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Shell Pencils in September for Alaska Drilling

April 30, 2012
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With hopes high that all required permits will be in hand and all legal challenges will be overcome, Royal Dutch Shell plc officials have penciled in a late third quarter start for drilling offshore Alaska, CFO Simon Henry said last week.

The plan, years in the making, "is possibly the most important single milestone for this year," he told financial analysts during a conference call to discuss the company's first quarter performance and plans for 2012.

He was asked if, given the number of roadblocks the company has had to get around, whether it was a certainty that drilling would proceed later this year. "What did it take to drill?" he answered. "There are three things we are working on: one is operational, second is regulation and third is the legal or the litigation access," he said.

Shell has worked for years to get to this point, spending billions on development plans, filing thousands of pages to state and federal authorities for permitting, only to be blocked at various points by regulator issues and various litigation fights. In the past year things have swung more to Shell's liking; in March approval was won from the Department of Interior for the required oil spill response plan to drill in the Beaufort Sea (see NGI, April 2). Approval for the Chukchi Sea plans had come in February, as well as air permit plans are in place for a drillship.

"Operationally, we plan two rigs and around 35 other vessels, which will provide all the support and logistics," which exclude a lot of other heavy equipment now on its way to Alaska, said Henry. "So it's that huge logistical exercise and a bit like moving a fleet into the Alaska waters..."

All of the regulatory approvals should be in hand in time to begin drilling in September, said the CFO. "We have actually invested around $4 billion to date in Alaska, so you could be fairly sure that we are looking for something big enough to justify that level of investment, and the systems that we have had to show over the five or six years in which we have been prepared to drill."

Legal "challenges" still lurk. "This is one where we have...no control," said Henry. "What we have seen in previous years is that some...have launched legal actions at the last minute...[that] are not are necessarily predictable," which have led to "difficulties in going forward."

Shell earlier this year attempted a preemptive strike on court challenges and "invited the court to consider the litigation that we expect in good time. such that the due process can be considered...exploration plans and other regulatory processes...to give either a 'yes' or a 'no' to the plan during the third quarter," he said (see NGI, March 5). The court filing, however, "does not rule out unpredictable events in the U.S. legal system. Having said that, we are confident that we are ready, willing and able to drill and that we can do so...and we look forward to a successful campaign this year."

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