With its plans to explore for oil and natural gas in the Beaufort Sea offshore Alaska scuttled by a court fight, an affiliate of Royal Dutch Shell plc has begun releasing contract workers and may disband its offshore fleet.

Following approval by the Interior Department's Minerals Management Service (MMS) in February, affiliate Shell Offshore Inc. (SOI) was scheduled to begin drilling some exploration wells on the Sivulliq prospect last month (see NGI, July 16).

However, area stakeholders and environmental groups challenged Shell in court, and the Ninth Circuit Court of Appeals called a halt to the drilling last month pending a ruling (see NGI, Aug. 20).

The ban on drilling was extended until December so that the court could decide whether the MMS properly assessed the potential for environmental damage before an exploration permit was issued to SOI. The stakeholder groups had to file briefs by Sept. 5, and SOI and the Interior Department were directed to respond within a month.

"Because we are unable to pursue our drilling plans, Shell has been forced to initiate a staged release of contract personnel, including workers on the drill ship Frontier Discoverer," Shell said in a statement. According to Shell, it budgeted $200 million for the 2007 Alaska program and hired more than 700 employees and contract workers. Shell did not indicate how many of its work force it has let go.

"Shell regrets it must take this action," the company said. Talks are "ongoing" with stakeholders affected by the drilling plans.

Shell CEO Jeroen van der Veer added that the impasse in Alaska is "very disappointing," but he said the company still will try to find a solution to allow offshore exploration to resume.

However, Shell's pullback does not mean the producer has abandoned its exploration plans off Alaska's coast, said Shell's Curtis Smith. In fact, Shell will continue with seismic tests in both the Beaufort and Chukchi seas.

"Shell is committed to Alaska," Smith said. This year is the first of a multi-year exploratory program, he explained.

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