Feb. 28 (Bloomberg) — Royal Dutch Shell Plc’s pause in
Arctic oil drilling after last year’s equipment mishaps should
prompt a U.S. review of drilling procedures or a total ban,
environmental groups said.
Two ships Shell was using in the Beaufort and Chukchi seas
will be towed to Asia for repairs, the company said yesterday in
a statement. In 2012, the company never got a U.S. permit to tap
an oil reservoir off Alaska’s north coast because of issues with
a spill containment system. It also encountered weather delays
and was cited for violating air-pollution permits.
“It appears Shell is realizing they need to take a more
careful approach to ensure they don’t put the Arctic’s people
and marine life at risk,” Marilyn Heiman, director of the U.S.
Arctic program at the Pew Charitable Trusts, said in an e-mail.
Before drilling resumes, Shell, regulators and outside groups
must “develop world-class industry standards and ecological and
cultural protections to safeguard the Arctic.”
Oil exploration and production companies have expanded
Arctic drilling plans in the past five years, using technology
that may let them reach oil reserves trapped in the sea floor
beneath ice. The Chukchi and Beaufort seas may contain 25
billion barrels of oil, according to the U.S. Geological Survey.
Shell drilled two preparatory wells last year after
spending about $4.9 billion over seven years preparing for
Arctic exploration. The company had planned to spend $800
million in Alaska this year, and costs are “likely to remain
substantial” given rental and repair costs, said Curtis Smith,
a Shell spokesman.
‘Safe, Measured’
“We’ve made progress in Alaska, but this is a long-term
program that we are pursuing in a safe and measured way,”
Marvin Odum, head of Shell’s U.S. subsidiary, said in a
statement. “Our decision to pause in 2013 will give us time to
ensure the readiness of all our equipment and people following
the drilling season in 2012.”
Shell’s conical drilling barge Kulluk was damaged after
running aground in southern Alaska Dec. 31 while being towed
during a storm. The Noble Discoverer drill ship was temporarily
detained by the U.S. Coast Guard in November after it lost
propulsion while docking at Seward, Alaska. Owner and operator
Noble Corp. agreed to fix the ship, which in July had slipped a
mooring and drifted toward shore.
In January, the Environmental Protection Agency said that
Shell’s operation of the Kulluk violated “numerous conditions
in the permit” under the Clean Air Act. At the same time, the
Interior Department started a 60-day review of Shell’s drilling,
following what Secretary Ken Salazar called a “series of
mishaps” that was “troubling.”
Murkowski, Environmentalists
Alaska holds high potential for Shell in the long term, and
the company is committed to drilling there, Odum said.
Production will take years if oil is found, Shell said.
The top Republican on the Senate Energy and Natural
Resources Committee, Lisa Murkowski of Alaska, praised the
company’s decision on its 2013 drilling.
“I have been a strong supporter of Shell’s activities in
the waters off Alaska’s northern coastline and in energy
exploration in general, but I have always said that it must be
done to the highest safety standards,” Murkowski said in a
statement. “Shell’s decision to postpone this summer’s
exploratory drilling program shows that it shares that
commitment to safety.”
Environmentalists’ Criticism
Environmental groups were more critical of Shell’s
activities in the Arctic last year and what they called the
unsatisfactory oversight by the U.S. Interior Department.
“This is the first thing Shell’s done right in Alaska –
calling it quits,” said Phil Radford, executive director of
the environmental group Greenpeace USA. “Now the responsible
decision is to make Arctic drilling off limits, forever.”
The announcement by Shell wasn’t a surprise, said Michael
LeVine, the Juneau, Alaska-based Pacific senior council for
Oceana, an environmental group. “It reflects a crisis of
confidence both for the company and for the agency charged with
regulating it,” he said.
Cindy Shogan, executive director of Alaska Wilderness
League, said Shell’s failed Arctic efforts last year underscored
the risks to hydrocarbon development there.
“If the top oil company in the world has failed in its
quest to drill in the harsh and unpredictable conditions in the
Arctic, it is time to assess whether any oil company can safely
drill in the Arctic Ocean,” she said in a statement.
To contact the reporters on this story:
Jim Polson in New York at
jpolson@bloomberg.net;
Mark Drajem in Washington at
mdrajem@bloomberg.net
To contact the editors responsible for this story:
Jon Morgan at
jmorgan97@bloomberg.net;
Susan Warren at
susanwarren@bloomberg.net
