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Shell investing billions in Alaska to chase ‘giant’ offshore opportunity

By Lisa Demer, McClatchy Newspapers December 16, 2011 11:05 AM

NEW ORLEANS — Standing in front of a brightly coloured, 3-D image of the geology far below the floor of the Chukchi Sea, Steve Phelps pointed to the “giant opportunity” that has prompted Shell to pour billions of dollars into the Alaska Arctic.

“Burger — that’s the name you are going to get to know,” Phelps recently told reporters gathered here to learn about the huge oil company’s plans and promises for Alaska.

Phelps is Shell’s Alaska exploration manager, a geologist whose job it is to find big oil. The Burger field, part of a Shell naming theme that revolved around junk food, has been eyed by various oil companies for years. But it’s more than 110 kilometres offshore in the Chukchi Sea — between Siberia and the northwest coast of Alaska — and until recently was thought to be too expensive to develop. Now Shell — for the second time — holds the leases.

Armed with promising new seismic science, a sort of undersea sonogram of the Earth’s belly, the Dutch company says Burger is a signature find. It’s the spark for ramping up controversial efforts to drill off the northernmost coast of the U.S. in some of the most extreme conditions on Earth.

“This is the stuff that most of the world was finding in the 1930s, the 1950s, the 1960s, in places like Saudi Arabia and the Middle East, Nigeria,” Phelps said. “This one potential resource far outweighs any single field we’ve got in the Americas’ portfolio.”

More than in the Gulf of Mexico, where drilling rigs checker the ocean and Shell led the way into deepwater zones that produce more oil than anyone predicted.

More than in Brazil, where Shell is the second-biggest oil producer after the state energy company.

More than in Canada, where Shell is investing billions to extract thick, sticky crude from tarsands.

As a result, Shell is at the centre of a classic Alaska development battle, gearing up to explore for oil as it confronts ever-higher regulatory hurdles and court challenges by environmentalists who say a big Arctic oil spill would be a disaster.

So far, Shell has spent nearly $4 billion on leases, groundwork and specialized equipment, including a new icebreaker being built in Louisiana.

At stake are billions in oil income and the reputation of a corporation that promotes a culture of safety but has been tarnished by troubles overseas.

In a sense, Shell is an old Alaska hand. Back in the 1960s, the company was the first to produce oil in Cook Inlet waters, where it had to engineer platforms able to withstand harsh winters and severe tides. Some of those platforms still produce today. But Shell sold those interests in the late 1990s, after their heyday.

Shell was an early explorer off Alaska’s northern coast in the Arctic, but walked away from those leases in the 1990s. The company missed out on Prudhoe Bay, the most productive oilfield in the U.S.

So to many Alaskans today, Shell is an unknown quantity.

What can Alaskans expect from Royal Dutch Shell? After more than 100 years of oil exploration around the world, what is its reputation and record?

Shell executives and scientists talk about its technological know-how and commitment to prudent operations above all. The company’s installations withstand 100-foot waves in the North Sea. Shell facilities produce in freezing temperatures offshore from Russia’s Sakhalin Island. One of its Gulf of Mexico platforms sits in water eight times deeper than the Eiffel Tower is tall — a deepwater record.

Shell says it has never had a significant spill or incident in 30 years of leading-edge work in deep water, which is inherently more risky because of the high pressures.

“Planning the right well and then drilling the well right,” is how Shell managers put it time and again.

Shell’s Alaska leases are all in relatively shallow water, no deeper than 150 feet. If its prospects hold the vast amounts of oil that Shell hopes, it plans to build kilometres of subsea pipelines to transport the crude to shore, then more pipeline on land to get it into the trans-Alaska pipeline.

“Our goal is zero harm to the environment. Zero harm to people. Safety is ingrained in every ounce of the business that we do,” said David Lawrence, Shell’s executive vice-president of exploration and commercial development.

Shell expects employees to intervene if they even suspect something is going wrong, executives said. No gain is worth rushing a project at the expense of safety, they say.

“I’m not paid enough to take those risks. I won’t take those risks. I won’t let people who work for me take those risks,” said Pete Slaiby, Shell’s vice-president for Alaska.

The company has a long history of competent work in the Gulf of Mexico, and will tap into the same expertise for Alaska, executives said.

But Shell’s record is not unblemished. There have been spills and environmental violations, according to critics, government records and news accounts.

In the Third World oil regime of Nigeria, the company has been accused of serious spills, human rights abuses and missteps that contributed to violence and the deaths of agitators there.

Shell is no different from other major oil producers in its relentless pursuit of profits and commitment to stockholders, critics say.

To industry watchers, Shell’s performance in challenging offshore operations is good, but not perfect.

“They are one of the industry’s most credible offshore operators, bar none, with a very long track record,” said Mark Gilman, a New York oil analyst with the Benchmark Co.

“It’s not an unblemished track record. But then again, in the industry, virtually no one’s track record is unblemished, either financially or environmentally.”

Shell now aims to begin its exploration in midsummer 2012.

Technology has advanced over the decades to lessen the risk of drilling in the Arctic, Shell scientists say. And, they say, blowouts are unlikely here.

“The Arctic wells are really straightforward wells with few challenges on executing them,” said Williams, the chief well scientist for Shell. “They are in shallow water. They are at low pressure, and they have what we call a margin. It gives you a lot of room to operate.”

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