Frontier Arctic Offshore Exploration Drilling Business Challenge

Abstract

The ‘Frontier Arctic’ offshore has been explored on and off since the 1970s, driven by oil price and areas open for leasing or licensing. While a widespread, future return is questionable, operators contemplating a return can benefit from past experience. Insight and perspective are provided on the technical and non-technical challenges and impact on the business challenge. Actions and opportunities to change the overall cost and non-technical business risk dynamic are discussed. ‘Frontier Arctic’ oil and gas resources have characteristics of 1) being located outboard of established offshore regions of oil and gas exploration and development, 2) having physical attributes of water depth and ice conditions that require the use of specialized equipment or measures to safely and cost effectively drill, and 3) having non-technical business risks with the potential for high business consequences. This loose definition includes much of the Alaskan Arctic, the Canadian Beaufort Sea, Greenland, the far northern Barents Sea, and much of the Russian shelf. The technical and non-technical issues associated with exploration drilling in these regions are well-established, but not necessarily well-integrated. ‘Frontier Arctic’ exploration drilling can be safely, responsibly, and reliably executed. The principal challenges are cost to address both routine operations and emergency response preparedness and and non-technical business risk. The required solutions to address these challenges and business risks lead to a layering of complexity and cost that increase exploration drilling costs multifold over competing oil and gas investment opportunities and require significant and sustained commitments of financial, organizational and people resources to achieve business success. Furthermore, ‘Frontier Arctic’ opportunities cannot be turned on at will and require significant planning and preparation and associated lead time. Interest in ‘Frontier Arctic’ exploration may be rekindled in the future depending upon commodity prices; however, the ability to make material cost changes are limited due to the nature of the technical challenge; and the "Frontier Arctic’ will likely remain a target for environmental activism. Furthermore, exploration drilling would need to take place now or in the reasonably near future if ‘Frontier Arctic’ resources are to have a chance of contributing to a future oil or gas supply shortfall. Notwithstanding, Arctic offshore exploration can be expected to continue in regions where cost and business risk can be managed such as the southern Barents Sea and nearshore Alaska Beaufort Sea region.