Shell Puts Alaska Drilling Plans on Hold

Shell Puts Alaska Drilling Plans on Hold

Royal Dutch Shell plc will temporarily halt its exploratory drilling activity offshore Alaska this year to ensure the readiness of its equipment and employees for future drilling.

Despite the pause in drilling activity, Shell officials said Wednesday they are committed to drilling in Alaska in the future, and the state remains an area with high potential for Shell over the long-term.

"Shell remains committed to building an Arctic exploration program that provides confidence to stakeholders and regulators, and meets the high standards the company applies to its operations around the world," said Marvin Odum, director of Upstream Americas for Shell, in a statement.

The company completed top hole drilling on two wells last year in the Beaufort and Chukchi seas, which Shell said marks the industry's return to offshore drilling in the Alaskan Arctic after over a decade.

However, Shell faced a number of challenges in its Alaska Arctic drilling program, including issues with the two drilling rigs it used for its Alaska program.

The Kulluk drilling rig was damaged after it ran aground New Year's Eve last year while being towed to Seattle for repairs. Last week, the U.S. Coast Guard lifted the order restricting the Kulluk from leaving Kiliuda Bay, Alaska, where it has been undergoing assessment for damage. The Kulluk and the second rig, the Noble Discoverer (mid-water drillship), will be towed to Asia for maintenance and repairs.

Assistant U.S. attorney Kevin Feldis confirmed to Rigzone that the U.S. Coast Guard has turned over material regarding 16 violations involving the Noble Discoverer drilling rig to federal prosecutors for further investigation.

Shell initially faced delays in receiving drilling permits while it waited for the oil spill containment Arctic Challenger to be certified. The company was granted permission to conduct preparatory activities for planned drilling programs in the Chukchi and Beaufort seas. The Arctic Challenger received its U.S. Coast Guard certification in October of last year.

The company revised its exploratory drilling plans from five wells to two wells due in part to time needed to repair the dome of the Arctic Challenger after it was damaged during a test. The short window of time Shell had to drill before sea ice encroached in the area also prompted Shell to alter its planned exploration program.

Shell re-entered Alaska in 2005, when it bid $44 million in that year's Beaufort Sea lease sale. The company then spent over six years navigating the regulatory approval process to drill in Alaska's Arctic, which Shell said holds significant oil and gas resource potential. According to Shell, the Chukchi Sea Shelf is estimated to hold up to 30 billion barrels of oil and natural gas reserves.

Environmental groups such as Greenpeace have been critical of Shell's Alaskan Arctic drilling plans. Greenpeace participated in launching a website that satirized Shell's offshore Alaska exploration efforts.

Despite Arctic Alaska's big resource potential, Shell has spent approximately $5 billion so far with little to show for it except the two top holes it drilled last year, according to a Feb. 27 Tudor Pickering Holt Energy analyst report. Tudor Pickering Holt Energy analysts believe Shell is delaying drilling for a year because of internal water damage, likely salt water in the electrical system, on board the Kulluk.

The headaches that Shell is experiencing are likely causing other companies to rethink the risk of offshore Alaska drilling, Tudor Pickering Holt Energy analysts noted.


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