Shell still plans Chukchi drilling despite ruling

Mon Apr 20, 2009 8:13pm EDT

By Yereth Rosen

ANCHORAGE, Alaska (Reuters) – Royal Dutch Shell still plans to start exploration drilling next year in Alaska’s potentially oil-rich Chukchi Sea in spite of a new legal setback, a company manager in Alaska said on Monday.

Pete Slaiby, Shell’s general manager for Alaska, said the company remains committed to drilling in Arctic waters off Alaska and to build that into a major new production base for oil and gas, even after a decision from an appeals court in Washington, D.C. on Friday that found the federal offshore leasing plan to be illegal.

“We still have every intention of pursuing a drilling program in the Beaufort and the Chukchi,” Slaiby told the Anchorage Chamber of Commerce.

Friday’s court ruling declared invalid the Minerals Management Service’s five-year federal leasing plan under which Shell and others acquired exploration rights in the ice-choked Chukchi. The court ruled that the MMS failed to do proper environmental reviews before authorizing the 2007-2012 leasing program, and ordered the agency to rewrite the plan.

Last year’s record-breaking Chukchi Sea lease sale, which drew $2.66 billion in high bids, was the only Alaska lease sale that was conducted under the current five-year plan. Shell was the biggest bidder, putting up $2.1 billion for exploration rights.

ConocoPhillips, Spain’s Repsol Exploration and Production, Norway’s StatoilHydro and Italy’s Eni also picked up leases in that Chukchi Sea sale.

ConocoPhillips, which spent about $500 million acquiring leases there, has planned to start exploration drilling in 2010, on a schedule similar to that of Shell’s.

Both Slaiby and a spokesman for the MMS, Nicholas Pardi, said the fate of the Chukchi lease sale was unclear. Slaiby said he hoped the leases would remain intact.

“If there were some structural issues with respect to the way the five-year plan was put together, we’re hopeful that they can be addressed,” he said.

BEAUFORT DRILLING IN 2010

Separate litigation also over environmental reviews, meanwhile, has stalled Shell’s plans for exploration drilling at its Sivulliq prospect in the Beaufort Sea, a project the company had intended to start in 2007.

Those Sivulliq leases were among those in the Beaufort Sea acquired by Shell for a combined $84 million in prior sales that were not affected by Friday’s court ruling.

While it waits for the 9th Circuit Court in San Francisco to determine the fate of its Sivulliq program, Shell plans exploration drilling starting in 2010 in other Beaufort prospects, Slaiby said.

Offshore Arctic Alaska oil development has long been controversial. The area is used by polar bears and various types of whales, which are protected by the Endangered Species Act, and other marine mammals that are considered to be vulnerable to the Arctic’s rapidly warming climate.

The lightly explored Chukchi and Beaufort Seas hold potentially huge reserves of oil and gas — most of the 132 billion barrels of recoverable oil and 132 trillion cubic feet of natural gas estimated by the MMS to lie in the entire Alaska outer continental shelf.

(Reporting by Yereth Rosen; Editing by Marguerita Choy)

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