The risks of wildcatting in the Arctic

Two drill vessels officially left Arctic waters after Royal Dutch Shell announced that the company would cease exploration in the Chuckchi and Beaufort seas. After a $7 billion investment and a standoff with kayaktivists, Shell cited a “disappointing exploration outcome,” meaning there’s oil in the Arctic, but not enough where they drilled to justify the cost. It’s a classic industry gamble called wildcatting: oil companies invest in an unexplored area hoping to strike black gold in the hidden reservoirs thousands of feet below the surface.

This isn’t the first time the oil industry waded into icy waters to make a big bet and came up empty handed. Back in 1981, a group of oil companies invested $1 billion in an exploratory well in the Beaufort Sea off of Alaska’s North Slope. Operators drilled and found nothing – it was the “most expensive dry hole in history.”

Three decades later, Shell has met a similar fate. But Shell’s retreat is likely a temporary one. According to Bob Bea, one of the nation’s top forensic and risk assessment engineers, they'll be back: “Shell determined there weren’t commercial quantities, but you can bet if there were, they would be pursuing them. They’ve only declared a time-out.”

Bea has worked in the oil and gas industry for over sixty years, fifteen of them for Shell. He’s an expert at investigating high profile catastrophes like the Exxon Valdez and Deepwater Horizon blowouts. When something goes wrong, he’s the one the oil industry calls. Bea is currently a professor emeritus of civil engineering at UC Berkeley and the co-founder of the Center for Catastrophic Risk Management. TechKnow spoke to him about his role in the oil & gas industry and the challenges of drilling for oil in the Arctic. 

Editor’s Note: The following was adapted from an interview with TechKnow. It has been edited for length and clarity. 

TechKnow: We're you surprised by the news from Shell?

Bob Bea: Not really. The work I'd done for Shell involved their early exploration in the Gulf of Alaska. And that turned out to be a dry hole area because the traps for hydrocarbons were there, but the earth's movements had fractured those stores so badly that the oil had escaped. So, yes all the science had indicated that there was oil, but I’m sorry, it was dry hole time.

So this isn't the first time something like this has happened? It's almost a pattern out there.

It’s known by the industry internationally - if you go into new areas, you probably have got a 20% chance of finding oil, 80% you're not going to. Whereas if you are exploring a developed oil field in a known area, such as the Gulf of Mexico, you have an 80% chance of finding it. So it's that lack of knowledge and high uncertainty that makes what the industry calls wild catting and looking for oil in these new areas extremely risky. 

Do you see Shell's halting of activities in the Arctic as good news, bad news?

I think it's both. The bad news is, Shell was not successful in finding commercial quantities of hydrocarbons, but those hydrocarbons are a very valuable public resource. It's going to get more valuable into the future, and so the fact that Shell invested approximately $7B and got to this point and couldn't find commercial quantities, that's not good.  The good news is we have more time, so that we can better prepare to address this very challenging environment. It’s challenging because of many things, one of the most important of which is the extreme sensitivity in that environment. 

Are we prepared enough to drill in the Arctic? 

My personal opinion is we are not well enough prepared. We've dramatically underestimated the risk of potentially large releases and hydrocarbons to this environment. We need to learn from our past first. [There have been] several major disasters that the oil and gas industry, Shell particularly, have been involved in. We came to understand the basic reasons. But we need to revisit that history so we don't repeat it.

Shell says the risk profile of a blowout in the Arctic is opposite of the risk spectrum as something like Deepwater horizon, do you agree with that?

No. BP before the Deepwater Horizon judged the risk of a catastrophic blowout to be low. They judged the consequences of a blowout to be manageable and to be related only to cost. They obviously misunderstood the risk. Everything that I’ve been able to learn to this point tells me that we are repeating that mistake in the case of our current enthusiasm to push into the deep waters of the Arctic Ocean.

Why is marine life so sensitive in the Arctic?

That's a very important question. The Arctic is a severe place for anything to live. It's dark, cold, the seas can be very severe...and so life struggles on a daily basis to survive. If you do something significant to threaten that daily struggle for survival, you've got big problems, and it'll be long term.

The other part is the marine infrastructure in the Arctic is tightly networked, so damage to one marine species can have very dramatic negative effect on other marine species. There's inner connectivity in addition to the extreme sensitivity that makes this a very dangerous environment to work.

What are some of the biggest challenges of working in the Arctic, especially working offshore?  

I’ve personally spent an awful lot of time working there. During the winter in the Bering Sea, [there] was wind blowing up approximately 60 knots, we hit big waves...crashing over the vessel we were working on…ice was building up on the outside of the vessel, it was 60 below zero you couldn't feel your feet or your hands, we had to stuff hair dryers plugged into electric outlets into our boots so we could thaw our feet out to feeling.

It's the severity of that environment - it gets dark up there for most of the year. If you're up in the Chuckchi or Beaufort sea, you're 1,500 miles from the nearest port…it's a long way from support facilities. And if you make mistakes, the environment is going to exploit those mistakes.

Do we have the ability to clean up oil in arctic water and ice?

My opinion is no, we don’t. There are things we can attempt to do, but once we've released oil in that environment, I think we've got ample proof that we don’t have the ability to clean it up.

Think of being up there in the winter with ice present, and it's dead dark. And we’ve now got oil in contact with ice, how am I going to get oil off of the ice? Can I even select enough of it to burn? Can I use absorbents to absorb the oil enough to say its okay. Well, if there's much of the water getting out I think the answer is clearly, no, you don't

Where do you see the future of oil in the arctic?

I think there is a future, therefore, my fervent prayer is that we will properly approach that development. First to conserve the resource. I don’t think enough people recognize this is an un-renewable resource. When it’s gone, it’s gone. Second is, given that we do have access and we will, we need to have ways in place so that if we do have an accident we don’t create another disaster.