Royal Dutch Shell PLC has suffered another setback in its drilling program in the icy waters of the Chukchi Sea off Alaska, as the challenges of Arctic exploration continue to stymie global oil companies.
After a lengthy permitting process, Shell had begun drilling its first exploration well in the Chukchi, off the northwest coast of Alaska, earlier this month but had to re-evaluate after an oil-spill containment dome was damaged during testing last week. The company said Monday it will no longer plan to drill into a suspected hydrocarbon zone this fall.
Instead, it will complete a series of "top holes" – drilling down to a certain depth before hitting oil or gas, then capping the well and resuming the operations in 2013. Shell has spent $4.5-billion (U.S.) on the Alaska operation but has been frustrated by technical problems, lawsuits from environmentalists and regulatory delays after the BP PLC's Deepwater Horizon blowout in the Gulf of Mexico.
Company spokesman David Williams said Monday that Shell intends to complete its planned drilling program consisting of 10 wells in the Chukchi and Beaufort seas over two years. He said the company has developed new spill-containment equipment housed on a barge in the area, but that it is still awaiting a regulatory permit for the containment system that is required before it can drill into an oil- or gas-bearing zone.
Shell has two drill ships off Alaska, but had to disengage its Chukchi ship due to sea ice. The company is awaiting the end of the whaling season to resume operations in the Beaufort.
The Anglo-Dutch firm has been planning to commence exploratory drilling for the past five years but has been delayed over a variety of legal and regulatory issues. Its difficulties illustrate the challenges of operating in the Arctic, with its short drilling season and extreme weather.
Shell is operating in relative shallow water, while the companies looking to explore in the Canadian zone of the Beaufort Sea are in ultra-deep water, hundreds of kilometres off shore. No company has plans to drill in Canadian waters in the next few years.
Imperial Oil Ltd. has partnered with its parent, Exxon Mobil Corp., and BP on a series of leases in the deep water of the Beaufort. This summer, the companies had those leases extended by nearly three years, so they won't have to begin drilling until well after 2015. Chevron Corp. conducted seismic operations on its Beaufort properties this summer, but a spokesman said it has no plans to drill.
To explore in Canadian waters, the companies must find a way to satisfy the National Energy Board requirement that they have the capacity to complete a relief well in the same season as they are drilling any exploration well, in order to ensure they could kill a blowout before operations have to end for winter. However, the NEB has said companies may be able to win approval if they can offer alternatives that the regulator judges to be equivalent to the same-season relief well capacity.
Doug Matthews, a consultant who works with aboriginal communities in the North, said the companies face a huge technical hurdle with the relief-well requirement, as well as a political one.
"There won't be local support unless people are convinced the companies have the ability to contain any spill," Mr. Matthews said.