Progress made in effort to create Beaufort Sea oil project

For decades, companies have worked to develop a medium-sized offshore oil discovery in the Beaufort Sea northeast of Prudhoe Bay. Costs and permitting problems have plagued the project, called Liberty.

Now the U.S. Bureau of Ocean Energy Management has issued a conditional okay for Hilcorp to build the project, granting a key government approval. Interior Secretary Ryan Zinke made the announcement Wednesday.

Hilcorp and its partners, which include BP and Arctic Slope Regional Corp., have not yet decided to actually build Liberty, but Zinke’s approval is an important step forward.

If it is developed, this would be the first oil and gas production facility in federal waters off Alaska, Zinke said in a press release. It is expected to produce 60,000 barrels per day to 70,000 barrels per day of conventional light crude oil, Hilcorp has said.

Liberty would also put several hundred Alaskans to work for several years in construction and drilling jobs, adding to an expected uptick in North Slope construction as ConocoPhillips, and possibly Oil Search, develop other new oil finds.

Hilcorp’s project involves a nine-acre artificial gravel island in shallow waters about 20 miles east of Prudhoe Bay and about five miles off the northern coast. The facility would be similar to four oil producing artificial islands currently operating in the area’s state waters, two of them, Endicott and Northstar, owned and operated by Hilcorp.

“We consider Hilcorp’s plan to represent a relatively conservative, time-tested approach toward offshore oil and gas development," said Joe Balash, the Department of the Interior’s Assistant Secretary for Land and Minerals Management.

"Using input from North Slope communities, tribal organizations, and the public, we have developed a robust set of environmental mitigation measures and safety practices that will be applied to this project,” Balash said in the press release.

Because the artificial gravel island will be in shallow waters and protected from the offshore moving icepack the winter ice freezing the ocean surface will be “shore-fast,” or frozen to the shore, with little movement. Therefore there will be little danger of ice override and damage at the island from a moving icepack or storms.

Approval conditions include: restricted drilling into the hydrocarbon-bearing zone, which may occur only during times of solid ice conditions; seasonal restrictions on activities and vessel traffic to reduce potential disturbance to Alaska Native subsistence whaling activities; and obtaining all required permits from other state and federal agencies, the press release said.

Hilcorp is 50 percent owner of the working interest in Liberty and is the project operator. BP owns 40 percent of the remaining working interest with the remaining 10 percent owned by Arctic Slope Regional Corp., the Alaska Native regional development corporation for the North Slope.

This would deepen ASRC’s involvement in oil and gas, which is already considerable. ASRC holds a subsurface mineral rights ownership and receives royalties from producing North Slope fields as well ownership in mineral rights in the Arctic National Wildlife Refuge as well as a working interest minority share in Badami, a small onshore field east of Prudhoe, which is producing.

In August, BOEM published the Environmental Impact Statement for Libety that examined the potential environmental impacts of Hilcorp’s proposal. The action on Wednesday approved a Record of Decision for the FEIS.

Conservation groups criticized the approval, however. “Opening the Arctic to offshore oil drilling is a disaster waiting to happen,” said Kristen Monsell, ocean legal director with the Center for Biological Diversity. “This project sets us down a dangerous path of destroying the Arctic. An oil spill in the Arctic would be impossible to clean up and the region is already stressed by climate change.”

Monsell said concerns about Hilcorp’s ability to build and manage the project were heightened last year when a Hilcorp-operated underwater gas pipeline in Cook Inlet, in southern Alaska, leaked for nearly four months because the company said the presence of sea ice prevented its repair.

Liberty has been an on-and-off again project for years. The discovery was originally made by Shell in the 1980s but not developed. BP acquired the prospect and initially planned a gravel island and subsea pipeline similar to what Hilcorp now proposes and modeled on the Northstar artificial island and pipeline BP developed in 2000.

However, the federal permitting process with Northstar, which was the first stand-alone offshore oil project in the Arctic proved so rigorous and costly that BP stepped back from building a similar project at Liberty. The company considered an alternative of drilling long, extended-reach and near horizontal wells from shore to the underground oil formation.

Some of these wells would have reached out as far as eight miles from the onshore surface location of the drill rig and set world records. BP put considerable resources into the project including building a large, specialized drill rig, but then shelved the project when technical problems developed.

When Hilcorp acquired several BP assets on the North Slope in 2014, including Northstar and Endicott, two producing offshore fields, it also purchased 50 percent of Liberty and became operator of the project. BP retained 50 percent, but ultimately sold part of that, 10 percent, to ASRC. Hilcorp then resumed working on BP’s original plan for the artificial gravel island.

Because Liberty is in federal Outer Continental Shelf waters the federal government will receive the royalty from production, and the project will be exempt from state oil and gas production and property taxes except for a portion of the pipeline to shore that is on state-owned lands.