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Reuters: Shell Oil defends record price for Alaska leases

Thu Feb 14, 2008 1:30pm EST
By Tom Doggett

WASHINGTON, Feb 14 (Reuters) – The president of Shell Oil Co (RDSa.L: Quote, Profile, Research) on Thursday defended the record amount the company paid the U.S. government to drill off Alaska’s coast, saying it was a “fair price” for leases that will produce much-needed oil and natural gas supplies.

Shell last week bid $105.3 million for a single exploration block in Alaska’s Chukchi Sea, the most ever offered for a single tract in a federal offshore lease sale. Overall, the company offered $2.1 billion in total high bids for 275 tracts the government offered.

“We believe we paid a competitive and fair price,” Shell President John Hofmeister told reporters at the National Press Club in Washington.

“I don’t think it was an overpayment, in the sense that we paid too much,” he said. “The decision for Shell to push north to Alaska is a long-term strategic bet by the company that this may be, perhaps, the most prolific basin remaining in North America for conventional oil and gas.”

The government estimates that up to 15 billion barrels of recoverable crude oil and 77 trillion cubic feet of natural gas lie under the Chukchi Sea.

Hofmeister noted that Shell’s early investments to find oil and gas in the Gulf of Mexico 25 to 30 years ago were seriously questioned, but the energy supplies were found.

“We know that that was very wise and paid off handsomely to shareholders and really to American energy security,” he said.

Hofmeister cautioned, however, that it would take a long time and a lot of money before oil or gas were produced at commercial levels on the offshore Alaskan leases.

“This is going to be an expensive endeavor over the longer term because managing in the Arctic is different than managing in the other parts of the conventional oil world. But we believe the world needs this energy.” he said.

Many environmental groups and some members of Congress are against drilling in the Chukchi Sea, because they fear it may damage the habitat of the polar bear, which the U.S. government is considering listing as endangered.

Hofmeister said Shell was eager “to demonstrate how we can protect the environment at the same time we can develop the natural resources.”

(Reporting by Tom Doggett, editing by Matthew Lewis)

© Reuters 2008 All rights reserved

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