Shell Prepares for Start of Offshore Alaska Drilling

HOUSTON (Dow Jones Newswires), Oct. 31, 2011

Royal Dutch Shell (RDSA) is currently deploying some workers and infrastructure in Alaska to start drilling for oil and gas in the Arctic next summer as the oil giant is "optimistic" that new legal challenges won't derail an exploration plan on which it has spent $4 billion, a senior executive said Monday.

"We are already spending money building resources, putting people in place to be ready to drill in the summer of 2012," Marvin Odum, president of Shell Oil Co., the U.S. unit of the Anglo-Dutch giant, told Dow Jones Newswires in an interview. "Because the buildup time to have all the resources on time, it's a fairly long runway we have to start working [on] now to be ready next summer. Spending is going to ramp up after the end of year, in the first months of next year."

The remarks came after some environmental groups filed this month a formal challenge to air-quality permits that Shell needs to drill in the Arctic. The permits under question were approved by the U.S. Environmental Protection Agency in September and they allow Shell to use the drillship "Discoverer" and a fleet of icebreakers and other vessels in the Chukchi and Beaufort Seas. In September, other environmental groups also sued the Interior Department for approving the company's exploration proposal for the Beaufort.

"We expect legal challenges every step of the way. But we are cautiously optimistic that we will be in a position to drill next year," Odum said.

Separately, Shell may consider making both small-scale acquisitions or sales of onshore U.S. shale assets, as part of a process to tune up its vast natural gas portfolio, Odum said. "We have this large natural gas portfolio. It's reasonable to expect that portfolio is not static and we may be interested in selling some pieces and acquiring others," Odum said.

It won't be "a surprise" to see Shell focusing on shale oil as the company has shown already interest in areas such as the Eagle Ford shale formation in Texas, Odum said. He declined to comment on whether the company would be interested in a large-scale acquisition, such as oil and gas producer Range Resources Corp. (RRC) or refining company Valero Energy Corp. (VLO). Takeover rumors involving Shell helped boost Valero's shares last week, and Range Resources' stock rose in September after traders bought on the rumors that it was being targeted buy Shell. The company's Chief Executive Peter Voser has dismissed the rumors.

Odum said Shell is looking to export liquefied natural gas from the U.S. "LNG exports from the North America makes sense. All the fundamentals are there," Odum said. In Canada, Shell this month acquired a site in British Columbia to potentially export LNG.

"We are considering now to export from the U.S.," Odum said. Bringing the vast natural gas production that Shell has in the U.S. to outside markets, where it could obtain higher prices, gives incentive for the leader in LNG technology to export LNG from U.S., Odum said.

Shell also remains highly committed to the Gulf of Mexico, which represents one of the most significant regions in Shell's portfolio, Odum said. He said the pace at which oil companies are obtaining drilling permits in the region is speeding up.

Oil prices are likely to remain high in the long term on improved demand, but are also likely to continue to face volatility. Meanwhile, natural gas prices are likely to trade in a range of $4 per million British thermal units to $8 per million British thermal units in the long term, and could trade at the low end of the range for a few years, Odum said.

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


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