Shell hopeful on Arctic drilling despite setback

Shell hopeful on Arctic drilling despite setback
The Arctic Challenger is at the Port of Bellingham International Dock Monday, Sept. 17, 2012.
ANCHORAGE, Alaska (AP) - The stars lined up - almost - for Shell Oil to drill exploratory wells this year in waters off Alaska's north coast.

The Arctic Ocean was on record pace for low sea ice. The Obama administration gave a qualified green light to drilling. Two drill ships and a flotilla of support vessels were staged off prospects.

But as the roughly four-month open water season wound down, Shell announced last week it would limit drilling to "top-hole" work, the shallow but time-consuming preparation for an offshore well. The final straw for the decision: damage during testing Sept. 15 to an undersea containment dome, part of a spill response system that Shell put in place to reassure federal regulators that Arctic offshore drilling could be done safely.

Environmentalists cheered the setback.

Shell Oil President Marvin Odum says he considers it a temporary impediment in the long-term quest to open a petroleum frontier.

"I think you can hear the enthusiasm in my voice, both for what's been accomplished this year and what we will do moving into 2013," he said after the decision.

Royal Dutch Shell PLC has spent $4.5 billion on Arctic offshore drilling, moving ahead in fits and spurts to overcome delays from court challenges and the added scrutiny that followed BP's Deepwater Horizon blowout in the Gulf of Mexico.

Odum said glitches were expected and the payoff from significant resources in the Chukchi and Beaufort seas will make the trouble worthwhile.

"If they prove up the way we hope they will, and the way the U.S. government thinks they may, then this will be very much worth all our time and effort," he said. "There is still great enthusiasm for that."

Shell officials have said they would wait for a report to be completed before releasing details of how the containment dome was damaged. Shell Alaska spokesman Curtis Smith said by email the company had no details to report Friday.

At stake are Arctic offshore reserves that could relieve U.S. dependence on foreign oil. The U.S. Geological Survey estimates 26 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas.

For the state of Alaska, which derives upward of 90 percent of its revenue from oil earnings, Arctic offshore oil could extend the usefulness of the 800-mile trans-Alaska pipeline, which operates at less than one-third capacity.

Critics of Shell and the Obama administration that OK'd preliminary work are not swayed. The Chukchi and the Beaufort are hundreds of miles from the nearest Coast Guard station. Roadless northern Alaska has a tiny fraction of the airport and harbor infrastructure that supported the Gulf of Mexico cleanup. Critics retain the same objections they stated when Shell spent $2.1 billion for Chukchi leases in 2008.

"We have been concerned all along about the lack of oil spill response capacity in the Arctic, and in Shell's outfit in particular, and the fact that they were given permission to go ahead and drill even before their response barge was ready to be launched was just rather shocking," said Margaret Williams, managing director for World Wildlife Fund's Arctic program.

Mother Nature and Shell's own errors conspired to slow things down this summer, she said.

"It's ancient, dilapidated response barge is still being fixed and tested," she said. "It's been one problem after another. It's just something the public should be really concerned about."

Shell says a blowout is unlikely in the relatively shallow Arctic waters and that its support fleet of more than 20 vessels could stop a leaking well. The company would first try pouring drilling mud down the hole. Its second defense is a blowout preventer, a device that mechanically seals a well. The third is a capping stack, which could be lowered from a staged Shell vessel to provide a metal-to-metal seal on a malfunctioning blowout preventer. Such a capping stack was modeled after the one that stopped BP's Deepwater Horizon blowout in the gulf of Mexico, said Shell Alaska spokesman Smith.

The containment system, which includes the dome damaged Sept. 15 off Bellingham, Wash., is the fourth line of defense. The dome is 15 feet square, 17 feet tall and 65,000 pounds. In a spill, Shell would hover the dome over a compromised well and funnel escaping oil, natural gas and water to a surface vessel, according to the company.

Odum expects Shell to work through the dome setback and send the containment system north this year.

"It's important to remember that this is a first of its kind system," Odum said. "This did not exist before our decision to put this together for the Arctic program."

The work in 2012 will be significant, Smith said. Depending on weather over the next weeks, Shell's two rigs could drill multiple top holes, a step that accounts for about half the time it takes to drill a well to total depth, Smith said.

"All of the drilling we complete this year will position us nicely for 2013," he said.