Shell announces plans for summer offshore exploration drilling

Web posted Friday, April 24, 2009
By Tim Bradner 
Alaska Journal of Commerce

Shell plans to drill its first test well in the Chukchi Sea in the summer of 2010 or 2011, using the Frontier Discoverer drill ship. The company also plans to drill a second well in the Beaufort Sea with the same vessel later in the summer, according to Pete Slaiby, general manager for Shell Exploration and Production’s Alaska operations.

Slaiby also spoke about the company’s plans at an Anchorage Chamber of Commerce meeting April 20.

A third well might be drilled if weather and ice conditions allow, he said.

In the Beaufort Sea, Shell would pick alternative prospects to those the company planned to drill in 2007 and 2008, and which are now subject to litigation and an injunction ordered by the U.S. 9th Circuit Court of Appeals in San Francisco.

Slaiby said the company has several other interesting prospects on its Beaufort Sea leases that can be tested while the court considers the lawsuit on the wells planned two years ago. The contested prospects are in an area 15 miles to 20 miles offshore from Point Thomson, east of Prudhoe Bay, and in the path of migrating bowhead whales.

Environmental groups and Inupiat whalers filed suit to block Shell’s drilling on those locations. The appeals court initially issued a decision voiding the U.S. Minerals Management Service’s permits for the drilling, but then in an unusual move, voided its own decision earlier this year. The court has not yet issued a new ruling.

Slaiby also said issues raised in a separate decision issued earlier this month by the 5th U.S. Court of Appeals in Washington, D.C., do not affect Shell’s Beaufort Sea leases, although they could affect the Chukchi Sea.

The 5th Circuit Court’s decision faulted the U.S. Minerals Management Service on its analysis of environmental effects of drilling, and that affects the U.S. Outer Continental Shelf five-year leasing program beginning in 2005, which covers six lease sales in the U.S. Gulf of Alaska as well as the Chukchi Sea sale.

Shell hopes that issues affecting the Chukchi Sea will be resolved before the company’s wells are to be drilled, Slaiby said.

Shell has invested hundreds of millions of dollars in preparations for its Alaska exploration programs, as well as over $2 billion spent in bonus bids for federal OCS leases in the Chukchi Sea.

The company had a false start in 2007, when it marshaled a fleet of two drillships and numerous support vessels to drill the three prospects north of Point Thomson, and then was stopped by the litigation.

Slaiby said Shell has scaled back its exploration plans to one drilling vessel, partly because of difficulty in getting government permits for the more ambitious two-rig exploration program the company had initially planned.

Air quality permits required by the U.S. Environmental Protection Agency have been a particular source of frustration, he said. Shell has spent $13 million over three years attempting to get EPA’s approval on permits for the Beaufort wells.

Part of the problem is that the agency’s air permit program is geared more for onshore than offshore operations. For example, a requirement in regulations for fencing is obviously unneeded and impractical offshore, he said.

Another problem has been that EPA’s Region 10 offices in Seattle, which administer permits for the Alaska region, has been understaffed, Slaiby said.

An exploration program in 2010 or 2011 would still involve a small flotilla of support vessels. Slaiby said an oil spill response vessel built by Arctic Slope Energy Services for work in Arctic regions and under long-term charter to Shell, will be on hand as well as a spill response barge and a tanker capable of holding oil recovered if a spill were to occur.

The most difficult problem, however, is that the environmental review and permitting process mandated by the National Environmental Protection Act sets out a minefield for potential litigation.

“The regulators are professionals, and the NEPA process has been in place since the 1970s and it is managed by professionals, but lawsuits are costing companies like Shell to waste hundreds of millions of dollars due to delays,” Slaiby said. “It’s ironic that people who oppose offshore development don’t seem to be concerned about our increasing reliance on oil imported from overseas, or that even the best-run tanker systems are five times more prone to an oil spill than an offshore producing platforms.”

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