Royal Dutch Shell plc has scaled back plans this summer to drill up to five wells offshore Alaska, in part because of construction delays on an emergency spill containment barge and in part because of the weather, CEO Peter Voser said Thursday.
Only two exploration wells now are expected to be completed in the Chukchi and Beaufort seas, he said during a conference call to discuss the company's performance in 2Q2012.
To take advantage of drilling rigs and support vessels already in the region, Shell may begin some initial top-hole drilling in other parts of the Arctic region, which is allowed as long as it doesn't penetrate hydrocarbon zones, Voser said. Shell then could come back to those sites in the future to drill some wells.
"Ice conditions will dictate how long the drilling season will last, with a slower start due to heavy ice conditions," he said.
The thick shore ice, considered unusual at this time of the year, has kept Shell from sending drillships into planned exploration area, which has shortened its brief summer window to drill. Under U.S. regulations, Shell has to stop drilling in the Chukchi Sea in late September; Beaufort zone drilling has to end by Oct. 31.
Over the past five years shore ice has encroached over the planned drilling area as early as Nov. 1, but this summer's ice means the water is colder. Shell had planned to begin its Alaska drilling assault in July, but it now is hoping to secure federal approval to drill in early August. Earlier this year the company had even targeted a September drilling program, but early ice is getting in the way of a late-summer start date.
Another holdup is construction of the Arctic Challenger barge, which is part of Shell's spill containment system that would be used in the event of a well blowout. Safety and operational systems still are being installed on the barge and required tests have yet to be conducted. Deficiencies identified in the fire-detection and extinguishing systems also have be to fixed to prove it meets minimum safety standards for the U.S. Coast Guard to issue a certificate of inspection.
To date, Shell has spent nearly $5 billion and more than seven years to prepare for the Alaska operation. The Interior Department has signed off on the drilling plan, as well as the oil spill containment plan. However, Interior still has to issue permits for individual wells before Shell may drill them.
Nearly all of the approvals are in hand and the company is ready to go, said the CEO. "A great deal of planning has gone into this program, with over 20 vessels to cover the drilling and contingencies," Voser told analysts.
Separately, Alaska Sen. Lisa Murkowski on Thursday said Interior should be open to extending the amount of time Shell is given this summer to conduct its exploratory drilling.
"I think they should be open to extending it, and I believe they will if it is determined that the ice conditions are such that there will be an adequate period of time...for Shell to get out of the water," said Murkowski, who is the ranking member of the Senate Energy and Natural Resources Committee.
If the National Oceanic and Atmospheric Administration and others examining ice and conditions in Alaska consider the "situation on the ground, in...mid-September and say 'wow, ice is much further off, it is slower in forming, conditions look like it is going to allow for a longer period,' I think the Department of Interior clearly left the door open for that," she said.
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