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Shell Begins 'Limited' Drilling in Chukchi

September 3, 2012
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The Obama administration last week gave a unit of Royal Dutch Shell plc the green light to begin "limited" drilling in Alaska's Chukchi Sea.

Interior Secretary Ken Salazar and Bureau of Safety Environmental Enforcement (BSEE) chief Jim Watson on Thursday discussed the approval to begin initial work at the site during a conference call with reporters.

Approval was given to begin preparatory work to drill into the Chukchi Sea. Shell has the go-ahead to create a mudline cellar, which is needed to place a blowout preventer in the event of a failed well. Shell also may begin drilling to set casing strings, or pipes, to a depth of about 1,400 feet below the sea floor. Permits to drill into Chukchi's hydrocarbon-bearing zones won't be allowed until Shell's oil spill containment system has received a final OK from the U.S. Coast Guard.

Shell welcomed the decision. "The administration's decision to approve initial drilling into non-oil-bearing zones in the Chukchi Sea reflects the national importance of understanding the energy resource offshore Alaska," said a Shell spokesman.

Even though it may begin initial preparations, Shell officials have acknowledged for months that the operator faces several hurdles to begin drilling this summer (see NGI, April 30; April 2; March 5; Jan. 16). The company already has spent nearly seven years and close to $5 billion to prepare to drill in Alaska's offshore. Shell also has been beset by legal challenges from stakeholder and conservation groups, as well as a project makeover required following new regulations enacted with the Macondo well blowout in the deepwater Gulf of Mexico. The oil spill containment system was one of the additional requirements.

"Shell's applications for permits to drill into potential oil reservoirs remain under review and Shell will not be authorized to drill into areas that may contain oil unless and until the required spill containment system is fully certified, inspected and located in the Arctic," said Watson.

"We feel that it can be done safely because they will not be encountering hydrocarbon-bearing zones," Salazar told reporters. In any case, the outlook for Shell to drill in the Arctic waters this year remains "dynamic...At this point we don't know what exactly is going to happen with Shell and whether they are going to be able to complete a well in the Arctic this year."

Shell has a deadline from Interior to complete its 2012 drilling program in the Chukchi Sea on Sept. 24 because of sea ice, although the company has asked for a two-week extension. The "ice forecast is indicating just under two more weeks of open water," said a Shell spokeswoman of the forecast for late September. "Because we could remain in the open water longer, it could also potentially allow us to drill even in the hydrocarbons zone past the Sept. 24 date."

Salazar declined to say whether Shell would be granted more time, calling it "absolutely premature to even address..."

Shell also has until Oct. 31 to drill in Alaska's Beaufort Sea. The company had planned to drill up to five wells in both areas this summer, but it has since reduced that number to two, one in each offshore area.

"It remains our goal to drill two complete exploration wells plus begin some wells which can be drilled to total depth next summer," said the Shell spokeswoman.

In addition to securing final federal approval of the mandatory oil spill containment system, Shell is awaiting word on whether its air quality permits may be modified. The U.S. Environmental Protection Agency would give the final check on those.

Salazar assured reporters that Thursday's announcement that Shell may begin limited work in Chukchi wasn't a political stunt. At the Republican National Convention in Tampa, FL, a parade of speakers accused the administration of hindering oil and gas production. "This has nothing to do with whatever is happening in Florida," Salazar said on the conference call. "It has nothing to do with any political motivation."

Alaska Sens. Lisa Murkowski, a Republican, and Democrat Mark Begich both praised Interior's preliminary OK. "While we would all like to see a discovery this summer, the most important thing is for Shell to continue to make progress and demonstrate once again that Arctic drilling can be done safely," Murkowski said.

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