Shell’s Arctic Oil Drilling Window Closing As Permits Awaited

August 15, 2012

By Selina Williams

LONDON–The short window for Royal Dutch Shell PLC (RDSB.LN) to drill exploratory wells off Alaska’s Arctic coast is rapidly narrowing as the company still hasn’t completed the retrofit of its vital oil spill response vessel or received final permits for its use.

Shell initially planned to begin exploration activities in the Chukchi and Beaufort Seas in July. However, the company said Wednesday that it is still working with U.S. officials on a schedule for inspections and deployment of the converted barge, the Arctic Challenger, which needs to be in place before drilling can start.

“Progress related to the final construction of the Arctic Challenger containment barge remains steady. We continue to work closely with the U.S. Coast Guard to outline a schedule for final inspections and an on-water deployment that would lead to certification,” a Shell spokesman in London said.

There’s no set timeline for the completion of the process, the spokesman added.

Shell has placed big bets on its controversial U.S. Arctic oil exploration plans and its success there is an important part of its quest to find new hydrocarbon reserves. The Anglo-Dutch oil giant has already spent more than $4 billion buying leases and equipment to drill in the Arctic, becoming the first company in several years to explore for oil there.

But the delays to the drilling program have highlighted the challenges oil companies face working in environmentally sensitive areas since BP PLC’s (BP) Gulf of Mexico oil spill in 2010 prompted much greater scrutiny from regulators and environmental groups.

Shell has to wrap up drilling for oil in the Chukchi Sea by September 24 and in the Beaufort Sea by the end of October. The deadlines are designed to create a buffer of time during which Shell can respond to any potential oil spills before ice moves in.

Last month, Shell said it was scaling back its summer U.S. Arctic drilling program and said it expected to complete only two of the five exploration wells it had originally planned. The company also plans to partially drill some wells that would be completed next year.

Wells in that area can take from 25 to 40 days to drill, although it’s hard to give a precise time due to the complexities of drilling in such an environment, the Shell spokesman said.

Shell’s oil-spill containment vessel, the Arctic Challenger, is currently docked in Washington state and will take around 14 days to get into place.

Shell’s drilling rigs–the Kulluk and the Noble Discoverer–are on their way to sites in the Chukchi and Beaufort Seas from Dutch Harbor, Alaska to prepare for exploratory drilling, the company said.

-Write to Selina Williams at [email protected]

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Dow Jones Newswires 08-15-121212ET

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