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Offshore Alaska: the upstream oil industry's next frontier

Alaska could hold impressive offshore oil reserves

The US Minerals Management Service (MMS) says the Alaska Outer Continental Shelf holds an estimated 27bn barrels of recoverable oil – 2bn more than the state's Prudhoe Bay oilfield, North America's largest, initially contained – and 130 trillion cubic feet (cf) of recoverable natural gas.

As production from Prudhoe Bay and other Alaskan North Slope fields has declined and oil shipped through the Trans-Alaska Pipeline System south to the Valdez export terminal has dwindled, from 2m barrels a day (b/d) in 1977 to 0.7m b/d, the industry is looking to Alaska's offshore to extend the pipeline's useful life. These Arctic waters could also help ensure the future of the proposed $26bn pipeline to carry gas from the North Slope to the US' Lower 48 states.

The Chukchi Sea, offshore northwest Alaska, and the Beaufort Sea, off the northern coast, provide the most promise, yet explorers have encountered significant obstacles moving projects forwards. Only five wells have been drilled in the Chukchi Sea, all in the late 1980s and early 1990s, but activity was expected to pick up after the MMS' Chukchi Sea lease sale in February 2008, the first since 1991. The auction brought in almost $2.7bn in high bids, a record for Alaska lease sales and well over the expected $67m. Shell was the biggest bidder, submitting 275 offers totalling $2.1bn.

But the major has been unable to progress plans to drill up to two exploratory wells on its leases in 2010 because a federal appeals court ruled earlier this year that the US Department of the Interior had failed to conduct sufficient pre-sale scientific and environmental reviews. The court ordered the department to complete a more detailed study by mid-November, but it delayed the decision, saying Shell had asked for time to respond to criticism of its drilling plan. Shell denies it requested the delay.

Big plans for the Chukchi Sea

Shell is not the only oil company with big plans for the Chukchi Sea, which holds reserves estimated at 15bn barrels of oil and 76 trillion cf of gas. In November, ConocoPhillips, Alaska's largest oil producer and one of the two biggest operators on the North Slope, said it was shifting its focus to the Chukchi Sea, which the company has called "the last frontier's last frontier". For the first time in 45 years, the company is not planning any exploratory drilling on the North Slope in 2010.

ConocoPhillips – the second-highest bidder at the 2008 Chukchi Sea lease sale – plans to drill on its Devil's Paw prospect in the third quarter of 2011. It is also working with Shell to start development of the Burger prospect, a gasfield about 60 miles to the northeast, as early as 2010. In March, ConocoPhillips vice-president Larry Archibald claimed these two prospects were "definitely giants".

Only one field is producing in the federal Beaufort Sea, BP's NorthStar, more than three miles offshore. Shell also has an interest in 179 lease blocks in this offshore basin, which contains reserves estimated at 8.22bn barrels of oil and 27.65m cf of gas. In October, the MMS gave conditional approval to the company's plan to drill exploratory wells on two leases in the eastern Beaufort Sea. It plans to start drilling this year.

If Shell and ConocoPhillips have success with their projects offshore Alaska, other companies could follow in their footsteps. Repsol, Eni, Statoil, Total, EnCana and Armstrong Oil all have leases on tracts in the Chukchi and Beaufort seas.

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