Despite complications, Shell optimistic about Arctic drilling

Lingering sea ice, permit issues among hurdles company is facing.

Anchorage Daily NewsJuly 26, 2012 

With the clock ticking on a short season for Arctic drilling, Shell Oil Co. is facing a triple threat of complications in its quest to explore for oil this year off Alaska's northern coast.

Sea ice is lingering a bit longer than usual. A problem with a permit regulating air pollution on one of its drill ships remains unresolved. And an oil spill containment barge still isn't ready.

Shell remains confident it will be able to work in its Arctic drilling sites this year, said Pete Slaiby, the Shell vice president who oversees Alaska.

"We are still planning to move ahead," Slaiby said Thursday evening in a brief telephone interview. "It's absolutely possible."

Shell hopes to begin drilling in August, the first exploration in the offshore region in two decades. But it won't have much time when it gets there for drilling wells that could take a month each. The stakes are huge. Shell has invested more than $4 billion in leases, vessels and other special equipment for its Arctic mission.

Under exploration plans approved by the federal Bureau of Ocean Energy Management, it must suspend drilling "in known hydrocarbon zones" by Sept. 24 in the Chukchi Sea and by Oct. 31 in the Beaufort Sea. It could seek to extend those dates, but so far hasn't given any indication it intends to do that, according to the federal agency.

Shell already has scaled back and no longer is aiming to drill the five wells it once planned for this year, Shell spokesman Curtis Smith said this week. The new number hasn't been set, he said.

BARGE WITH PURPOSE

Shell's novel oil spill containment barge, a critical vessel that regulators say must be in the Arctic for drilling to begin, remains under construction at a shipyard in Bellingham, Wash. Shell, through its contractor Superior Energy Services, is retrofitting a 38-year-old barge, now called the Arctic Challenger.

"It's not complete yet," said Coast Guard Cmdr. Christopher O'Neil, the agency's lead spokesman. Fire suppression systems and electrical wiring are among the elements being checked, he said.

"We're still inspecting construction as it's completed, systems as they are ready for our inspection," O'Neil said. "It's almost an around-the-clock operation at this point, so that's really moving ahead."

A sticking point is how the vessel will be classified by the American Bureau of Shipping, a process that must be complete before the Coast Guard can issue a final certificate of inspection, O'Neil said. The barge will carry a containment dome engineered by Shell that could be lowered to a wellhead in the event of a spill. Oil would travel from the dome through an attached hose back to the barge, where it would be separated from seawater and the gas would be flared.

Shell originally proposed classifying the vessel as a stationary offshore production platform, but then it would have to be able to stand up to a 100-year storm. That doesn't make sense for a vessel that is mobile and could get out of the way of a rare, giant storm, said Smith.

Shell then proposed classifying the vessel as a mobile offshore drilling unit, able to handle a 10-year storm. But it may now be seeking to have it evaluated as a different type vessel, O'Neil said. The American Bureau of Shipping declined to comment and Smith said if that proposal had changed, he hadn't been informed.

Once the barge is classified and obtains a Coast Guard inspection certificate, it'll take roughly 17 days to travel to its destination between the Chukchi and Beaufort drilling sites, Slaiby said.

SHELL EAGER TO START

Shell recently approached the U.S. Department of the Interior to see if it could begin some pre-drilling work in the Chukchi and Beaufort seas before the barge arrives.

"That's so far inconclusive. We are still talking to Interior," Slaiby said. He said he didn't want to discuss the request in detail. "That's between Shell and Interior."

Federal officials declined to discuss that request but say Shell won't get its drilling permits until the containment system has been tested in the water. No drilling can occur without the special barge, according to the Bureau of Safety and Environmental Enforcement, which oversees oil spill response and issues well drilling permits.

Sen. Lisa Murkowski, R-Alaska, on Thursday told reporters she hopes that the Department of Interior will be flexible in its dealings with Shell.

Interior Secretary Ken Salazar told The New York Times recently that he expected to make a final decision on whether to issue Shell its drilling permits by Aug. 15.

A SLOW MELT

Sea ice in the region is lingering a couple of weeks longer than normal, according to Kathleen Cole, the National Weather Service's sea ice program leader in Alaska.

"We still have quite a bit of ice in the northern Chukchi Sea and in the western Beaufort Sea," Cole said Thursday.

The ice is thicker and melting slower than usual, but it's not record-breaking, she said. First-year ice is 9 to 11 feet thick, she said.

Last year was the anomaly, she said.

"Last year the ice went away very quickly and it was open and gorgeous," Cole said.

This year, ice is closed in around Point Barrow, and vessels that normally bring supplies in the summer are still awaiting their window, she said.

"I think the first shot they'll have to get around the point, not just Shell but the boats doing the restocking, will probably be in around two weeks," Cole said. Normally, vessels can get around Point Barrow by mid- to late July, she said.

The ice will move north, away from the coast for a spell, but will then close back in, an oscillating pattern that is familiar in the Arctic, she said.

She said she communicates several times a week with Shell. The company has a ship in the area already studying ice conditions and gives its data to her office.

Greenpeace's icebreaker ship, the Esperanza, also is in Chukchi near where Shell hopes to drill, researching the sea beforehand. Photographs sent from the ship show a seascape dotted with icebergs.

"We've observed sea ice, bearded seals, and a minke whale at the location where Shell hopes to drill this summer. Extreme conditions here in the Arctic mean that an oil spill could not be cleaned up and would devastate this pristine environment," Jackie Dragon, Greenpeace's lead Arctic campaigner, said in an email from the ship.

Smith, the Shell spokesman, said Greenpeace's rhetoric is unfortunate. He said Shell's oil spill response plan is unprecedented with "world class, proven assets that we look forward to never using."

AIR QUALITY

Shell also continues to work on a third issue, its Environmental Protection Agency air permit for one of its drilling rigs, the Noble Discoverer.

It notified the EPA in June that generators on the Discoverer for the drilling equipment couldn't meet pollution discharge standards set under the already approved permit. Shell is seeking a waiver so it can operate this year while it applies for a new permit. Smith said that overall, Shell is well within the cap on the air permit but those particular generators can't meet specific limits set for them. Shell expects to resolve the matter soon, he said.

The Noble Discoverer and the Kulluk, Shell's other drilling rig, remain in Dutch Harbor, where they stopped for supplies. It'll take them four to five days to reach their Arctic destinations.


Reach Lisa Demer at ldemer@adn.com or 257-4390.

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