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Shell Suffers Alaska Oil Drilling Setback After Dome Damage

September 17, 2012

Shell Suffers Alaska Oil Drilling Setback After Dome Damage

Shell-contracted icebreaker preparing to sail for the Arctic. Photographer: Markku Ulander/AFP/Getty Images

Royal Dutch Shell Plc (RDSA), Europe’s largest oil company, was forced to scrap plans to drill for oil off Alaska this year after a containment dome designed to cap a spill was damaged.

The need for repairs won’t leave enough time to drill deep enough to find oil this year, The Hague-based Shell said today in a statement. It will instead drill a number of so-called top holes, preparing the way for a renewed exploration campaign next year. Shell had planned to invest $1 billion in exploration off Alaska this year.

“We are disappointed that the dome has not yet met our stringent acceptance standards, but as we have said all along, we will not conduct any operation until we are satisfied that we are fully prepared to do it safely,” the company said.

Following six years of preparation, Shell began drilling this month in Alaska’s Chukchi Sea after obtaining a permit from the U.S. Interior Department. It has invested $4.5 billion in offshore leases and equipment and fought at least 50 lawsuits from environmental groups opposing the first wells in the Arctic waters in about 20 years.

“Investors must now be asking whether investing such vast sums of money trying to exploit the fragile Arctic is really worth it,” Ben Ayliffe, a Greenpeace campaigner, said in an e- mailed statement.

Sea Ice

The company was only able to drill for about a day and had to suspend operations to move the rig to avoid encroaching sea ice. In July, the U.S. Coast Guard had to inspect the Noble Discoverer drillship when it slipped its mooring and drifted toward shore in the Aleutian Islands. The rig crew didn’t report any damage.

The drillship will resume drilling operations at the Burger A prospect in the Chukchi Sea in the coming days, Shell said. The company also plans to start exploratory drilling in the Beaufort Sea.

Shell had planned to start exploration in July. It had to modify the Arctic Challenger barge, brought in to help collect any oil spilled in case of a well blowout, to satisfy U.S. Coast Guard requirements.

Shell fell 0.3 percent to 2,254.5 pence in London.

Shell is revisiting Burger, which was discovered in the 1990s and may hold about 1.8 billion barrels of oil equivalent resources, Theepan Jothilingam, an oil analyst at Nomura Holdings Inc. in London, said in a Sept. 10 report citing Wood Mackenzie estimates. Possible discoveries in the Beaufort and Chukchi Seas could generate $10 billion in value for Shell, Jothilingam said.

“We understand the original well was drilled at the crest and found gas condensate,” he wrote. “Shell intends to drill this time around the flanks and to target oil.”

To contact the reporter on this story: Eduard Gismatullin in London at egismatullin@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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