Shell calls off 2013 Arctic drilling

WASHINGTON _ Shell is calling off its plans to resume hunting for oil in Arctic waters this summer after a problem-plagued year that ended when one of its rigs ran aground on an Alaskan island.

The planned “pause” in Arctic drilling will give Shell and its contractors time to repair two drilling rigs and stand up an emergency oil spill containment system, while the company continues scientific research in the region.

The move also allows the Obama administration to avoid a politically charged decision about whether to allow the company to resume drilling two wells in the Beaufort and Chukchi seas this summer. The Interior Department last month launched a a high-level review of the 2012 Arctic drilling program, including the challenges Shell faced moving ships and people to its remote offshore wells.

Shell’s move underscores the financial risks and other perils of Arctic drilling, even as the lure of untapped crude inspires a new oil rush at the top of the globe. And though Shell stressed Wednesday that it remained committed to Arctic drilling, the delay is a major setback for the company that has poured some $5 billion into leading the effort in U.S. waters.

“We’ve made progress in Alaska, but this is a long-term program that we are pursuing in a safe and measured way,” said Shell Oil President Marvin Odum. “Our decision to pause in 2013 will give us time to ensure the readiness of all our equipment and people.”

Shell is sending its Kulluk conical drilling unit to Asia for repairs to its hull and electrical system. The drillship Noble Discoverer is destined for a Korean port, months after the Coast Guard documented problems with its propulsion, safety and pollution-control systems.

Read more: Coast Guard documented 16 deficiencies on Arctic drillship

Odum stressed that the company isn’t ending its Arctic quest.

“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,” Odum said in a statement. “We continue to believe that a measured and responsible pace, especially in the exploration phase, fits best in this remote area.”

Company spokesman Curtis Smith said Shell could seek to resume Arctic exploration next year.

“The results of ongoing reviews will be part of our planning for future programs, including a possible program in 2014,” he said. “Our future exploration plans offshore Alaska will depend on a number of factors, including the readiness of our rigs and the confidence that lessons from 2012 will be fully incorporated.”

Shell was forced to constrain its 2012 operations to “top-hole” drilling of the initial 1,500 feet of its Arctic wells, after its unique oil spill containment system was damaged during a deployment drill and could not get to the area in time.

There were other mishaps, too: The Noble Discoverer briefly drifted out of control near Dutch Harbor last July. A fire broke out in the rig stack on the Discoverer while it was in Dutch Harbor last November, weeks before the vessel had propulsion problems pulling into Seward. And the Environmental Protection Agency said Shell violated the terms of air pollution permits governing its operations by releasing too many nitrogen oxide emissions from its drilling rigs and support vessels.

Read more: Shell spoof site drawing fresh attention after rig runs aground

The most high-profile setback came on Dec. 31, when Shell’s Kulluk rig collided with the rocky shore of Sitkalidak Island near Kodiak City, Alaska, following a five-day battle to tow the unpropelled vessel to safe harbor amid 70-mph winds and waves that climbed four-stories high. The rig was later pulled to sheltered Kiliuda Bay, and on Tuesday, it began a 10-day trek to Dutch Harbor for further examination, after which it will be shipped to a yet-to-be-determined Asian port for repairs.

Environmentalists applauded Shell’s decision and called on the Obama administration to use the extra time to either halt Arctic exploration altogether or impose new requirements on the work.

“Given the disastrous 2012 season, our government agencies must take advantage of this opportunity to reassess the way decisions are made about our ocean resources and to reconsider the commitment to explore for oil in the Arctic Ocean,” said Michael LeVine, Pacific senior counsel for Oceana. “Science, planning, and preparedness — not luck — should be our guides in the future. ”

Marilyn Heiman, the director of Pew Environment Group’s Arctic Program, said Shell’s decision shows the company “is realizing that they need to take a more careful approach to ensure they don’t put the Arctic’s people and marine life at risk.”

But that should be followed by “world-class industry standards” designed to protect “important ecological and cultural areas” in the Arctic, she said.

Shell’s struggles to tap Arctic crude raise questions about the financial costs of the pursuit, especially as the U.S. produces more oil from dense shale rock formations onshore, said Lois Epstein, The Wilderness Society’s Arctic Program director.

“The big, long-term question is whether Arctic Ocean drilling — which always will be among the riskiest and most costly oil drilling in the world — will pencil out as shale oil and deep-water production increases worldwide,” Epstein said.

Read more: High costs raise new questions about Arctic drilling

Shell has taken the lead in pursuing Arctic drilling in U.S. waters, decades after the last sustained drilling in the region. ConocoPhillips and Statoil also hold drilling leases in the U.S. Arctic.

ExxonMobil, Cairn Energy and Gazprom are all pursuing ventures in foreign Arctic waters.

Geologists estimate 412 billion barrels of oil equivalent are lurking in the Arctic, about a quarter of the world’s undiscovered conventional crude and natural gas resources.

Beyond the billions that Shell has sunk into buying its Arctic drilling leases and renovating rigs, the company has built a broad infrastructure in Wainwright and Barrow, Alaska to support the work. For instance, Shell has installed crew camps in Wainwright, Barrow and Deadhorse, Alaska and built a new airplane hanger in Barrow. It is leasing a hanger in Deadhorse and has stashed oil spill response equipment along the Alaska coast.

It also spent hundreds of millions of dollars building its emergency capping and containment systems and poured another $350 million into building two ships designed for the Beaufort and Chukchi seas.

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Read more ongoing FuelFix coverage of Shell’s Arctic drilling troubles:

Coast Guard lifts detention order for Arctic drilling rig (Feb. 21)
Activists target Obama with anti-Arctic drilling ad (Feb. 19)
Shell will repair rigs in Asia, possibly delaying Arctic work (Feb. 11)
Arctic drilling can be done safely, federal adviser says(Jan. 21)
Lawmaker: Did Shell move rig for financial reasons? (Jan. 11)
Steffy: A lot was riding on that snapped Arctic rig line (Jan. 11)
EPA raps Shell for Arctic air violations (Jan. 10)
Activists want Obama to halt Arctic oil drilling(Jan. 4)
Kulluk drilling rig accident stokes fresh fears on Arctic drilling (Jan. 1)
Shell’s Kulluk drilling rig runs aground near Alaskan island(Jan.1)