Shell submits a new plan to explore for Alaskan Arctic oil

Environmentalists expected to oppose the latest proposal

Share with others:


Print Email Read Later

Royal Dutch Shell sub­mit­ted a plan to the fed­eral gov­ern­ment Thurs­day to try once again to ex­plore for oil in the Alas­kan Arc­tic, af­ter years of le­gal and lo­gis­ti­cal set­backs as well as dog­ged op­po­si­tion from en­vi­ron­men­tal­ists.

While the plan is just a first step in the pro­cess, it re­flects the en­ergy po­ten­tial in the Arc­tic. Shell’s pro­posed pro­grams con­sist of two drill­ing rigs work­ing si­mul­ta­ne­ously in the Chuk­chi Sea, which could pro­duce more than 400,000 bar­rels of oil a day. Shell em­pha­sized that it had not made a fi­nal de­ci­sion on whether to drill next sum­mer. But it said the fil­ing with the In­te­rior Depart­ment pre­served its op­tions.

The ef­forts, even in this pre­lim­i­nary stage, are likely to ran­kle en­vi­ron­men­tal­ists, who ar­gue that drill­ing in the Arc­tic is overly risky be­cause of ice floes, dark­ness in win­ter and the pres­ence of sev­eral spe­cies of threat­ened wild­life such as po­lar bears. Sev­eral en­vi­ron­men­tal groups were quick to say they would op­pose Shell’s lat­est plan, in­clud­ing with court chal­lenges, if it re­ceives gov­ern­ment ap­proval.

Over the past eight years, Shell’s Alas­kan Arc­tic ef­forts have been plagued by blun­ders and ac­ci­dents in­volv­ing ships and sup­port equip­ment, cli­max­ing with the ground­ing of one of its drill­ing ves­sels in late Decem­ber 2012 in stormy seas. En­vi­ron­men­tal groups seized on the ep­i­sodes as ev­i­dence to sup­port their claims about the risks.

The com­pany, which has spent roughly $6 bil­lion on the ef­fort, drilled two shal­low wells in Alaska’s Arc­tic dur­ing 2012. But the fed­eral gov­ern­ment did not al­low Shell to reach the deeper, oil-bear­ing for­ma­tions. The com­pany did not have the equip­ment to con­tain spills af­ter the test­ing fail­ure of a con­tain­ment dome de­signed to cap a run­away well and col­lect oil in case of an ac­ci­dent.

After Shell’s prob­lems, Cono­coPhil­lips and the Nor­we­gian oil gi­ant Sta­toil sus­pended their Alas­kan Arc­tic drill­ing plans.

Shell’s plans for the Alas­kan Arc­tic had looked doubt­ful since Ben van Beur­den took over as the com­pany’s new chief ex­ec­u­tive nearly nine months ago. Mr. Van Beur­den pledged to in­crease dis­ci­pline on ris­ing costs and im­prove cash flow. Under his guid­ance, the com­pany has be­gun to sell off un­der­perform­ing nat­u­ral gas and oil fields around the United States while step­ping up pro­duc­tion from its deep-wa­ter Bra­zil­ian and Gulf of Mex­ico oil wells. Profit is im­prov­ing, though Shell’s in­vest­ments in Rus­sia could be at risk if Western sanc­tions tighten.

The com­pany an­nounced in Jan­u­ary that it would not make an ef­fort to drill in Alaska this sum­mer, given the le­gal ob­sta­cles. A fed­eral ap­peals court had ruled that the In­te­rior Depart­ment’s en­vi­ron­men­tal im­pact re­view was flawed when it sold Shell more than $2 bil­lion in oil leases in the Chuk­chi Sea.

But in re­cent weeks, Shell has shown re­newed in­ter­est in its Alaska ef­forts, by sign­ing an agree­ment with sev­eral Alaska Na­tive cor­po­ra­tions to share prof­its from off­shore drill­ing. Wall Street an­a­lysts said Shell could not af­ford to watch other com­pa­nies suc­ceed else­where in the Rus­sian and Ca­na­dian Arc­tic and not par­tic­i­pate.

“These peo­ple are paid to play, and not to watch,” said Fadel Gheit, a se­nior oil com­pany an­a­lyst at Op­pen­heimer & Co. “After all the hic­cups and bad luck, the com­pany has de­cided that the up­side po­ten­tial is greater than the down­side risk, and it’s worth an­other shot.”

The Alas­kan Arc­tic is one of the great un­tapped fron­tiers for off­shore drill­ing in the United States, with the po­ten­tial to pro­duce as much as a mil­lion bar­rels a day, in­dus­try ex­perts say. But Alaska has suf­fered a long de­cline in its oil pro­duc­tion be­cause of the aging of its on­shore fields and un­der­in­vest­ment.

Gov. Sean Par­nell last year pushed a tax over­haul sup­ported by the oil in­dus­try through the Alaska Leg­is­la­ture, and this month beat back a bal­lot ref­er­en­dum ef­fort in­tended to re­turn the state to its old tax re­gime. With new tax breaks and in­cen­tives, the in­dus­try has pledged to in­vest more in Alaska’s oil fields.

Still, Shell faces many hur­dles in its re­newed ef­forts. The In­te­rior Depart­ment’s Bureau of Ocean Energy Man­age­ment must redo the orig­i­nal in­ad­e­quate en­vi­ron­men­tal im­pact as­sess­ment by the spring, when Arc­tic wa­ters be­gin to open, and Shell can start to move its drill­ing and sup­port ves­sels into po­si­tion.

A co­a­li­tion of en­vi­ron­men­tal groups, in­clud­ing the Center for Bi­o­log­i­cal Diver­sity and Earth­justice, are pre­par­ing to chal­lenge a new as­sess­ment if it reaches a sim­i­lar con­clu­sion as the pre­vi­ous one. A le­gal chal­lenge, even if it’s ul­ti­mately un­suc­cess­ful, could mean more de­lays for drill­ing. “Drilling in the Arc­tic makes no more sense in 2015 than it did when it was first pro­posed,” said Bren­dan Cum­mings, se­nior coun­sel for the Center for Bi­o­log­i­cal Diver­sity, an en­vi­ron­men­tal ac­tiv­ist group.

Shell will also need to have its ex­plo­ration plan ap­proved by the In­te­rior Depart­ment. Shell spokes­man Cur­tis Smith said the new plan had for­ti­fied safety fea­tures, in­clud­ing new tug­boats, an ex­tra he­li­cop­ter, ad­di­tional off­shore sup­ply ves­sels and bet­ter man­age­ment of con­trac­tors. “All to say we’ve taken a crit­i­cal look at the ex­pe­ri­ences we’ve had in Alaska over the last sev­eral years, and this ex­plo­ration plan takes those learn­ings into ac­count,” he said.

En­vi­ron­men­tal­ists are sim­i­larly ex­pected to chal­lenge any ap­proval of those plans. Shell’s sep­a­rate spill re­sponse plan is also now be­ing con­tested in a fed­eral ap­peals court in San Fran­cisco. But Green­peace spokes­man Travis Nic­hols was highly crit­i­cal of Shell’s plan­ning. “Any­one who has been fol­low­ing this story knows Shell is not Arc­tic-ready,” he said, “and more im­por­tantly, the Arc­tic will never be Shell-ready.”

United States - North America - Alaska - Arctic - ConocoPhillips - Sean Parnell - Alaska state government


Advertisement
Advertisement
Advertisement

You have 2 remaining free articles this month

Try unlimited digital access

If you are an existing subscriber,
link your account for free access. Start here

You’ve reached the limit of free articles this month.

To continue unlimited reading

If you are an existing subscriber,
link your account for free access. Start here