Shell vows to keep office, Alaska staff

By Tim Bradner
Alaska Journal of Commerce

Friday, June 18, 2010

Beset by another delay in its planned exploration, Shell officials say the company intends to keep its Alaska offices open and its staff of about 70 intact and working toward a 2011 drilling program.

The company worries, however, that the one-year delay in Arctic drilling ordered by President Barack Obama could become two years because the president’s drilling moratorium could affect federal agencies’ review of permits, Shell spokesman Curtis Smith said.

Meanwhile, the loss of the company’s planned 2010 drilling program, which would have cost $300 million, also means the loss of 700 to 800 direct and indirect jobs in Alaska, the bulk of the direct jobs among contractors and the indirect jobs among the businesses that would have benefited from the paychecks created by Shell this summer.

Shell was planning to drill one or two wells in both the Beaufort and Chukchi seas this summer using the drillship Frontier Discoverer, which is in the Philippines undergoing a retrofit to use ultra-low sulfur diesel fuel.

Some of Shell’s support vessels were en route to Alaska when the moratorium was ordered, and they were rerouted. The drillship had not left the Phillipines.

This is not the first time Shell’s Arctic program has been stopped. In 2007 the company was far along in its plans and had brought its drill fleet to Alaska when environmental groups filed lawsuits and the U.S. 9th Circuit Court of Appeals ordered a halt.

The latest worry for Shell is that a lack of guidance to federal agencies may delay processing of key permits.

This could effectively delay Shell another year, until 2012, even if the moratorium is lifted next spring, Smith said.

“We’re all looking for guidance as to what the moratorium means. If it means we might be able to drill in 2011, we need to be working on our permits this winter,” he said. “Our worry is that agencies will interpret the moratorium to mean work on permits should stop until it is lifted. If that is their interpretation it could push us into 2012.”

A key concern was a June 18 hearing on appeals of two U.S. Environmental Protection Agency air quality permits before the agency’s Environmental Appeals Board.

EPA issued two separate permits for Shell’s drilling in the Beaufort and Chukchi seas, although the wells would be drilled by the same drillship and support vessels.

Smith said Shell is concerned that environmental groups, referred to as nongovernmental organizations, or NGOs, filing the appeals are asking that the permits be vacated, meaning Shell would have to apply for entirely new air quality permits.

“The appeals board has three choices,” Smith said. “It can have a hearing on the merits of the appeals, as was planned; it can remand the permits back to EPA, which the NGOs prefer and which means we’re back at ground zero, or the board can just stall, which puts these appeals at the bottom of the stack of priorities.”

EPA Region 10 spokesman Mark MacIntyre said the agency does not comment on issues that are in litigation.

It is apparent, however, that Shell will have to file new exploration plans for 2011 with the U.S. Minerals Management Service, and it is unclear how that agency’s pending reorganization will affect processing the exploration plans, which would have to be done this winter, Smith said.

Despite the government-ordered moratorium, the clock is ticking on the primary terms of Shell’s leases off Alaska. Most of the company’s Beaufort Sea leases were issued in 2005, which means the company is now halfway through the primary lease term of 10 years without being able to drill, Smith said.

The Chukchi Sea leases, which Shell paid more than $2 billion in bonus bids, were issued in 2008. So far Shell has spent more than $3 billion on its Alaska exploration with no wells drilled yet.

Tim Bradner can be reached at

[email protected].

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