Category Archives: Seas
In a dramatic stroke of luck for the Kremlin, this morning there is hardly a person in the world who is happier than Russian president Vladimir Putin because overnight state-run run OAO Rosneft announced it has discovered what may be a treasure trove of black oil, one which could boost Russia’s coffers by hundreds of billions if not more, when a vast pool of crude was discovered in the Kara Sea region of the Arctic Ocean, showing the region has the potential to become one of the world’s most important crude-producing areas, arguably bigger than the Gulf Of Mexico. The announcement was made by Igor Sechin, Rosneft’s chief executive officer, who spent two days sailing on a Russian research ship to the drilling rig where the find was unveiled today.
Well, one person who may have been as happy as Putin is the CEO of Exxon Mobil, since the well was discovered with the help of America’s biggest energy company (and second largest by market cap after AAPL). Then again, maybe not: as Bloomberg explains “the well was drilled before the Oct. 10 deadline Exxon was granted by the U.S. government under sanctions barring American companies from working in Russia’s Arctic offshore. Rosneft and Exxon won’t be able to do more drilling, putting the exploration and development of the area on hold despite the find announced today.”
Which means instead of generating billions in E&P revenue, XOM could end up with, well, nothing. And that would be quite a shock to the US company because the unveiled Arctic field may hold about 1 billion barrels of oil and similar geology nearby means the surrounding area may hold more than the U.S. part of the Gulf or Mexico, he said.
For a sense of how big the spoils are we go to another piece by Bloomberg, which tells us that “Universitetskaya, the geological structure being drilled, is the size of the city of Moscow and large enough to contain more than 9 billion barrels, a trove worth more than $900 billion at today’s prices.”
The only way to reach the prospect is a four-day voyage from Murmansk, the largest city north of the Arctic circle. Everything will have to shipped in — workers, supplies, equipment — for a few months of drilling, then evacuated before winter renders the sea icebound. Even in the short Arctic summer, a flotilla is needed to keep drifting ice from the rig.
Sadly, said bonanza may be non-recourse to Exxon after Obama made it quite clear that all western companies will have to wind down operations in Russia or else feel the wrath of the DOJ against sanctions breakers. Which leaves XOM two options: ignore Obama’s orders (something which many have been doing of late), or throw in the towel on what may be the largest oil discovery in years.
And while the Exxon C-suite contemplates its choices, here is some more on today’s finding from Bloomberg:
“It exceeded our expectations,” Sechin said in an interview. This discovery is of “exceptional significance in showing the presence of hydrocarbons in the Arctic.”
The development of Arctic oil reserves, an undertaking that will cost hundreds of billions of dollars and take decades, is one of Putin’s grandest ambitions. As Russia’s existing fields in Siberia run dry, the country needs to develop new reserves as it vies with the U.S. to be the world’s largest oil and gas producer.
Output from the Kara Sea field could begin within five to seven years, Sechin said, adding the field discovered today would be named “Victory.”
The Kara Sea well — the most expensive in Russian history — targeted a subsea structure named Universitetskaya and its success has been seen as pivotal to that strategy. The start of drilling, which reached a depth of more than 2,000 meters (6,500 feet), was marked with a ceremony involving Putin and Sechin.
The importance of Arctic drilling was one reason that offshore oil exploration was included in the most recent round of U.S. sanctions. Exxon and Rosneft have a venture to explore millions of acres of the Arctic Ocean.
But what’s worse for Exxon is that now that the hard work is done, Rosneft may not need its Western partner much longer:
“Once the well is plugged, there will be a lot of work to do in interpreting the results and this is probably something that Rosneft can do,” Julian Lee, an oil strategist at Bloomberg First Word in London, said before today’s announcement. “Both parties are probably hoping that by the time they are ready to start the next well the sanctions will have been lifted.”
And here is why there is nothing Exxon would like more than to put all the western sanctions against Moscow in the rearview mirror: “The stakes are high for Exxon, whose $408 billion market valuation makes it the world’s largest energy producer. Russia represents the second-biggest exploration prospect worldwide. The Irving, Texas-based company holds drilling rights across 11.4 million acres in Russia, only eclipsed by its 15.1 million U.S. acres.”
Proving just how major this finding is, and how it may have tipped the balance of power that much more in Russia’s favor is the emergence of paid experts, desperate to talk down the relevance of the Russian discovery:
More drilling and geological analysis will be needed before a reliable estimate can be tallied for the size of the oil resources in the Universitetskaya area and the Russian Arctic as a whole, said Frances Hudson, a global thematic strategist who helps manage $305 billion at Standard Life Investments Ltd. in Edinburgh. Sanctions forbidding U.S. and European cooperation with Russian entities mean that country’s nascent Arctic exploration will be stillborn because Rosneft and its state-controlled sister companies don’t know how to drill in cold offshore conditions alone, she said.
“Extrapolating from a small data sample is perhaps not going to give you the best information,” Hudson said in a telephone interview. “And because of sanctions, it looks like there’s going to be less exploration rather than more.” In addition, the expense and difficulty of operating in such a remote part of the world, where hazards include icebergs and sub-zero temperatures, mean that the developing discoveries may not be economic at today’s oil prices.
Maybe. Then again perhaps the experts’ time is better suited to estimating just how much longer the US shale miracle has left before the US is once again at the mercy of offshore sellers of crude.
In any event one country is sure to have a big smile on its face: China, since today’s finding simply means that as Russia has to ultimately sell the final product to someone, that someone will almost certainly be the Middle Kingdom, which if the “Holy Gas Grail” deal is any indication, will be done at whatever terms Beijing chooses.
On October 3, 2012, at approximately 2:45PM AKDT, the Kulluk began drilling at Shell’s Sivulliq prospect. Shell has noted that the occasion is historic in that it’s the first time two rigs have been drilling simultaneously offshore Alaska in over two decades. The Noble Discoverer has been drilling at Shell’s Burger prospect in the Chukchi Sea since September.
“In the weeks ahead we look forward to operating safely and responsibly, putting Americans to work and adding to Shell’s long, successful history of drilling offshore Alaska,” said Pete Slaiby, VP Alaska.
Bought by Shell in 2005, the Kulluk was speciﬁcally designed and constructed for extended season drilling operations in Arctic waters.
- Shell starts exploratory drilling in Beaufort Sea (fuelfix.com)
- Shell begins second drilling operation in Alaska’s Arctic seas (fuelfix.com)
- Shell prepares for Beaufort Sea drilling (fuelfix.com)
Shell Alaska yesterday began drilling operations at its Burger prospect in the Chukchi Sea, offshore Alaska. The Noble Discoverer drillship is being used for the operations.
“The occasion is historic. It’s the first time a drill bit has touched the sea floor in the U.S. Chukchi Sea in more than two decades. Today marks the culmination of Shell’s six-year effort to explore for potentially significant oil and gas reserves, which are believed to lie under Alaska’s Outer Continental Shelf. In the days to come, drilling will continue in the Chukchi Sea, and we will prepare for drilling to commence in the Beaufort Sea,” said the company in a press release.
- Arctic frontier opens as Shell begins drilling in Chukchi Sea (fuelfix.com)
- Statoil delays start of Chukchi drilling until at least 2015 (fuelfix.com)
- Drilling Off The Alaska Coast For The First Time In More Than Two Decades (alan.com)
Statoil is stepping up its Arctic activities and will drill nine wells during a non-stop 2013 Norwegian Barents exploration campaign. The company plans to meet development challenges here by tripling its Arctic technology research budget.
Statoil’s exploration experience in the Barents is already extensive. Of the 94 exploration wells drilled in the Norwegian Barents Sea so far, Statoil has been involved in 89. Nine more Statoil-operated wells are on their way here next year.
“After our Skrugard and Havis discoveries we still see attractive opportunities here,” says Statoil Exploration executive vice president Tim Dodson.
“This is a less challenging area, as the Norwegian Barents is one of the only Arctic areas with a year-round ice-free zone. We also see the possibility of utilising knowledge gained here for Arctic prospects elsewhere later on – just like we’ve already done with Snøhvit.”
Statoil will start drilling in Nunatak in the Skrugard area in December, and will drill and complete four wells in this area over a six-month period.
“These wells are time critical, as any additional resources will make the Skrugard development even more robust,” says Dodson.
The campaign will then continue with the drilling of two-three wells in the Hoop frontier exploration area further north in the Barents in the summer of 2013. These will be the northernmost wells ever drilled in Norway.
The 2013 Barents drilling campaign finishes in the most mature province of the Barents: the Hammerfest basin. Statoil will carry out growth exploration close to the existing Snøhvit and Goliat discoveries here.
Arctic drilling unit
In addition to increasing its drilling activities, Statoil has created a technology road map to prepare for activities in even harsher Arctic areas.
- A tripling of the current Arctic research budget – from NOK 80 million (in 2012) to NOK 250 million (in 2013)
- A research cruise to north east Greenland in September
- The maturing of an Arctic drill unit concept
Some of the technology highlights include work to allow for cost-effective 3D seismic for exploration prospect evaluation in ice, and the continuing development of a tailor-made, Arctic drill unit.
The work on the future drilling unit is based on Statoil’s experience with developing specialised category rigs for the Norwegian continental shelf (NCS).
The unit will be one that can operate in a wide range of water depths across the Arctic, and will involve integrated operations in drifting ice.
Functions here are to include a management system to reduce ice impact, an optimised drilling package for faster drilling and increased rig availability, and solutions to ensure that the rig maintains its position. At present no robust solution for dynamic positioning dedicated for ice operation exists.
“When we see a technology need, we try to fill the gap ourselves. We have now directed our strategic focus towards developing technology for exploration and production in ice. A new dedicated unit has been established to solve these challenges,” says Statoil Technology, Projects and Drilling executive vice president Margareth Øvrum.
Capacity is key
“We’ve secured a five-year contract for Seadrill‘s West Hercules drilling rig. The rig is currently being prepared for Arctic conditions, and can be used to drill consecutively in the region for years to come,” Dodson says.
Broad exploration experience in the Barents Sea and available rig capacity make Statoil well prepared for the 22nd licence round on the NCS. Applications are due in early December, while the awarding of new licences will take place in spring 2013. Seventy-two blocks in the Barents will be on offer.
“The Skrugard discovery has reignited interest in the Barents. A number of major companies that had left the area will be looking to make their way back in. The competition will be fierce, but we’ve built up a strong track record here, and our application will reflect this,” Dodson says.
- Chinese icebreaker continues Arctic voyage (shippingtribune.com)
- Shell’s drilling rig begins two-week trek to Arctic sea (fuelfix.com)
Today, the Senate has two hearings scheduled on the Law of the Sea Treaty (LOST). The Senate will have had three hearings on the LOST after today—yet, not for the purposes of educating Senators on the flaws versus the benefits of the treaty. These hearings are a pretext for a lame duck strategy to railroad the treaty through the Senate after the November election.
The first hearing today is titled “Perspectives from the U.S. Military.” Witnesses include Admiral James A. Winnefeld, Jr, Vice Chairman of the Joint Chiefs of Staff, and representatives from other government stakeholders in navigation on the high seas. The question that these witnesses can’t sufficiently answer is, “What can’t you do today, because of the LOST, that you could do if the treaty were to be ratified?” The answer is nothing.
Heritage’s Kim Holmes, former Assistant Secretary of State for International Organization Affairs, wrote for The Washington Times last year that the navigational provisions in the treaty are not necessary.
The treaty’s navigational provisions offer nothing new. Yes, the U.S. Navy says (LOST) might improve the “predictability” of these rights, but does the Navy’s access to international waters really depend upon a treaty to which we are not even a member? The last time I checked, the U.S. Navy could go anywhere it wanted in international waters. Though redundant, the navigational provisions of (LOST) are actually pretty good. That’s why President Ronald Reagan supported them. But Reagan and others objected to the unaccountable international bureaucracy created by the treaty.
The second hearing today will include former Secretary of Defense Donald Rumsfeld, Heritage Foundation expert Steve Groves, former Deputy Secretary of State John Negroponte, and former Legal Advisor at State John B. Bellinger, III. This hearing will be an excellent opportunity for the opponents of LOST to make the case that this treaty is flawed.
The bottom line is that Senator John Kerry (D–MA) has been stacking hearings in favor of proponents of LOST. The first hearing this year included Secretary of State Hillary Clinton, Secretary of Defense Leon Panetta, and General Martin Dempsey, Chairman of the Joint Chiefs of Staff.
As I wrote in an op-ed at Townhall, opponents of the treaty made a strong case against ratification.
Sen. Bob Corker (R-Tenn.) professed to be starting from a neutral position vis a vis ratification. Directing a query to Ms. Clinton, he said, “A lot of people believe that the administration…wants to use this treaty as a way to get America into a regime relating to carbon, since it has been unsuccessful doing so domestically. And I wonder if you might respond to that.” Ms. Clinton’s response? She said she has a legal analysis that knocks down that argument. But not all Americans are willing to rely on a politically driven legal memo from the Obama Administration as a guarantee that this treaty will not empower the International Sea Bed Authority to force regulations on American business. Those seeking certainty on this vital issue would rather take a pass on the treaty than take a chance on Ms. Clinton’s promises.
Senators Mike Lee (R–UT) and Jim Risch (R–ID) expressed dissatisfaction with the Administration’s alleging that opponents of the treaty were engaging in “misinformation” and “mythology.” Risch argued that “you addressed the people who oppose ratification of the treaty, and…I hope you weren’t scoffing at us.” Proponents have engaged in name calling to avoid the central issues to be considered before ratification.
These hearings are intended to show that Senate Foreign Relations Committee Chairman Kerry allowed conservatives to have their say before the lame duck strategy is implemented. The deck has been stacked, with two hearings in favor and one with a 50–50 split between proponents and opponents. Kerry used a similar strategy the last time the Senate considered the LOST.
Make no mistake; these hearings are part of the strategy of the treaty’s proponents to wait until after the election to push through LOST—in November or December of this year when the American people have no recourse against this offense against American sovereignty.
- Law of the Sea Treaty: A Tool to Combat Iran, China, and Russia? or Redistribution of wealth (mb50.wordpress.com)
- The Republicans’ secret weapon on LOST: information (humanevents.com)
- Colin Hanna: Congress needs to tell Law of the Sea Treaty to get lost (junkscience.com)
- Obama Seeks Ratification Of Power-Grabbing Law Of The Sea Treaty (mb50.wordpress.com)