Shell Prepares Arctic Offshore Exploration Plan


Royal Dutch Shell PLC will submit an Arctic offshore exploration plan for waters off northern Alaska but has not made a final decision on whether to drill in 2014, the company announced Thursday. Chief Financial Officer Henry Simon announced third quarter earnings and answered questions about 2014, according to a transcript of the press conference. "Alaska is very much top of the priority list," he said. The company will drill only in the Chukchi Sea of Alaska's northwest coast if the decision is made to move ahead in 2014, Simon said. The company does not have a drill vessel ready for the shallow Beaufort Sea off Alaska's north coast. The vessel used in 2012, the Kulluk, ran aground near Kodiak Island on its way to a shipyard after the drilling season last year and may never be used again, Simon said. "The Kulluk we do not expect, in fact we are not sure that we will necessarily bring the Kulluk back into operation," Simon said. The company would drill in the Chukchi with the same ship it used in 2012, the Noble Discoverer, Simon said, backing it up with a new rig, the Transocean Polar Pioneer, which could drill a relief well if a blowout occurred, as required by federal regulators. Environmental groups oppose artic offshore drilling, saying oil companies have not demonstrated they can clean up a major spill in ice-choked waters. They say Shell demonstrated in 2012 that oil companies are not prepared to deal with cold, dark conditions hundreds of miles from infrastructure that supports drilling in other regions and that not enough is known about the Arctic ecosystem to allow industrial development. "As other companies appear to recognize, they simply are not ready to operate in the harsh and remote Arctic Ocean environment," said Susan Murray of Oceana in a prepared statement. "There is no proven technology that would allow companies to drill safely in Arctic Ocean conditions, and the risks far outweigh any potential benefits." Shell drilled in both the Chukchi and the Beaufort in 2012 but suffered serious setbacks, culminating with the grounding of the Kulluk. The Noble Discoverer was detained in Seward after the drilling season and investigated for safety violations. Repairs for the vessels led the company to decide to do no Arctic offshore drilling in 2013. Both vessels were transported to shipyards in Asia and Shell has spent about $200 million on the Kulluk. Shell subsidiaries in September agreed to pay fines of $1.1 million as part of a settlement with the Environmental Protection Agency for air quality violations from the two drill vessels or their support fleet. The exploration plan will be a multi-year project, Simon said. "Clearly we would like to drill as soon as possible, so we are putting the building blocks in place," he said. "We expect to know that our kit will be ready and available early 2014, but there remains permitting and regulatory process through which we need to go before we can confirm a decision to drill in 2014." The water of the Beaufort prevents a normal rig from operating there, he said, but the Chukchi has more potential. "Our focus would be very much on the Chukchi, which is by far the biggest prize; that is the multi-billion barrel prize," he said.



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