Shell Ends Plans For Arctic Drilling This Year

October 2012, Vol. 239 No. 10

Shell has ended drilling for oil in Arctic waters off Alaska this year following continued problems with its spill containment barge. Officials announced the decision Sept. 17 after testing of the Arctic Challenger, the oil spill containment barge Shell has been unable to get ready and certified to support its Arctic Alaska exploration.

Shell said that, while it will abandon its effort to drill into oil-bearing zones this year, it will drill “top holes” to get ready for next year.

“During a final test, the containment dome aboard the Arctic Challenger barge was damaged. It is clear that some days will be required to repair and fully assess dome readiness,” the company said in a written statement reported by McClatchy Newspapers.

Shell was fast running out of time for this drilling season. The failure to launch the effort as planned this year is a blow to the company, but it pledged to finish as much preliminary work as it can in order to “lay a strong foundation for operations in 2013.”

Shell has spent more than $4.5 billion attempting to be the first company in two decades to drill in the offshore Alaska Arctic but hit repeated delays with the renovation of its oil spill containment barge.

Shell contractor Superior Energy Services has been retrofitting the 38-year-old Arctic Challenger at a Bellingham, WA shipyard. The renovations were finished in early September and the ship began sea trials and inspections, which the company had described as successful up until the containment dome was damaged.

The massive containment dome is meant to block release of oil and natural gas in case of an underwater spill. The Interior Department would not allow Shell to drill into oil-bearing formations until the Arctic Challenger and its oil spill containment system was ready.

“We are disappointed that the dome has not yet met our stringent acceptance standards, but, as we have said all along, we will not conduct any operation until we are satisfied that we are fully prepared to do it safely,” Shell said. Shell is aiming to drill the first wells in two decades offshore in the Alaska Arctic.

Shell must finish any drilling operations in advance of the arrival of sea ice that could pose a problem for containing spills. The company had hoped for an extension of its Sept. 24 deadline for drilling in the Chukchi Sea. Interior Secretary Ken Salazar said he wouldn’t consider the request until the spill containment barge was ready and certified.

Meanwhile, a Shell competitor and sometimes partner, Statoil, is delaying plans to explore for oil offshore in the Alaska Arctic until at least 2015 because of concerns about regulatory challenges faced by Shell.

The decision by Statoil came in August, before federal regulators decided to allow Shell to drill in the Chukchi Sea, but that development doesn’t change things, said Jim Schwartz, a Houston-based spokesman for Statoil, in an article published by the Anchorage Daily News.

“The bottom line is, in light of the significant uncertainty regarding Alaska offshore exploration, we’ve decided to take what we believe is a prudent step of observing the outcome of Shell’s efforts before finalizing our own exploration decision time frame,” Schwartz said.

Statoil earlier had targeted 2014 to begin exploratory drilling on its Amundsen prospect, 120 miles off Alaska’s northwest coast in the Chukchi Sea. The company spent $23 million to acquire interests in 66 Chukchi tracts in the same 2008 lease sale that saw Shell spend $2.1 billion for its Chukchi prospects. Statoil is sole owner of 16 leases that include Amundsen and is a minority partner with ConocoPhillips on 50 more.