Royal Dutch Shell plc has shelved plans to drill in Alaska's offshore this year but hopes to restart the long-delayed project in 2012, CEO Peter Voser said Thursday.
In early January Alaska Native and conservation groups successfully challenged the air permits that the Environmental Protection Agency had issued to exploration arm Shell Oil Co. to drill and operate in the Chukchi and Beaufort seas (see Daily GPI, Jan. 5).
Shell, the leading acreage holder offshore Alaska, has been working for several years to secure federal and various state approvals to drill three exploratory wells in the Arctic seas.
"We have been working rigorously for the past five years to meeting the permitting and regulatory requirements for Alaska," Voser said during a conference call. "Despite our investment in technology, our work with the state, we haven't been able to drill a single exploration well."
Shell came close to completing all of the permitting requirements last year -- but Voser said the Macondo well blowout in the deepwater Gulf of Mexico (GOM) interrupted the plans once again.
"Despite our best efforts, the timeline is still uncertain," he said. "Critical permits continue to be delayed...Therefore, regrettably, we have decided to not drill in offshore Alaska in 2011 and defer to 2012. We will stop spending on these activities...
"There is an urgent need to allow drilling for 2012, and we are working toward that."
CFO Simon Henry, who shared the microphone, said Shell lacks just the one "crucial" environmental permit to proceed of 34 required.
Like other GOM operators, Shell also is awaiting the go-ahead to proceed in that region. Voser said Shell has filed applications to drill and expects to be the first company awarded permits since U.S. regulators lifted the deepwater moratorium.
Late last month the Bureau of Ocean Energy Management, Regulation and Enforcement (BOEM) began to solicit comments on Shell Offshore Inc.'s supplemental exploration plan (EP) in the deepwater (see Daily GPI, Jan. 31).
The supplemental EP calls for three exploratory wells to be drilled in the producing Auger Field in about 2,950 feet of water 130 miles offshore Louisiana. These activities in the oil and natural gas lease in the Auger field were not included in the operator's original EP, BOEM said.
"Shell is the first company to successfully submit a plan for three wells...in accordance with the new standards to be submitted to authorities for review," said Voser.
The oil major is more than ready to get back to work. The GOM hiatus last year cost Shell about $260 million for the full year, according to Henry. Shell took a $25 million charge in 4Q2010 for the cost of idled drilling rigs in the region, he said.
The moratorium reduced Shell's GOM "run rate of 30,000 b/d of production...and we've postponed about $700 million of planned investment," said the CFO. "In 2011 we are expecting 50,000 b/d impact based on our plans prior to the moratorium...recognizing that the slow pace of any restart, obtaining permits, is likely..."
Voser acknowledged that "the whole of industry was impacted by the BP Macondo blowout." But he quickly noted that offshore operators should be assessed separately based on their previous performance. "Safety is at the heart of everything we do here at Shell...Macondo was the largest-ever deepwater blowout and the largest peacetime spill in 100 years. We can talk about all kinds of things, there are all kinds of explanations..."
The presidential commission on the Macondo well blowout last month released its final report, which called for major safety reforms in the offshore industry (see Daily GPI, Jan. 12). Producers were divided about some of the conclusions, but Voser said Shell agreed with the "majority of the findings" and many already are incorporated into the company's safety practices.
"In reality, the picture has changed for the deepwater industry," he said. "Increased regulations put more scrutiny on public safety...The industry needs to rebuild trust with the communities we work in. Shell is always looking for ways to improve."
Voser said the report highlighted "in particular that U.S. regulations and risk management practices of some companies in the Gulf of Mexico do lack standards set by other companies...by regulators in other countries. We support new risk-based standards relative to similar ones" already established by national oil companies (NOCs) elsewhere.
"We at Shell have been applying NOC standards for many years," said the CEO. "We have a safety approach worldwide. On Shell's wells, the roles and responsibilities are clear, both for action and prevention..."
However, "we don't want to spend money when we still have uncertainties," he said. Referring to Shell's decision to pull out of Alaska's offshore this year, he said, "when you spend 150 million bucks and get no answer, you have to get back to what you've already built up and for what you've prepared..."
Shell in March plans to offer a "clear overview" of how its exploration program will proceed at the annual analyst meeting, Voser said.
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