Shell scales back Arctic drilling plans

Shell is scaling back plans to drill up to five wells in Arctic waters this summer amid a series of setbacks, including stubborn sea ice still clinging to Alaska’s shores and delays in construction of an emergency oil spill containment barge.

Royal Dutch Shell CEO Peter Voser told analysts Thursday that the company now anticipates completing just two exploration wells in the Chukchi and Beaufort seas.

In an apparent bid to take advantage of drilling rigs and support vessels already in the region, Voser said Shell is considering initial top-hole drilling in other parts of the area — allowed as long as the company does not penetrate hydrocarbon zones. Shell could then come back to those sites in future years to complete the wells.

“Ice conditions will dictate how long the drilling season will last, with a slower start due to heavy ice conditions,” he said.

Unusually thick shorefast ice is keeping Shell from sending drillships into the Arctic waters and shortening an already brief window. Under federal regulations, Shell has to stop drilling in hydrocarbon zones by Oct. 31 in the Beaufort Sea; regulators are requiring that work to end 38 days earlier in the Chukchi Sea.

In the past five years, ice has encroached over the planned drill sites as early as Nov. 1, but this summer, the slow melt of multi-year ice at the season’s start means the water is colder and is a signal it could return even earlier.

Shell had planned to launch its Arctic drilling program in July; now, it is anticipating an early August start date, said spokeswoman Kelly op de Weegh.

The company also is still working to finish construction on its Arctic Challenger barge, which is part of Shell’s containment system for collecting crude from a blown-out well.

Major safety and operational systems are still being installed on the barge and required tests of the barge have yet to be conducted. Shell also will have to address Coast Guard-identified deficiencies in the ship’s fire detection and extinguishing systems and prove that the vessel meets minimum safety standards before the Coast Guard will issue a “certificate of inspection.”

Shell last year asked the Coast Guard to evaluate the vessel using standards for floating production installations that are anchored in one place for years at a time and must be strong enough to withstand hurricanes and 100-year storms. But earlier this month, Shell asked the Coast Guard to evaluate the barge’s mooring system as if the Challenger were a mobile offshore drilling unit, a designation that translates to a less-stringent 10-year storm requirement.

Separately, Shell is rebounding from an incident earlier this month when its Discoverer drill ship dragged its anchor and drifted toward an Aleutian island near Dutch Harbor, Alaska. A Coast Guard investigation is still under way, but video footage showed no evidence the ship’s hull was damaged.

And the company has separately asked the Environmental Protection Agency to allow Shell to exceed a federal air permit’s limits on how much ammonia and nitrogen oxide the Discoverer’s main generator engines can emit.

Shell has spent nearly $5 billion and more than seven years preparing for the Arctic oil exploration. Despite the recent setbacks, the company has nearly all of the government approvals it needs to launch the work.

For instance, the Interior Department has signed off on Shell’s broad drilling blueprint for the region and its plans to tackle an oil spill in the Arctic waters. The company also has “harassment authorizations” for marine life in the area.

But the Interior Department still must issue permits for individual wells before Shell can begin drilling them. Interior Secretary Ken Salazar predicted earlier this year that Shell would secure those drilling permits.

“A great deal of planning has gone into this program, with over 20 vessels to cover the drilling and contingencies,” Voser noted.