Shell moves to resume Arctic drilling

Royal Dutch Shell on Wednesday filed a formal exploration plan for the Arctic waters north of Alaska, marking an important step forward for its ambition to drill next summer what will be the world’s most closely watched oil well. The plan for multiple wells in the Chukchi Sea off the northwest coast of Alaska was delivered to US federal regulators in Anchorage.

In a statement, the company said it wanted to keep its “2014 exploration options viable”, and it would “only proceed if the programme meets the conditions necessary to proceed safely and responsibly”. Shell will be targeting the Burger prospect, seen as the most promising potential oilfield in an area in which the group’s executives have bet heavily, spending $2.1bn on drilling leases. The well is under intense scrutiny, both from environmental campaigners who are concerned about the risk of a spill in Arctic waters, and from industry executives watching to see whether the oil and gas thought to lie beneath the region’s seabed can be unlocked.

Shell encountered a series of setbacks before and after it began preliminary drilling in the summer of 2012, which mean it now has to jump additional regulatory hurdles at the US Department of the Interior. That summer, the company began drilling in the Chukchi and the Beaufort Sea, which is to the north and east of Alaska, but was unable to drill into any oil-bearing rocks because it could not secure permits from the US government. Shell had not been able to get its oil containment system – required by the authorities as a last line of defence in the event of a spill – ready in time. It is unable to drill again in the Beaufort Sea because its specialised rig, the Kulluk, which is suitable for the relative shallow water depths of about 125 feet, was badly damaged when it ran aground on New Year’s eve 2012. The rig broke its cables and drifted in heavy seas while being towed to Washington state. The rig is likely to be written off at a cost of $200m.

Shell was able to drill two “top holes” down about 1,500 feet, one of them at Burger in the Chukchi Sea, and it hopes to return next summer. The company needs to begin securing the approvals in the coming weeks to stay on track with this schedule. After reviewing Shell’s Arctic difficulties, the interior department in March came out with a list of requirements for future operations, and it is expected to set out further proposed regulations next year. Including leases, equipment and operating costs, Shell has already spent about $5bn on its Arctic exploration programme, without yet drilling into a single oil reservoir. Simon Henry, Shell’s chief financial officer, last week described Alaska as “the largest single exploration prospect in the Shell group” and “the most attractive single opportunity for the future”.


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