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Exxon Mobil Faces Challenges On Canadian Arctic Drilling

A Canadian affiliate of Exxon Mobil Corp., Imperial Oil, has plans to drill in the Beaufort Sea north of Canada. There’s a lot of oil there, but bringing it to the surface could be a challenge on many levels. Because of this, it would be the first ultra-deep, offshore drilling project for Exxon in nearly a decade.

The target site is in the Beaufort Sea about 110 miles northwest of Tuktoyaktuk, a town in the extreme north of Canada about 100 miles east of the border with Alaska.

Just getting to the oil would take an estimated three years of drilling to a depth of more than 24,000 feet in a region where work can take place only during its 120-day summer. The rest of the year there are too many icebergs, which make working on oil rigs dangerous.

A further danger, according to environmental groups, is that a short work year could make it hard for Exxon to repair any damage it causes in the event of a major oil spill. Add to that the extreme pressures and temperatures that make oil drilling a daunting challenge.

Such challenges faced Royal Dutch Shell in a similar effort, in the Chukchi Sea, off Alaska’s northwestern coast. On Dec. 31, 2012, Shell’s floating drilling rig, the Kulluk, ran aground. There were no casualties and diesel oil was spilled, but the incident highlighted the dangers of offshore Arctic drilling.

At the time, Shell already had spent $2 billion on the project, including the $290 million for the floating rig itself. And it faced delays including work to refit the Kulluk to comply with regulations of the U.S. Environmental Protection Agency on diesel emissions. There also was a moratorium at the time on offshore U.S. oil drilling because of the Deepwater Horizon oil spill in the Gulf of Mexico in 2010.

Related Article: ExxonMobil’s Papua New Guinea LNG Plant Set To Feed Asian Demand

Exxon’s own record on deep offshore drilling is not much better. In 2005, it tried to extract oil from the Blackbeard gas field in the Gulf of Mexico. The water there is shallow, but the oil was deep below the sea floor – more than 30,000 feet deep. By the time Exxon had abandoned the project, it had spent $210 million, the most ever spent by that time on a failed oil well.

The problem was that if Exxon had kept drilling, it would have reaped a bonanza. In 2008, the McMoRan Exploration Co. took over the oil field and, using more robust equipment, it found a field that could contain more than 5 trillion cubic feet of gas. Now the field is nearly ready to go online.

The Blackbeard failure appears to have made Exxon reluctant to invest in deep offshore wells. But Imperial, the Exxon subsidiary planning the Beaufort Sea project, says it could begin drilling in six years.

That’s six years from now, meaning the project will require plenty of planning. And drilling deep wells is far more expensive than drilling shale wells. But the cost may be justifiable. Shale wells deplete quickly, losing about half their contents in a year. Deep-water wells, though, tend to be productive for several years.

By Andy Tully of Oilprice.com



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