Citing Delays, Shell Ends Plans for Arctic in 2011

A Shell tanker refueling a jet at Manchester Airport in England. The company has invested $3.5 billion to drill in Alaska. Photo Credit: Phil Noble/Reuters

HOUSTON — Faced with continued regulatory delays, Royal Dutch Shell announced on Thursday that it was abandoning plans to drill for oil in Alaskan Arctic waters this year but that it remained committed to exploring in the area in the future.

Shell has already invested $3.5 billion to drill in Alaska’s Beaufort and Chukchi Seas, but the company has been snarled in regulatory delays and lawsuits since it entered into 10-year exploration leases five years ago.

The latest hurdle is obtaining an air quality permit from the Environmental Protection Agency, which has been delayed by an E.P.A. appeals panel that recently ruled that it wanted a more thorough review of the impact diesel emissions from exploration might have on local indigenous communities.

Shell had been urging the government to make a quick determination, since the company would need some time to get equipment in place to drill next summer when the water is free of ice. Moving the equipment and other preparations would cost more than $100 million.

Company executives finally decided that time had run out for this year.

“I’m not prepared to take the uncertainty and pay the money and then not get to the drilling,” said Shell’s chief executive officer, Peter R. Voser, during an earnings conference call. “We need urgent and timely action on permitting to go ahead with the 2012 drilling program.”

Administration officials said they were ready to work with the company as they seek to obtain the necessary permits.

Brendan Gilfillan, the E.P.A. press secretary, said in a statement that the agency was requesting that the appeals board reconsider its ruling and “we have worked with Shell to address the concerns raised” by the board.

Environmental activists who oppose Arctic drilling as too risky for sensitive animal habitats welcomed the announcement.

“This decision removes artificial pressure that Shell has been putting on the government to rush decisions on drilling in Arctic waters,” said Cindy Shogan, executive director of the Alaska Wilderness League.

Shell has obtained over 30 permits to drill in the region, and the company was about to begin drilling one or two exploration wells in the Beaufort Sea last year. Then came the blowout of BP’s Macondo well in the Gulf of Mexico in April. The accident killed 11 rig workers and spilled millions of barrels of crude oil, raising public and government concerns about offshore drilling. Since then, permitting for new exploration has slowed.

Shell had already scaled back its initial Alaska drilling plans, postponing drilling in the remote Chukchi Sea, where it faces separate legal challenges. Shell began a national advertising campaign in November to promote what it called a robust spill response effort in case of a future well accident in Arctic waters.

The oil industry says there is plenty of oil left in Alaska, even though the state has suffered a steady production decline since 1988. It now produces about 680,000 barrels of oil a day, and production declines as much as 6 percent a year. The Trans Alaska Pipeline system now runs at one-third capacity, producing a slow flow of oil that experts say increases the risk of corrosion and leaks.

The United States Geological Survey estimates that the state’s outer continental shelf contains 25 billion barrels of oil, approximately equivalent to the reserves of Angola, a major global producer. There is still considerable production from older wells in Arctic waters, but there has been no new drilling in Alaskan federal waters since 2003.

“We think Alaska offshore has the potential to be a world-class resource,” said Pete Slaiby, vice president of Shell Alaska, at a news conference in Anchorage. “We are disappointed.” But he added that “we’re pretty optimistic” that the company will be allowed to drill in 2012.

Mr. Slaiby estimated that 800 jobs would be lost by the delay. Noting that there are only 105 drilling days a year in the icy waters of Alaska, he said losing another year “is like gold falling out of your hands.” The company currently has Arctic exploration projects in Russia, Norway and Greenland, he said.

Shell, which is Europe’s largest oil company, reported on Thursday that its earnings had more than tripled in the fourth quarter because of higher oil and gas prices, and as investments in new projects started to pay off. Profits rose to $6.79 billion in the last three months of 2010, compared with $1.96 billion in the same period a year earlier.

“We are making good progress against out targets, and there is more to come from Shell,” Mr. Voser said.