Shell Expects to Drill in Alaska's Arctic in 2012

HOUSTON (Dow Jones Newswires), Apr. 15, 2011

Shell expects to start drilling in Alaska's Arctic waters in the summer of next year and have in place an oil-containment system specifically designed for the area ready at the same time, the head of the company's U.S. operations said Friday.

"Our aspiration is to drill in the 2012 season," Marvin Odum, president of Shell Oil Co., the U.S. unit of the Anglo-Dutch giant, told Dow Jones Newswires in a interview. "We are hopeful, but also cautions."

Shell still has to obtain a number of permits from the federal government in order to go ahead with its $3.5 billion investment to drill in the state's Beaufort and Chukchi seas. Shell's plans have been delayed by environmental lawsuits and permit issues on top of calls for better spill prevention and containment capabilities following BP's oil spill disaster in the Gulf of Mexico last year.

Odum said the company will wait until about September to see the amount of progress in the permitting process before making a final decision to start deploying the system needed to drilling next summer. "It takes about six months to build up the capacity you need to start the program," Odum said. "This is a very significant resource for the country, which is worth pursuing, and we are focused on getting it done."

Shell is planning to have in place an oil-containment system specifically designed to work in the cold-climate conditions of the Arctic by the time drilling starts, Odum said.

Shell said it has a three-tier, Arctic oil-spill response system consisting of an on-site oil-spill response fleet, near-shore barges and oil-spill response vessels, and onshore oil-spill response teams staged across the North Slope of Alaska that in the event of a blowout or spill could be ready to respond within one hour.

Separately, Odum said he believes it could take a year until the level of drilling activity in the Gulf of Mexico's deep water returns to normal levels, but that it could take longer if the federal government doesn't speed up the permitting process.

The Obama administration imposed a drilling moratorium in the area after BP's oil spill. The ban was lifted in October, but permits started to be issued only in late February.

Shell last month received the first authorization since the spill to drill a new well that complied with new regulations from the government. The company started drilling last week. However, Shell's production in the area will be about 50,000 barrels of oil equivalent a day lower this year due to the impact of the moratorium, Odum said.

The executive said the company is following closely the oil-shale acquisitions some of its U.S. rivals have recently made in the U.S. and that it is working on developing its oil-shale portfolio.

Odum said the world's oil markets are well supplied and that current high oil prices reflect the risk traders are seeing in short-term supply. He added that the ongoing oil glut at the Nymex delivery point of Cushing, Okla., could be solved in 2012 or 2013.

Copyright (c) 2011 Dow Jones & Company, Inc.


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