ARCTIC DRILLING:

Town on the front lines of the coming oil explosion hopes for a silver lining

WAINWRIGHT, Alaska --- A cold autumn rain was beginning to fall as Hugh Patkotak approached the edge of the Wainwright Lagoon, where a group of scientists were navigating back to town after a day of studying sea life along the village shores.

As the marine biologists unloaded equipment from their small research vessel, Patkotak recalled that not long ago subsistence hunters here rode dog teams onto the frozen tundra each winter to hunt for caribou. Now Patkotak, 65, is firmly rooted in the modern world as a pilot for the North Slope Borough and chairman of the Olgoonik Corp., Wainwright's profit-making arm.

The corporation was hired to coordinate the scientific research conducted this summer along Wainwright Lagoon and on its Arctic shore. Paid for by Royal Dutch Shell PLC, the marine studies will be used to support future oil industry development in the region.

With Shell, ConocoPhillips and Statoil ASA lining up to explore for oil in the American Arctic, Wainwright is on the front line of a coming oil explosion. Patkotak predicts that if the giants find a huge oil reserve, Wainwright villagers are in for a shock.

"More than likely, it will be overwhelming," he said. "It has social impacts on the interaction between people here. I'd say it's good and bad -- 50-50. ... But I keep hearing my father telling me progress will come whether we like it or not."

In the coming years, oil development will bring unprecedented growth, environmental challenges and an influx of new visitors to the Inupiat Eskimo village of Wainwright, population 550. The rural village sits on a wave-eroded coastal bluff overlooking the Chukchi Sea 72 miles southwest of Barrow -- North America's northernmost city -- and 720 miles north of Anchorage.

Patkotak insists that oil exploration could provide a silver lining for the local community, where about 60 percent of the residents are unemployed. By capitalizing on the inevitable oil development, Olgoonik hopes to provide jobs and increase profits for its village stockholders while also protecting the community's traditional Native way of life.

"We try to balance our lifestyle and also be responsible for individuals all across the slope," he said.

The first signs of change are already popping up in the community. Olgoonik built a "man camp" at the edge of town that Shell and other oil industry workers used this summer.

Several miles outside the village, the corporation is starting work on a helicopter pad and a large housing facility to accommodate ConocoPhillips and Statoil workers when their operations gear up.

But today's changes are just a hint of what's to come, Patkotak said. "To me right now, it's in the infancy stage. To me this is like the tip of the iceberg, the very tip of the iceberg."

As Olgoonik takes steps to profit from the coming oil development, many village residents worry about the potential downside of the looming oil operations.

"With offshore drilling -- they're doing studies about how to remove oil from the ice," noted Alice Morgan, vice chairwoman of Olgoonik. "But there hasn't been any proof yet" that an oil spill could be completely cleaned up.

Residents voice concern that outsiders will disrupt the wildlife that the Eskimos hunt and bring drugs and alcohol to the dry community. Currently, 94 percent of the village residents are Inupiat Eskimos. But if the town grows to the size of Kotzebue or Nome, the makeup of the community is likely to become more mixed.

"My concern is with the increased activity in Wainwright and how much that will change the community," Morgan said. "So many people coming in and out. To me it wouldn't feel like home anymore. When I come here now, it just feels like I never left."

Costly, technically difficult operation

In 2008, Shell and several other multinational energy companies spent $2.6 billion to lease Chukchi Sea lands just off Wainwright's shores. Since then, Shell has led the charge on oil development, but others are close behind. ConocoPhillips says it will begin exploration in 2014 and Statoil in 2015.

This summer after years of delay, Shell moved a fleet of exploration vessels into the Arctic. But equipment problems prevented the company from drilling deep into the oil-rich rock on its leases. Instead, Shell secured Interior Department permission to prepare the sites for next summer.

Shell is focusing on its Burger prospect, a patch of land about 70 miles from shore in shallow Chukchi Sea waters. The company drilled wells in the area in the 1980s but abandoned the project because of the low price of oil at the time and because of a lack of adequate technology.

Thirty years later, Shell and other multinational oil companies say conditions have dramatically improved. The price of oil has risen to near $100 a barrel, new technologies are available and global warming is easing ice conditions in the Arctic.

The federal government estimates that the Chukchi could hold 15 billion barrels of recoverable oil; industry experts say that number could be low.

"The geophysicists and the guys who shoot seismic get absolutely giddy with joy because they say this is a game changer of a geologic feature," said Kevin Hand, president of Olgoonik's commercial division. "It's a quantity that will make Prudhoe Bay pale in comparison as far as recoverable, commercial barrels of oil."

The oil companies have hired Olgoonik to handle some of their onshore projects in preparation for drilling in the Chukchi. So far, those operations have resulted in an average of 20 new people staying in town each summer. That number would have been much higher if Shell had based its operations on shore instead of on its mobile drilling ships.

However, ConocoPhillips has told Wainwright officials that it'll base its Chukchi exploration in the village. As a result, Hand predicts that 100 new faces are likely to descend on Wainwright each summer.

To prepare, Olgoonik four years ago hired Hand, a tall, blond Anchorage resident, to help draw up a long-term business plan for the corporation. The result was a development road map that shareholders approved early this year.

Under that plan, Olgoonik is converting an abandoned Cold War-era military radar station into an onshore base for future oil company operations. The corporation plans to lengthen the radar station's air strip and build a summertime port facility that can be moved into the lagoon in the winter to avoid ice damage.

Hand noted that each step of the business strategy requires long-range planning because most heavy equipment and fuel comes to Wainwright on a once-yearly barge delivery. To provide ConocoPhillips with fuel for its summer 2014 exploration operations, Olgoonik ordered fuel tanks last year for delivery this fall. The tank farm must be completed by the fall of 2013 when the fuel will be delivered.

The infrequent-delivery problems could be alleviated if Olgoonik also jumps into the marine transportation business. Hand envisions operating a corporation barge that could quickly move supplies and equipment from Wainwright's air fields to the oil drilling ships.

The barge also could help reduce the costs residents pay to ship everything from flat-screen TVs to potatoes into town. With no roads connecting the village to the rest of the state, the only way to bring in cargo right now is by high-priced air freight or on the yearly fall barge.

Even the lower-cost barge delivery substantially hikes the cost of all goods coming into Wainwright. Milk can cost up to $20 a gallon and stays fresh for only two days.

"I can tell you from firsthand, it costs as much to ship a truck to the village as it does to buy it," Hand said.

'They know they need the development'

Wainwright is a village of small, unadorned wood houses and gravel roads surrounded by hundreds of miles of frozen, treeless tundra and lakes. The community sits on a peninsula that separates the Arctic Ocean from the lagoon, which feeds into a system of rivers that stretch deep into Alaska's North Slope.

On a fall afternoon as the 24-hour summer sun begins to fade, the town buzzes with children and adults driving four-wheelers. Most families communicate through a local VHF radio network that updates residents on the latest community news and the arrival of the next cargo plane -- not to mention allowing children to invite their friends to play.

The summertime temperature in Wainwright rarely gets above 60 degrees Fahrenheit and regularly plummets to -20 F and lower in the winter.

Wainwright's subsistence roots are visible throughout the town. Caribou antlers are perched on outbuildings. In the fall, caribou quarters hang to dry outside the homes of successful hunters.

About 80 percent of the food residents eat comes from subsistence hunting, with families linking together to increase their success and sharing the catch with the rest of the community. The game is stored in cellars dug into the permafrost ground that act as year-round freezers for duck, caribou, fish, seal, walrus and whale.

The Inupiat people were traditionally a nomadic people, following the game and sea mammal migration routes. The village was settled as Wainwright in 1904 when the Alaska Native Services built a school at the site. According to state records, the site was chosen by a ship's captain who decided it was the best place to deliver school construction materials.

The Olgoonik Native corporation, which owns the surface rights to 171,000 acres of land in and around the community, was created in the 1970s under the Alaska Native Claims Settlement Act. The village is also part of the North Slope Borough, which stretches along Alaska's northern coast and gets most of its revenue from the Prudhoe Bay oil operations.

Although Wainwright has benefited from those oil drilling operations, sewer and water installation in the village wasn't completed until two years ago.

Now residents are hoping to gain from the imminent new oil exploration near their shores. In a recent survey taken by Olgoonik, villagers said they support the company's plan to do business with the oil companies despite concerns about the potential social and environmental impacts.

"They said they know they need the development," Morgan said. "They know they need the cash economy."

In an August speech to the Arctic Imperative Summit in Girdwood, Patkotak said that thanks to the expected oil development, the corporation hopes to "create more jobs and make it possible to maintain a balance of subsistence and development."

"As a community and a corporation, we are required to be creative planners to take deliberate action to ensure we not only endure but that we thrive," he said.

Standing along the Wainwright Lagoon, Patkotak picked up on that theme. "We're seriously considering what our kids will face," he said. "We take that responsibility very seriously. Hopefully what we are concerned about now, they will all be thankful for in the future."

Click here to see a map showing Olgoonik Corp.'s plan for an onshore base for future oil company operations. Map courtesy of the Olgoonik Corp.

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