Chevron pulls out of Beaufort Sea
Application to drill test oil well put on hold 'indefinitely'
Walter Strong
Northern News Services
Published Monday, December 22, 2014
INUVIK
Chevron Canada Ltd. has "indefinitely" suspended its plans to drill in the Beaufort Sea under exploration licence EL 481.
Boats towing streamers to record seismic data during Imperial Oil Ltd.'s 2008 seismic program in the Beaufort Sea. Imperial Oil and its joint venture partners are the sole remaining major players in the region after Chevron announced it was indefinitely suspending its $100 million exploration program. - photo courtesy Imperial Oil Ltd. |
The company has also withdrawn its participation in the application for reconsideration of the National Energy Board's (NEB) same season relief well policy.
"Economic uncertainty in the industry" was cited as one factor in the decision to suspend the $100 million program.
The information is contained in a Dec. 17 letter submitted to the National Energy Board on behalf of Osler, Hoskin and Harcourt LLP, Chevron's law firm based in Calgary.
When News/North contacted Chevron for more details, a spokesperson said the company would not be providing more information other than what was in its notice to the NEB.
Crude oil has lost at least 40 per cent of its value since the summer, tripping a series of spending cutbacks in petroleum exploration budgets globally and in Canada.
Although Chevron was still years away from any drilling activity in the region, it was in the midst of an application before the NEB for consideration of an alternative to same season well relief, described by Chevron and Imperial Oil (Imperial Oil is the lead for the Imperial Oil Beaufort Sea joint venture project between Imperial, ExxonMobil Canada and BP Exploration) as impractical for the North's Arctic waters.
The NEB's same season relief well policy is designed to ensure that an out-of-control well can be shut off.
Typically, this would mean a second drilling platform to drill a relief well.
But both Chevron and Imperial Oil approached the NEB to argue the policy is not practical in the Beaufort Sea, with its short Arctic drilling season and the cost of specialized Arctic drilling rigs.
They also argued that equally, if not more effective, alternate methods were available.
"It's Imperial's view – and we've stated that as far back as the Arctic offshore drilling review years ago – that given the drilling conditions that we expect in that part of the Beaufort, it's simply not technically feasible to drill a same season relief well," said Imperial Oil spokesperson Pius Rolheiser at the time.
This July, the NEB agreed to consider those alternative methods of well control and so began the technical proceedings surrounding the same season relief well policy.
Now that Chevron has withdrawn itself from the application process, Imperial Oil has been left alone to carry on the NEB application for an alternative to same season well relief.
Imperial not out
Rolheiser said Imperial Oil has made no decision to change course in the Beaufort Sea, even in the light of lower oil prices.
"Imperial and its joint venture partners…have not altered our Beaufort exploration plans," Rolheiser stated in an e-mail to News/North.
"We are continuing to pursue regulatory and other work required to progress us to a decision point, including our submission to the National Energy Board on same-season relief well equivalency approach in 2015.
Given current outlook for the regulatory process and other required work, the earliest we could spud a well would be the summer drilling season of 2020."
The Imperial Oil joint venture is much larger in scale than Chevron's project, joining as it does three oil companies to jointly explore two offshore leases.
The combined bid for both leases totalled almost $1.8 billion in work commitments.
A proposed test well would be drilled approximately 175 km northwest of Tuktoyaktuk at depths of up to 1,500 metres below the sea's surface.
Even if environmental and regulatory reviews go according to schedule, and pending financial commitment to proceed with the program, no drilling would be anticipated before 2020.
The long lead-up to exploration is related to the difficulties associated with Arctic deep-water exploration, which includes building custom ice-breakers and drilling platforms.
Long periods of winter ice cover means it could take up to four seasons to drill and test a single well.
Realistically, oil production in the Beaufort Sea is not feasible before the middle of the next century.
Beaufort petroleum potential
Imperial is not offering an estimate on potential petroleum reserves in the Beaufort Sea.
This November, the NEB updated its resource estimate for discovered conventional petroleum resources in the Beaufort Sea at up to 9.6 trillion cubic feet of natural gas in place and up to 9.5 billion barrels of oil in place.
These estimates do not include unconventional resources that may be tapped through horizontal hydraulic fracturing.
There are no estimates established for unconventional resources in the North.
Only one well has been drilled off-shore in the Beaufort Sea in the past 22 years, that being Devon Energy's drilling of a well in 2005/2006 targeting natural gas, but discovered a reported 240 million barrels of recoverable oil.
Status of Chevron bid
Chevron's exploration licence EL 481 was awarded to Chevron in September, 2012.
Chevron made a binding work expenditure bid of $103.3 million, with the expectation that a well will be drilled by Aug. 31, 2019, although there are provisions for extending that time frame.
The licence expires on Aug. 31, 2021.
Twenty-five percent of the deposit was required when the bid was won.
If Chevron fails to meet its drilling commitment, it stands to lose that deposit.
