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Reuters: Shell sees potential in U.S. Arctic

Fri Feb 22, 2008 1:36pm EST 
By Robert Campbell

ANCHORAGE (Reuters) – Royal Dutch Shell Plc is looking for oil and gas in the Chukchi and Beaufort Seas off the coast of Alaska, but the finds will have to be significant to justify the huge cost of development, a senior Shell executive said Friday.

Shell surprised many in the oil industry when it bid $2.1 billion for acreage in this month’s controversial auction of drilling rights in the Chukchi Sea, a large polar bear habitat, and one of the least explored areas in U.S. federal waters.

However, after conducting two years of seismic surveys in the Chukchi ahead of its bid, Shell is confident the area is one of the most promising exploratory basins in its portfolio.

“We’ve picked up licenses and blocks based on those surveys, and we’ve been confident to put that kind of money there,” Annell Bay, vice president of exploration for the Americas at Shell, said in an interview.

The U.S. Minerals Management Service, which regulates oil and gas activities in federal waters, thinks 15 billion barrels of oil and 75 trillion cubic feet of natural gas can be found in the Chukchi Sea.

Shell’s aggressive bidding in the Chukchi comes two years after it picked up acreage in the adjacent Beaufort Sea, where the Anglo-Dutch giant is aiming to tap oil fields that were found decades earlier but were left undeveloped due to high costs.

Previous drilling in the Chukchi also turned up signs of large hydrocarbon deposits, including a large gas prospect called Burger, which some industry observers have suggested could be large enough to support a liquefied natural gas project.

“I think there is scope for both oil and gas (at Burger), but we’ll have to drill first to get an idea of the scope,” Bay said. “It’s too early to talk about development options.”

A 2004 MMS study estimated Burger holds 14 trillion cubic feet of gas and 724 million barrels of condensate.

Developing a find in the Chukchi Sea would be particularly challenging as it is hundreds of miles away from the nearest oil and gas infrastructure and is covered by ice for much of the year.

Bay said the prospect that climate change would lead to longer ice-free summers on the Chukchi had not played a role in Shell’s planning for the bid round.

“We did all of our work based on the environment that is there now and the technology we have now,” she said.

COURT CHALLENGE

Shell’s plans to drill in the Chukchi are already being challenged by environmental groups and Alaska natives, who argue too little is known about the Chukchi Sea, especially as climate change is already having a growing effect on the area.

The challenge is similar to efforts to block Shell from drilling on acreage it acquired in 2005 in the adjacent Beaufort Sea.

In the Beaufort Sea case, drilling opponents argued the MMS carried out inadequate environmental impact studies before granting Shell drilling permits.

A federal appeals court ordered a halt to the drilling last summer while the case is heard. A ruling is expected this spring.

In the meantime, Shell has scaled back its 2008 drilling plans to reduce the risk it will have costly drilling rigs moored in the Arctic, when they can be used elsewhere, if the court rules against the MMS grant of drilling permits, Bay said.

Shell is continuing its efforts to engage native communities on the Alaskan coast in the hope of gaining their support for drilling, Bay said, noting Shell had already been successful in securing agreements with native whalers to mitigate conflict between drilling activities and traditional native summertime whale hunts.

(Editing by Walter Bagley)

http://www.reuters.com/article/ousiv/idUSN2259506120080222?sp=true

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