Last hope in the last frontier: offshore development key in Alaska.

• Author: Bradner, Mike

The waters off Alaska's coasts may be one of the nation's last remaining hopes for substantial oil and gas discoveries. Some Alaskans worry, however, about offshore development.

The coastal waters off Alaska's shores also support major fisheries and fragile ecosystems, environmentalists say, and these should not be sacrificed to support a rising appetite for fossil fuels as the U.S. depletes its other domestic resources.

The petroleum industry feels, however, that offshore development can be done safely and that the industry can easily coexist with commercial fishing. Companies point to the excellent safety records in the Gulf of Mexico and North Sea, major producing regions where there are also large fisheries. They also point to Alaska's own Cook Inlet, where offshore platforms have operated for more than 30 years, sharing waters with significant salmon fisheries.

It has been years since the industry has taken a serious look at Alaska's offshore regions. A flurry of exploration in the 1980s failed to produce results, and there has been a notable lack of interest since. When the U.S. Minerals Management Service held a Lower Cook Inlet lease sale in 2005, no company submitted bids.

Things are changing. The first serious offshore exploration initiative in many years is now taking shape. This summer, Shell Exploration and Production Co., a subsidiary of Royal Dutch Shell, will assemble a small armada of mobile drilling vessels, icebreakers and support ships to test two promising oil prospects in the Beaufort Sea. The prospect is named Sivulliq, but it is basically the "Hammerhead" discovery made years ago by Unocal Corp.

STEPPING UP

Shell and other companies, including ConocoPhillips Alaska Inc., are also conducting offshore seismic surveys in the Chukchi Sea, a promising region off the northwest coast, in preparation for a lease sale in this remote and challenging region. Shell is also pushing hard to have the U.S. Minerals Management Service include the North Aleutian Shelf in Southwest Alaska in the next route of federal Outer Continental Shelf lease sales.

Why the burst of interest in the Alaska OCS, after years of little or no interest by industry? A combination of factors may be at play. The prospects for major discoveries have always been known, but so have the formidable challenges of ice, weather and distances.

The industry was very bullish on the Alaska OCS two decades ago but interest cooled after a string of very expensive offshore exploration wells were drilled from the Gulf of Alaska to the Chukchi and Beaufort Seas with no commercial discoveries. This was capped off by the disaster of Mukluk, an exploration well in the Beaufort Sea which set a dubious world record of being the industry's most expensive dry hole (Mukluk cost more than a billion dollars, including payments for leases.)...