Shell scales back 2011 Arctic exploration plan

EXPLORE: Oil giant holds off on Chukchi until court cases resolved.

October 6, 2010 

The Kulluk conical drilling rig was towed in August from McKinley Bay in Canada to Dutch Harbor.


Shell Oil announced Wednesday that it has scaled back its Arctic Ocean exploration plans for 2011 to promising sites in the Beaufort Sea, backing off prospects in the Chukchi Sea until legal clouds are cleared.

"Our plan is to drill in the Beaufort in 2011," said Shell Alaska Vice President Pete Slaiby.

The company has applied for one exploration well in the Beaufort off Alaska's north coast and will seek a permit for a second. The company will hold off applying for well permits in the Chukchi off the northwest Alaska coast until two court cases are resolved.

Shell's plans to drill exploration wells in both areas this year were put on hold by Interior Secretary Ken Salazar after the Deepwater Horizon disaster in the Gulf of Mexico. Salazar suspended applications for permits and has set no timetable for lifting the suspension.

Environmental groups and some Alaska Native groups bitterly oppose drilling in Arctic waters. They say oil companies have not shown they can clean up a spill in ice-choked waters. They also say the remote location of drilling sites, the area's notorious inclement weather and the lack of infrastructure, including a deep-water port, would make a cleanup of a major spill nearly impossible.

Shell has invested more than $3.5 billion in the Arctic outer continental shelf, including $2.2 billion in leases in the Chukchi that have been challenged.

Slaiby said Shell will need a decision by December to move forward with its 2011 plans, which involve moving north a drilling ship and a small fleet of support vessels, including spill response boats.

Shell has continuously stressed that Arctic drilling would be in shallow water and that the risk of a spill is minimal. Slaiby said the company since the Deepwater Horizon blowout has taken "extraordinary steps to build confidence around our 2011 program."

The company also will position a second drilling ship in Alaska as an additional safety measure. If the first drilling ship were crippled by a blowout, a second ship could drill a relief well.

"We also confirmed our commitment to engineer an oil spill containment system, which is designed to capture hydrocarbons at the source in the unlikely event of a shallow water blowout," Slaiby said.

Some of Shell's Chukchi prospects are 140 miles offshore, but Slaiby said the distance did not contribute to the decision not to seek permits there for the 2011 drilling season. Rather, it was a lawsuit in Washington, D.C., that found flaws in the federal government's 5-year leasing plan, and a ruling in a second lawsuit filed in Anchorage that the former U.S. Minerals Management Service had not required adequate environmental reviews for the Chukchi leases.

Slaiby said Shell is optimistic the lawsuits will be resolved.

"All of these issues that we've got, legally, in the Chukchi, I think are fairly small and narrow," he said.

Environmental groups reacted with skepticism to Shell's plans.

Chris Krenz of Oceana said the organization was disappointed that Shell plans to drill on its federal leases in the Beaufort. The Arctic lacks adequate oil-spill response capability and there's not enough known about a spill's effects on endangered whales, threatened polar bears, walrus and ice seals, Krenz said.

He praised Shell's additional safety measures, but said, "We don't have assurances that these will work, especially in the icy, hazardous and often dark conditions of the Arctic."

Marilyn Heiman, U.S. Arctic program director for the Pew Environment Group, said Shell is moving forward under a drilling plan that said a blowout was "not seen as a reasonably foreseeable impacting event."

"The exploration plan is outdated," she said. "They need to submit a new exploration plan."

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