U.S. Arctic Drilling Permits for Shell Stop Shy of Oil Zone

MSV Fennica. Photo: Shell Alaska

By Mark Drajem

(Bloomberg) — Royal Dutch Shell Plc received limited permits to drill two wells off Alaska’s Arctic coast, leaving the company still short of its desire to tap into the offshore oil reserves.

The U.S. Interior Department approved Shell’s applications to drill in the Chukchi Sea, while saying the company may not reach the oil reserves until safety equipment is in place. The company’s capping stack, a last line of defense against an uncontrolled well blowout, isn’t in the Arctic after the icebreaker hauling it had its hull damaged this month.

Once the capping stack arrives, Shell can apply to modify the drilling plan so that it can drill into the hydrocarbon zone, the Interior Department said in a statement. A capping stack can weigh 100 tons and plugs or redirects a blown-out well.

“Once we have determined the area is clear of sea ice, support vessels are in place, and the Polar Pioneer is safely anchored over the well site, drilling will begin,” said Kelly op de Weegh, a company spokeswoman. The Polar Pioneer is a drilling ship.

“This is an important approval today, and we look forward to advancing exploration in the weeks ahead,” he said.

The decision disappointed environmentalists who say Shell’s mishaps while trying to explore in the cold, isolated area show it can’t handle the demands inherent in the effort.

“Shell has proven time and time again that they are incompetent and careless in pursuing drilling in America’s Arctic Ocean,” Cindy Shogan, executive director of the Alaska Wilderness League, said in a statement.

24 Billion

The Arctic seas off Alaska contain an estimated 24 billion barrels of oil, according to the U.S. Geological Survey. Shell, which discovered oil in that part of the ocean in 1986, is the first major explorer to return since the offshore Arctic drilling boom fizzled three decades ago amid slumping crude prices.

The Hague-based company had already gotten general approval for its plans earlier this year, which will have it exploring in the Arctic waters 70 miles off the Alaskan shore.

Shell’s efforts to explore in 2012 were plagued by a series of mishaps, capped off by the destruction on the rocks of the drill rig the Kulluk after a failed attempt to tow it out of Alaska. The Interior Department reviewed what went wrong, and Shell hadn’t drilled there since.

Icebreaker Damaged

The damage to Shell’s icebreaker, the Fennica, this month required it be sent to Portland, Oregon, for repairs, but the company said its drilling plans shouldn’t be delayed. The capping stack, which functions like a many-tonned sink stopper, could be in place by the time its wells get to the point where they are near oil, the company said. Its drill rigs and support vessels are in waters off Alaska now, and may begin work soon.

The damage to the Fennica in shallow waters reminded activist groups of the problems Shell had three years ago.

“This is entirely a problem of Shell’s own creation,” said Michael Levine, Pacific general counsel for the group Oceana, referring to the drilling restrictions. “It’s Shell’s responsibility to oversee its entire operation, especially in the wake of 2012.”

A second restriction on Shell’s work says the company cannot work on both wells at the same time, but must plug and abandon the top section of the first well before proceeding with any drilling activity at the second well. The company had initially hoped to drill both wells at the same time this year.

The drilling season there began in the middle of July and continues until the end of September. Interior’s bureau of offshore safety will have officials on deck of both of Shell’s drilling units throughout the season.

Shell will conduct reconnaissance flights to look at ice floes and detect if any are headed toward the drilling vessels.

©2015 Bloomberg News

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