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Platts: Shell Alaska Arctic drill plan faces hurdles beyond court appeal

 Washington (Platts)–13 Aug 2007

Even if a US Appeals Court Tuesday allows Royal Dutch Shell to begin exploration efforts off the Arctic coast of Alaska, work in the area is unlikely to begin until at least mid-September, making it unlikely the major will complete the three-well drilling program planned for the area this year.

The 9th US Circuit Court of Appeals in San Francisco in mid-July ordered Shell to halt exploration activity pending a hearing on whether the US Minerals Management Service adequately analyzed the that effects drilling or a potential spill could have on wildlife and the environment when MMS granted Shell authority to move ahead with its 2007-2009 Beaufort Sea drilling plan.

If the court were to lift the injunction after the hearing August 14, which sources said was unlikely, several other outstanding issues are preventing the company from moving forward with exploring the Beaufort Sea OCS. Shell spokeswoman Darci sinclair said the company thinks the area “holds the potential to yield the large hydrocarbon discoveries needed to become a new core area.”

Shell still needs a favorable ruling by a Environmental Protection Agency appeals board over air permits to operate its drilling rigs in the area, and it requires the US National Marine Fisheries Service to issue an “incidental harassment permit” to allow it to begin seismic activities, which may bother sealife, like whales.

The company also recently signed a “conflict avoidance agreement” with Native Alaskan whaling captains saying it would not do any exploratory or drilling activity in the region from August 25 until the end of the bowhead whale hunt, which typically lasts three weeks. The agreement is only for this whaling season, and needs to be renegotiated next year.

Assuming all permits are in place by then, Shell would likely have less than one month–from mid-September to mid-October–to conduct its seismic and drilling operations for the year before the ice moves in preventing further work.

MMS estimates offshore Alaska holds 27.2 Tcf of gas and 8.2 billion barrels of undiscovered recoverable oil.

Shell has not formally downgraded its expectations on drilling activities for the year. Sinclair said the major remains “committed to explore the Beaufort between the time we get all necessary permits and when the ice arrives.” But she acknowledged that “timing for Beaufort Sea exploration activities is always a challenge given the need to avoid conflicts with subsistence hunting activities and the limited open-water period.”

  –Cathy Landry, [email protected]

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