Shell suspends drilling in Alaska's arctic

Feb. 28, 2013 at 2:30 AM
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ANCHORAGE, Alaska, Feb. 28 (UPI) -- Royal Dutch Shell PLC put its exploratory-well drilling off Alaska on ice after several costly accidents but said it was committed to arctic drilling.

"Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people," Shell Oil Co. President Marvin Odum said in a statement.

"Shell remains committed to building an Arctic exploration program that provides confidence to stakeholders and regulators, and meets the high standards the company applies to its operations around the world," he said.

Shell Oil Co. is the U.S. subsidiary of the Anglo-Dutch multinational oil and gas giant based in The Hague, Netherlands.

Odum's statement did not say when Shell expected to return to Alaska's severe-climate Beaufort and Chukchi seas, north and west of Alaska near Canada's Northwest and Yukon territories.

Shell spokesman Curtis Smith said in a follow-up email the halting was indefinite.

"Our future exploration plans offshore Alaska will depend on a number of factors, including the readiness of our rigs," he said.

The company's two drill ships -- the Noble Discoverer and the Kulluk -- suffered serious accidents as they were leaving drilling sites in the seas last fall and winter and are being towed to Asia for repairs Shell said would take more than this drilling season to complete.

The Noble Discoverer, which Shell was leasing, had an engine fire in December when it was on its way to Seward, Alaska, prompting a U.S. Coast Guard inspection.

Rep. Edward Markey, D-Mass., released a letter to Odum Friday revealing the Coast Guard discovered 16 violations with the Noble Discoverer, including air-pollution concerns and a propulsion system that "does not result in sufficient speed at sea to safely maneuver in all expected conditions without town assistance."

The Noble Discoverer also dragged its anchor last July and nearly ran aground in Unalaska, Alaska, in the Aleutian Islands off the mainland. Four months later it was damaged by an explosion and fire while in port in the Aleutian Islands.

The Kulluk, owned by Shell and operated by contract driller Noble Corp., ran aground on an uninhabited island about 300 miles southwest of Anchorage Jan. 1 after ships towing it to Seattle for the winter lost control of the rig during a storm. It was freed from the shore and remained afloat, but suffered damage to the hull and electrical systems.

The U.S. Interior Department and Justice Department are also reviewing Shell's arctic operations, which have included weather delays, the collapse of its spill-containment equipment and other failures.

The Obama administration has allowed Shell to proceed with arctic exploratory drilling over objections from environmentalists but has subjected the company to intense regulatory scrutiny.

For instance, it barred Shell from drilling into oil-bearing zones last summer because of the spill-containment failures.

Sen. Lisa Murkowski, R-Alaska, a strong advocate of arctic oil exploration, said Wednesday Shell's delay showed the company shared her commitment to "the highest safety standards."

"This pause -- and it is only a pause in a multiyear drilling program that will ultimately provide great benefits both to the state of Alaska and the nation as a whole -- is necessary for Shell to repair its ships and make the necessary updates to its exploration plans that will ensure a safe return to exploration soon," she said in a statement.

Shell has invested more than $4.5 billion in leases and equipment and engaged in intensive lobbying the past six years to assure regulators and native Alaskans the first drilling in the U.S. Arctic Ocean in more than a decade would be safe.

Some analysts say they are becoming increasingly skeptical of the operation's success.

"They believe it's an important source of future growth, but year after year there are problems there," Argus Energy LLC analyst Phil Weiss told The Wall Street Journal. "The longer this goes on, the less confidence we can have for a positive outlook."

Shell and other oil producers have touted arctic waters as one of the world's great undeveloped oil frontiers, containing vast amounts of energy resources.

The U.S. Geological Survey estimates the arctic contains about 90 billion barrels of recoverable oil.

Some environmentalists said Wednesday the Obama administration should jettison the idea of arctic drilling altogether, given the harsh conditions and possible environmental damage.

"This is not a surprise, as Shell has had numerous serious problems in getting to and from the arctic, as well as problems operating in the arctic," Lois Epstein, arctic program director for the Wilderness Society and a member of the Interior Department panel reviewing Shell's operations, told The New York Times.

"Shell's managers have not been straight with the American public, and possibly even with its own investors, on how difficult its Arctic Ocean operations have been this past year," she said.

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