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Shell Scrambles to Hold Offshore Alaska Leases Beyond Expiration Date

Royal Dutch Shell plc has suspended indefinitely its exploration projects offshore Alaska, but it is continuing to fight for the right to drill prospects in the future.

Shell on Tuesday filed an appeal challenging a rejection by the Department of Interior's Bureau of Safety and Environmental Enforcement (BSEE) to extend leases held in the Beaufort Sea that expire in 2017 and in the Chukchi that end in 2020. Shell holds more federal leases in Alaska's frigid waters than any producer, mostly captured in a 2008 federal auction, and it is the only operator that has completed any wells.

Following disappointing results this past summer from a development well in the Chukchi, Shell in September halted exploration activity for the foreseeable future (see Daily GPISept. 28). What Shell wants is for the leases it holds to be suspended, which would prevent another operator from bidding on them in a future auction.

The appeal "does not affect our recent decision to stop exploration offshore Alaska for the foreseeable future," a spokesman said. The payoff could be considerable. Shell's Alaska leases could hold up to 132 Tcf of natural gas and 27 billion bbl of oil.

The BSEE in October denied extending the leases, as well as those held by Statoil ASA (see Daily GPIOct. 19). Following its rejection, Statoil last month said it would abandon 16 leases and relinquish its stake in 50 others that it shares with ConocoPhillips (see Daily GPINov 17).

Shell has argued that circumstances beyond its control have prevented expedited exploratory drilling, citing updated regulations that restricted operations, as well as the limited availability of Arctic-viable rigs. In denying the request, BSEE said Shell should have anticipated the "rigorous" regulatory environment that grew more onerous following the Macondo well blowout in the Gulf of Mexico.

An administrative review of the appeal is to be handled by the Interior Board of Land Appeals (IBLA).

ConocoPhillips in 2013 scuttled its inaugural Chukchi exploration in the Devils Paw prospect, citing federal regulatory requirements and operational permitting standards (see Daily GPI, April 11, 2013). The Houston producer then asked for a lease extension but was rejected. The IBLA also rejected the appeal, which has since been stayed while settlement talks are underway.

Federal leases expire unless operators have ongoing operations, which include drilling or reworking wells and/or are producing oil and gas. To request an extension requires operators to submit specific plans for drilling and developing acreage. If they lose their leases, companies may acquire them again in future auctions.

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