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Arctic drilling close for Shell, but still elusive

By and , Published: July 20

ANCHORAGE — Seven years and $4.5 billion after it bought leases to explore for oil off Alaska’s Arctic coast, Royal Dutch Shell is finally close to drilling a well in the pristine Chukchi Sea, confident that it will discover a vast oil reservoir buried thousands of feet below the seafloor.

“This is kind of like Christmas Eve,” said Lt. Gov. Mead Treadwell (R). “We can’t wait to see if Santa comes.”

But Santa’s path has not been smooth.

The thickest ice in a decade, along with problems in obtaining a permit for a 4,700-ton oil spill containment system, pushed Shell’s July 15 start date back three weeks. These glitches have postponed the first offshore drilling in the American Arctic in 15 years, a massive undertaking that could eventually yield 400,000 barrels of oil per day.

The Coast Guard delayed the firm’s oil recovery barge Arctic Challenger from leaving the Pacific Northwest earlier this month after raising questions about its ability to withstand a severe storm. Then, Shell petitioned the Environment Protection Agency to modify an air emission permit on the grounds that the technology did not exist to meet one of the requirements. Finally this past Saturday, Shell’s drill ship Noble Discoverer dragged its anchor off Alaska’s Aleutian islands and drifted to within 100 yards of shore.

“The last thing Shell wants is a picture of a rogue platform running around,” said Fadel Gheit, an oil analyst with Oppenheimer & Co. “It is going to be the laughing stock of the late shows. ‘We spent billions of dollars and can’t even hook up the thing properly.’”

Shell is one of the few global oil giants that does not operate onshore in Alaska. And because oil firms are planning more Arctic drilling in the future as warming temperatures and melting ice make the area more accessible, the entire industry has a stake in the success of Shell’s drilling program.

Scaled back goals

Although Shell during the past several months had obtained multiple approvals from the Obama administration for its drilling plan, last-minute challenges have prompted it to scale back its exploration goals.

On Monday, Shell’s vice president in Alaska, Pete Slaiby, said the company would complete at most one or two wells in the Chukchi and Beaufort Seas this year, fewer than the five or six it had initially projected. Slaiby said the firm’s contractor was still completing the enormous oil-spill-containment system, which will be the key to receiving final approval for drilling permits from the Interior Department in both lease areas.

“I’m optimistic about our ability to get this to work, but we still have a hurdle to go over, getting these” final permits, he said. “We’re not going to rush. At Shell we’re not looking at this as a numbers game, in terms of how many wells are completed.”

On top of logistical and regulatory difficulties, an unusually cold winter has left more multi-year ice in place, delaying drilling in the two areas where Shell holds federal leases. While the ice is now thawing — the National Oceanic and Atmospheric Administration reported that the Arctic lost a record amount of sea ice in June, totaling 1.1 million square miles — Shell officials say they won’t start drilling until the first week of August.

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