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Shell Drops Alaska Beaufort Plan

THE WALL STREET JOURNAL

Oil Major to File Simpler Drilling Proposal After Environmental Criticism

Royal Dutch Shell PLC dropped a three-year plan to explore for oil in Alaska’s Beaufort Sea following challenges by environmental groups, highlighting the obstacles facing Western oil majors venturing into the frontier territories of the Arctic.

Shell is one of several oil companies that have flocked to the icy waters off Alaska, seen as one of the world’s last great unexplored petroleum provinces. But they’ve faced strong resistance from conservationists worried about the impact of drilling on what is widely seen as a pristine wilderness. Many claim the oil industry hasn’t yet figured out how to clear up oil spills in the Arctic’s iceberg-strewn waters, home to wildlife such as polar bears that are already under pressure from global warming.

Shell said it informed the U.S. Minerals Management Service, the MMS, that it had withdrawn its original 2007-2009 exploration plan for the Beaufort and would file a stripped-down, one-year drilling program for 2010 that “addresses concerns of North Slope stakeholders related to the pace of Arctic drilling.”

In a statement, the company said that, thanks to newly acquired seismic data, its plans for the Beaufort had become “more focused” over the past three years and the original program “no longer represents Shell’s current drilling objectives.”

The U.S. Geological Survey estimates the area above the Arctic Circle contains just over a fifth of the world’s undiscovered, recoverable oil and natural-gas resources, and with climate change shrinking the ice cap the region is becoming more accessible than ever before.

Shut out of other great oil-producing areas like the Middle East, Western majors have spent millions of dollars on licenses to explore, develop and produce oil in the Arctic. Last year, rights to drill in the Chukchi Sea off northwest Alaska attracted record bids of $2.66 billion. Shell paid the most — some $2.1 billion — to acquire 275 blocks there.

The Beaufort Sea has also generated huge interest. Some think its petroleum reserves might be comparable to those of Alaska’s nearby North Slope, site of Prudhoe Bay, one of the world’s largest oil fields. Shell spent $84 million on leases in one prospect, Sivulliq, but was forced to abandon exploration drilling there after a legal challenge by Alaska native groups and environmentalists.

Last November, the U.S. Court of Appeals for the Ninth Circuit ruled that the MMS didn’t properly consider the risk of oil spills, disturbances to migrating whales and disruptions to the traditional hunting lifestyle of local Eskimos that related to Shell’s plan to drill at Sivulliq.

Oil companies working in Alaska’s waters suffered a setback last month when a federal appeals court ruled the MMS’s five-year plan to award leases in the Beaufort, Bering and Chukchi seas was illegal. The court said the Bush administration failed to conduct adequate environmental reviews before authorizing the program, and ordered the MMS to rewrite it.

Some observers have said leases awarded in last year’s Chukchi Sea sale may now be revoked. But Shell has said it still plans to start exploration drilling in the Chukchi next year, despite the ruling.

Write to Guy Chazan at [email protected]

WSJ ARTICLE

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