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Extra Year for Shell’s Arctic Offshore Plan

by | Jan 6, 2022 | News, Oil & Gas

Shell-Arctic-Offshore

PO2 Grant DeVuyst | U.S. Coast Guard

The return of Shell Oil to Alaska can wait another year. The company had faced a deadline of December 31, 2021, on its latest multi-year exploration plan for the West Harrison Bay Unit in the Beaufort Sea. The state Division of Oil & Gas agreed to extend the plan of exploration until December 31, 2022.

More Time to Find Partners

On October 6, an attorney for a Shell subsidiary asked the division for more time to finalize commercial arrangements and bring on a partner to operate the unit. At the time, the company blamed a volatile oil market and the logistical challenges of meeting during the COVID-19 pandemic for delays.

A response came on November 18, when Division of Oil & Gas Director Tom Stokes approved the amendment to the exploration plan. Stokes says the division found the extension would be in the public interest.

The new timeline calls for a unit operator (yet to be named) to acquire seismic data by September 2022. Initial exploration drilling is scheduled for the winter of 2023-2024. A second well would be drilled the following winter. Shell faces another deadline on October 1, 2025, to submit a plan of development for the West Harrison Bay Unit, ninety days before the plan of exploration expires.

Current Issue

Alaska Business November 2022 Cover

November 2022

Shell bought eighteen leases in West Harrison Bay, northwest of the mouth of the Colville River, in 2012. That started a ten-year development deadline. In September 2020, the company applied to consolidate the leases into a single unit and submitted a multi-year exploration plan, which extended the leasehold.

The intervening eight years were a rocky time for Shell’s presence in the Last Frontier. The company’s main venture was in federal waters of the Chukchi Sea off Alaska’s northwest coast. That project yielded too few results in exchange for too much effort, so in 2015 Shell decided to exit the state.

Since then, Shell has sold or relinquished all other frontier licenses in Alaska, putting all its focus on state waters in the Beaufort Sea.

Less Technical Risk

shell-WHB-by-DNR

A map of Shell Oil’s eighteen leases in the West Harrison Bay Unit, offshore from the National Petroleum Reserve Alaska.

Alaska Department of Natural Resources

After spending more than $2 billion for disappointing results in the Chukchi Sea, Shell considers West Harrison Bay to be a less risky proposition. The company points to promising exploration results by other companies on nearby leases, particularly the geological potential of the underlying Nanushuk formation. The unit is much closer to shore than the Chukchi venture, in shallower waters. If the project proceeds to development and production, the proximity of on-shore infrastructure is another plus.

As for headwinds, in addition to the COVID-related logistical hurdles, Shell has a narrower choice of financial options. Four of the nation’s six biggest banks—Chase, CitiBank, Goldman Sachs, and Wells Fargo—set policies in 2020 to bar financing for new Arctic drilling.

The only other active leases in the Beaufort Sea, according to the US Bureau of Ocean Energy Management, are from the Northstar field, operated by Hilcorp. Hilcorp is also awaiting regulatory approval for its Liberty project, located within the barrier islands about 4 miles offshore. There are zero active leases in the Chukchi Sea; after Shell’s difficulties, in 2016 the Obama administration withdrew the area from federal leasing.

Alaska Business November 2022 cover
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