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Arctic Exploration: Industry’s Cold Feet Begin to Thaw as Activity Hots Up

Mark Thomas

The fact that the Arctic offshore contains huge estimated oil and gas reserves is nothing new, despite the relatively small amount of hydrocarbons currently being produced from its waters. But a gradual thawing in the arguments against why responsible exploration and development activity cannot take place has brought the industry to a point where the Arctic as an offshore oil and gas province is a reality.

The groundswell of industry opinion towards accepting the Arctic as a place where production can be achieved safely and economically has been a recent phenomenon. Many within the Exploration & Production business had doubts up until the past year or two as to whether this harshest of environments could be truly overcome, both in terms of the technological challenges as well as the weight of public opinion following environmental disasters such as the Macondo tragedy in the Gulf
of Mexico.

But the advances in remote and subsea field development solutions, ice-resistant platforms, long-distance pipeline tiebacks, flow assurance innovations and ROV/AUV abilities, largely as a response to the industry’s move into deep and ultra-deep waters around the world, means that from a technical and commercial perspective fields are now able to be developed economically and safely.

This is certainly the belief of the Russian authorities, who remain keenest to press ahead with Arctic exploration while equivalent authorities in Alaska and Canada, for example, continue to delay activities while they review their offshore regulations and deal with public concerns following the Macondo spill.

Russia’s momentum is evidenced by the imminent planned startup of first commercial offshore oil drilling in Russia’s Arctic waters from the Prirazlomnoe platform in the Pechora Sea, while the flagship project for this region will of course be Phase One of the giant Shtokman gas and condensate field in the Barents Sea, which will see the use of advanced subsea production systems and an FPSO/FPU installation equipped with a quick-disconnect system.

These advances are leading to a growing number of link-ups between western majors and the Russian state oil and gas companies as they position themselves to jointly tackle the Arctic and sub-Arctic regions, where companies such as Shell and ExxonMobil have already established strong footholds in areas such as Sakhalin off Russia’s eastern shores.

ExxonMobil’s deal last year to step into BP’s, unexpectedly empty, shoes and sign a co-operation agreement with Rosneft that gave it access to frontier high-potential Arctic blocks in the northern Kara Sea was the most high-profile of these recent strategic moves.

But that deal also accentuated a key condition of the industry’s planned entry into the Arctic – that the appropriate environmental preparation, wildlife habitat and ecosystem protective measures and oil spill response capabilities have to be seen to be in place right from the start.

Part of the ExxonMobil-Rosneft deal is an example of this, with the two companies agreeing to establish a joint Arctic Research and Design Centre for Offshore Development (ARC) in St. Petersburg staffed by employees from both Rosneft and ExxonMobil. The centre will use proprietary technology, and will develop new solutions to support joint Arctic projects, including ice-class drilling and production ships and platforms.

This focus on expanding current industry capabilities was stressed at a recent gathering of representatives from industry, government and academia in Tromsø, Norway. Speaking there from the oil industry operators association OGP (Oil & Gas Producers) was Joep Coppes, OGP’s Vice Chairman. He in particular highlighted the work of OGP’s Arctic Co-ordination Task Force and explained how the oil and gas industry can contribute to the sustainable development of the ‘High North’.

The OGP has just formed the Arctic Oil Spill Response Technology JIP (Joint Industry Program), bringing together such heavyweight players as Shell, ExxonMobil, Statoil, BP, Chevron, ConocoPhillips, Eni, North Caspian Oil Company and Total. The collaborative research endeavour is aimed at expanding industry knowledge of, and capabilities in, Arctic oil spill prevention and response.

The Programme will undertake research projects in seven key areas. These are:
» Behaviour of dispersed oil under ice and dispersant efficacy-testing in Arctic environments
» Environmental impacts of Arctic spills and the response to them
» Trajectory modelling in ice
» Oil spill detection and monitoring in low visibility and ice
» Mechanical recovery
» In-situ burning in Arctic environments
» Experimental field releases

JIP Program Manager Joe Mullin explained: “Prevention of oil spills is a priority for industry, as is the response to any spill that may occur. In the last few decades, the oil and gas industry has made significant advances in Arctic spill prevention and response technology and by working together in this 4-year JIP we will increase knowledge and opportunities to test equipment, conduct field experiments and develop oil spill response technology. That is why we have made this major research commitment to support responsible Arctic exploration and development.”

OGP Technical Director John Campbell added: “We attracted a good level of discussion and interest in the industry’s Arctic activities.  By presenting the work of the Arctic Co-ordination Task Force and Arctic Oil Spill Response Technology Joint Industry Programme, we are able to demonstrate the industry’s commitment to working together to enhance industry capabilities and co-ordination in Arctic and cold region environments.”

The growing confidence in the industry’s ability to work safely in the Arctic has led companies such as Chevron, one of the members of the oil spill response JIP, to hold talks with senior Russian government officials about Arctic exploration.

Chevron’s Russian chief Andrew McGrahan discussed the development of the country’s Arctic reserves with the country’s Deputy Minister for Natural Resources, Denis Khramov, as well as talking about changes to the investment climate and tax regime for oil companies operating there, said the ministry in a statement. Khramov said his ministry is preparing changes to the current legislation, including liberalising access to offshore reserves and lowering taxes. The changes will be reviewed by the government in the second quarter of this year.

This follows broad hints from the reinstated Russian leader Vladimir Putin that he will allow non-state companies to operate in the country’s northern seas.

President Putin went on record during his election campaign as saying that non-state companies should be allowed to explore offshore reserves, in compliance with the toughest environmental standards, in order to avoid a fall in Russia’s hydrocarbon production. With only Gazprom and Rosneft having the rights to develop strategic offshore reserves, that is almost an impossible task unless non-state players are allowed to take lead roles in new offshore projects.

The central decision opening the Russian Arctic was passed by the country’s Parliament back in 2008, as an amendment to a law on subsoil resources. This allowed the ministry of natural resources to transfer offshore blocks to state-controlled oil companies in a no-bid process that does not involve detailed environmental reviews.

The potential of these offshore blocks is huge – Natural Resources Minister Yuri Trutnev said late last year that preliminary forecasts for resources on the Russian Arctic shelf are comparable to those on the country’s mainland. The currently accepted figure from the US Geological Survey puts the figure at an estimated 90 billion barrels of oil and 1.668 trillion cubic feet of gas, representing 13% of the world’s undiscovered oil.

The amount of seismic surveys and data processing projects is consequently expected to rise as new operators eventually take over some of these licences and seek to progress with drilling plans as part of their agreed work programs.

The past year has already seen a number of new surveys carried out, with companies such as TGS-NOPEC late last year shooting a 2D survey over an area of 7,700km in the Russian Arctic (4,500km in the Laptev Sea and 3,200km in the East Siberian Sea). That particular survey was done in partnership with Dalmornefte Geophysica Yuzhno-Sakhalinsk (DMNG) under a 2D co-operation agreement signed at the beginning of 2011. The seismic data was acquired by the vessel M/V Akademik Fersman and will be available to clients from late in the first quarter of this year. The survey was supported by industry funding.

TGS also carried out a 3D multi-client survey covering 1,500 square kilometres between the Finnmark Platform and Nordkapp Basin in the Barents Sea. The 150km long survey follows the bended strike direction of the inverted margin between the two major structural elements in the region. “We believe the survey will be instrumental in reducing trap risk on the narrow structural trend stretching east to the border of the previously disputed zone between Norway and Russia,” said Kjell Trommestad, Senior Vice President and General Director of Europe and Russia for TGS at the time of the survey announcement. The seismic data was acquired by the M/V Polar Duke and is planned to be available to clients by the second quarter of 2012. The survey was again supported by industry funding.

Rosneft itself plans to commission a 3D survey in the southern part of the Barents Sea in this year’s summer season. The company’s President, Eduard Khudainatov, was reported as saying that the company planned to have a ship there by around May this year. Before that it also plans to carry out seismic activity on its blocks in the Kara Sea, while in the Yuzhno-Russkoe licence area in the Pechora Sea a 2D survey is also lined up.

Seismic specialist ION Geophysical, meanwhile, undertook activity in Russia’s Exclusive Economic Zone during last year’s summer season. In addition to a Northeast Greenland survey, it also performed a survey by order of the Federal Subsoil Resources Management Agency, under the guidance of the State Research Navigation and Hydrographic Institute. This is in support of a planned submission by Russia to the United Nations for an extension of the limits of Russia’s continental shelf. Seismic data (approximately 6,000km) was acquired, culminating in the acquisition of data at a distance of less than 300km from the North Pole.

ION said that its regional exploration teams now have more than 55,000km of deeply imaged seismic data in the Arctic region covering the Beaufort-MacKenzie, Banks Island, Chukchi, East Greenland Rift and Danmarkshavn basins.

It also added that the successful acquisition, during an extremely challenging ice year, was further validation of its proprietary, purpose-designed marine streamer technology that enables data acquisition under ice.

In another sign of the upstream industry’s growing confidence in the opening up of Russia’s Arctic, seismic contractors – like the oil companies – have also started to position themselves for the long-term market. 3D towed streamer specialist Polarcus last year signed a 5-year Bareboat Charter Party Agreement (BBCP) with Russia’s OAO
Sovcomflot (SCF).

The deal will see Sovcomflot charter the 3D vessel Polarcus Selma, inclusive of an 8-streamer seismic equipment package, from Polarcus at a rate of US $69,500 per day. Crucially both companies stated that the BBCP was viewed “as the first step towards a larger strategic business alliance to serve the growing Russian seismic market”. Peter Zickerman, Executive Vice President at Polarcus, commented at the time of the signing: “This important agreement will afford Polarcus and Sovcomflot unparalleled access to the Russian market and most significantly to possibly the world’s last and largest oil frontier, the Arctic. There is very good synergy between our companies, with our own strategic focus on the Arctic frontier and investment into Arctic-ready technologies, and Sovcomflot’s leadership in key Russian oil and gas development projects in harsh ice environments. We believe the BBCP and the LOI for support services will be just the beginning of a long and successful relationship with Russia’s largest shipping company as they aspire to broaden their focus from energy transportation to energy supply.”

The Polarcus Selma is a sister ship to Polarcus Samur, an ultra-modern and Arctic-ready 3D seismic vessel capable of towing both conventional and wide tow spreads.

France’s CGGVeritas, meanwhile, created a joint venture with JSC Geotech Holding to operate 2D and 3D marine seismic vessels, primarily in Russian and CIS waters. The JV will provide marine seismic data acquisition and processing services for oil and gas clients operating locally in Russia and CIS, with CGGVeritas making one 2D ice class vessel and one 3D ice class vessel available to the joint venture.

Jean-Georges Malcor, CEO at CGGVeritas, said that Russian and CIS Arctic exploration and production was becoming more and more important and that “entry to this very important Russian and CIS offshore market is a significant step forward for CGGVeritas. Our Joint Venture with Geotech, the leading seismic company in Russia and the CIS, creates a solid foundation for future growth in the region”.

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