testing and training.

The Liberty project seemed a definite go.

Then in April 2010 came the Deepwater Horizon blowout in the Gulf of Mexico, which seemed to portray BP not at its best, but its worst.

The Gulf disaster prompted the Obama administration to impose a temporary moratorium on deepwater drilling, and on exploratory drilling in the Arctic.

Although Liberty drilling was exempted from the moratorium because the drilling would be done from the Endicott satellite island, close to shore, the project nevertheless drew increased attention and criticism. The New York Times published a June 23, 2010, article suggesting that BP itself and not federal regulators conducted the environmental review of the project, that extended-reach wells are more prone to dangerous “gas kicks,” and that Liberty was really an offshore project as a large oil spill would quickly overwhelm the tiny drilling island and flow into the sea.

U.S. Sen. Frank Lautenberg, D-N.J., called for a halt to Liberty.

“In the Liberty project, BP has set a new standard for impudence and demonstrated its continued commitment to profits over safety and the environment,” Lautenberg said in a June 24, 2010, letter to the Obama administration. “In an attempt to escape federal regulation of offshore drilling, BP has built an artificial island in the Beaufort Sea and claimed its project is therefore being carried out ‘onshore.’”

Sen. Mark Begich, D-Alaska, promptly wrote Lautenberg to vouch for Liberty, noting it was an intensely scrutinized shallow-water project very different from the deepwater project that went tragically wrong in the Gulf.

Interior Department officials said at the time that, in light of the Gulf spill and new safety requirements, “we will be reviewing the adequacy of the current version of the Liberty project’s spill plan.”

Spokesmen for the Bureau of Safety and Environmental Enforcement, one of the new Interior Department agencies created after Deepwater Horizon to regulate offshore drilling, were asked repeatedly to provide a Liberty status update for this story. They failed to do so.

Deepwater Horizon shook BP to the core, forcing the company to sell off billions of dollars in assets to raise cash. For a time, speculation ran hot that BP’s North Slope assets were in play.

But Liberty planning continued. In a Nov. 17, 2010, speech in Anchorage, BP Alaska President John Mingé said close to a third of his company’s $800 million capital budget for 2011 would go toward Liberty.

Later that month, however, came a new wrinkle: BP said it was suspending work on the Liberty drilling rig, saying it needed an engineering review.

The review apparently is still ongoing.

Parker Drilling addressed the Liberty situation in a May 4 filing with the U.S. Securities and Exchange Commission.

“In November 2010, BP informed us that it was suspending construction on the project to review the rig’s engineering and design, including its safety systems,” the filing said. “The Liberty rig construction contract expired on Feb. 8, 2011, prior to completion of the rig. Before expiration of the construction contract, BP identified several areas of concern relating to design, construction and invoicing for which it asked us to provide explanations and documentation, and we have done so. Although we provided BP with the requested information, we do not know when or how these issues will be resolved with our client.”

The Parker filing went on to say that under a subsequent consulting agreement, “we assisted BP in a review of the rig’s design, the creation of a new statement of requirements for the rig, and the transition of documentation and materials to BP. All work under the consulting agreement has been completed and we are engaged with BP on construction contract close-out resolution.”

BP spokesman Rinehart said the rig had not be dismantled, or “stacked,” and was still standing on the Endicott satellite island. The rig has been weather-protected, he said.

The state’s drilling regulator, the Alaska Oil and Gas Conservation Commission, also has permitting authority over the Liberty wells because the surface locations are on state land.

The agency’s chair, Cathy Foerster, said she doesn’t believe there’s actually much mystery behind Liberty’s stalled status.

“The impression I have is, BP pulled in their plan and they’re still trying to decide what to do,” she says. “It’s not the feds, and I know it’s not us, that told them to go back to the drawing board.”

Endicott satellite drilling island with the Liberty rig, looking north, taken in 2010. In late 2010 BP chose to suspend the physical construction of the Liberty rig on site, while it reviews certain engineering and design elements of
the rig.

Photo courtesy of BP

Liberty UPDATE

On June 28, BP provided an update on the future of the Liberty project.

“We have always said that we will not proceed with the project unless we can do it safely and meet all of our standards. In the end, the project as currently designed does not meet our test,” said Dawn Patience, BP Alaska spokeswoman.

“After a full review of project engineering and economics, BP has decided not to pursue the proposed Liberty project, in its current form,” she said. “BP is in the process of working with regulators to discuss the potential forward plans for the project.”

The decision comes after “a detailed 18-month review of the rig systems, an analysis of the project’s risk and economics, and an assessment of the evolving regulatory framework,” Patience said.

The rig needs substantial modifications to its mud, hydraulics, pipe handling, heating and other systems, she said, adding no decision has been made about what to do with the rig.

BP now believes project costs would be at least double the original $1.5 billion estimate, and “it would take several more years before drilling could commence,” Patience said.

She stopped short of saying the Liberty project is canceled.

Wesley Loy is a journalist living in Anchorage.

This article first appeared in the August 2012 print edition of Alaska Business Monthly magazine.

Add your comment:
Advertisement
Advertisement
Advertisement
Advertisement
Advertisement