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Shell Nixes Beaufort Sea Exploration -- For Now

Royal Dutch Shell plc's Alaska unit has put on hold its drilling and exploration plans in the Beaufort Sea in 2009 to focus on court challenges. Instead, the unit will prepare drilling plans for 2010 and 2011.

The U.S. Court of Appeals for the Ninth Circuit in San Francisco last month ruled that the Minerals Management Service (MMS) improperly granted permission to Shell Offshore Inc. (SOI) to drill in the Beaufort Sea north of Alaska and Canada (see NGI, Nov. 24). Among other things, the three-judge panel told MMS to take a "hard look" at the analysis required under the National Environmental Policy Act before approving a drilling plan in the remote area.

Shell invested millions to acquire Outer Continental Shelf leases in the region, and it has spent more money for equipment, data and community outreach to prepare for a multi-year drilling program in Alaskan waters. In early 2007 Shell received MMS approval to ramp up the exploratory program, and SOI planned to install an offshore rig in the Beaufort Sea to drill three exploratory wells. However, the MMS approval was challenged by area stakeholders and environmental groups, and the circuit court called a halt to the program last summer (see NGI, July 23).

Shell officials said they now will focus on the court challenges and will revise their drilling plans for possible ramp-up in 2010, which may include not only exploration of the Beaufort Sea but also the neighboring Chukchi Sea. Shell, supported by the state of Alaska, also Thursday called for a review by a full appeals court of the circuit court's opinion.

Alaska Gov. Sarah Palin said she was disappointed that SOI had canceled its plans for 2009. The state's "economic past and future are tied to developing its abundant resources, and Shell's decision will cost families in Alaska hundreds of jobs," Palin said.

Shell is not the only producer that may be affected by the circuit court's ruling. BP plc earlier this year said it would spend $1.5 billion to tap an offshore reservoir in the Beaufort Sea using horizontal drilling techniques. And ConocoPhillips and Italy's Eni Spa have indicated they wanted to conduct seismic surveys in the Beaufort Sea.

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