WASHINGTON — Shell is planning on spending $1 billion to drill exploratory oil wells in Arctic waters north of Alaska this year as long as it clears legal and permitting hurdles, the company’s chief executive said Thursday.
Ben van Beurden, CEO of Royal Dutch Shell, noted the many legal and logistical obstacles standing in the way of the company’s quest to resume drilling in the Chukchi Sea once ice clears this summer. But he stressed Shell’s commitment to the project.
“We are minded to drill this year in the Chukchi,” he told reporters on an earnings call Thursday morning. “We have retained a very significant capability to be ready for this year to go ahead.”
“We have kept all our capability in place, tuned it, upgraded it just to be ready to drill this coming summer season,” Van Beurden added. Shell will go ahead, he said, “if we can.”
Shell has already spent nearly $6 billion in a quest to find oil at the top of the globe. Although the company began boring wells in the Chukchi and Beaufort seas in 2012, the destruction of its Kulluk drilling unit later that year and the legal uncertainties surrounding some of Shell’s oil leases in the region have sidelined the work ever since.
The biggest legal challenge is an ongoing dispute over the government’s 2008 sale of oil and gas leases in the Chukchi Sea — including the ones Shell is targeting.
After a federal court last January invalidated the environmental review underpinning that auction, the Interior Department’s Bureau of Ocean Energy Management began redoing it. The agency filed a revised environmental impact statement for the six-year-old auction in October, boosting the predictions of how much crude could be harvested under the Chukchi Sea leases that were up for sale. A final version is on track for later this year, paving the way for Interior Secretary Sally Jewell to issue a “record of decision” believed likely to affirm the auction by the end of March.
Shell must secure drilling permits for individual wells and its contracted drilling rigs must clear a Coast Guard review.
Shell also has logistical challenges, including the need to mobilize its fleet of more than two dozen vessels from around the globe. If the company moves ships too soon — without some certainty that work will proceed this summer — it risks paying hefty transportation costs even if that drilling doesn’t happen.
“Ensuring that the logistics is in place to support the drilling means that quite a lot of spend is already committed for the year,” said Simon Henry, chief financial officer for Royal Dutch Shell. “Even if we don’t drill (the cost) will be approaching $1 billion because of the commitment to keep the fleet of ships that we need.”
“This is a logistics operation as much as drilling,” Henry aded. “The drilling is the easy bit.”
Van Beurden noted the “very complex supply chain” for the Arctic operations.
“It is equivalent to trying to operate around the North Sea out of New York,” he said. “That is the magnitude of the logistics challenge.”
Just finding a home for that fleet — when it is not working in the Chukchi Sea — has proven difficult. Shell’s plans to stash up to two dozen of its Arctic vessels at the Port of Seattle are drawing fire from environmentalists.
Van Beurden’s views on the Arctic have shifted since he became CEO in January 2014. His initial public skepticism about the cost of the venture — when he was talking tough about “rigorously” scrutinizing Shell’s spending — has given way to a more bullish stance.
For instance, last July, he said the company wasn’t “slowing everything down” in response to the legal uncertainty.
Green groups have been trying to convince Shell’s shareholders that Arctic oil exploration is both environmentally and financially unwise. On Thursday, they blasted Shell’s plans.
“Shell’s reckless decision to return to the scene of 2012’s Arctic crimes is stunning,” said Annie Leonard, executive director of Greenpeace USA. If President Obama wants to be a leader on climate change there is only one choice to make: Do not approve Shell’s Chukchi Sea drilling lease.”
The Arctic program is costly at any time, but it may be tougher to justify now that crude prices have sunk to a six-year low, depriving oil companies of revenue to reinvest in big ventures.