OTC: Shell determined to proceed with drilling in US Arctic

Despite numerous regulatory hurdles and impassioned resistance from environmentalists, Royal Dutch Shell PLC maintains that it is on track to drill two wells in the Chukchi Sea during drilling season this summer.

But Ann Pickard, Shell’s executive vice-president in the Arctic, remains mindful of ever-present uncertainties, namely the company’s exploration plan currently awaiting official clearance by the US Bureau of Safety and Environmental Enforcement (OGJ Online, Apr. 1, 2015), as well as possible legal issues that may emerge given the environmental sensitivity of the project.

During a May 5 luncheon at this year’s Offshore Technology Conference in Houston, Pickard briefly made note of another obstacle that emerged this week by way of the city of Seattle, which ruled that an additional permit will be needed to house the two drilling rigs Shell is sending up north.

Transocean Ltd.’s Polar Pioneer is now moored in the Port of Angeles following an eventful trip across the Pacific Ocean during which Greenpeace activists boarded the rig. It will soon to be joined by the Noble Discoverer. Drilling in the Chukchi Sea will occur about 80 miles offshore.

Notably during Shell’s last foray into Arctic drilling in 2012, the Kulluk conical drilling unit was driven aground by violent weather on Alaska’s uninhabited Sitkalidak Island while under tow to Seattle (OGJ Online, Feb. 13, 2013).

The move by its mayor represents the city’s stance in opposition to oil exploration and production. In a statement released May 4, Mayor Ed Murray explained, “This is an opportunity for the port and all of us to make a bold statement about how oil companies contribute to climate change, oil spills, and other environmental disasters—and reject this short-term lease.”

Now is still ‘right time’

Pickard nonetheless believes that now “is the right time for exploration” as the company doesn’t believe oil prices will stay this low for long, and “there’s going to be an insatiable demand for energy” in the coming years spurred by countries such as China.

She emphasized that the US can’t rely solely on the Gulf of Mexico as an offshore oil source, and that the Arctic is the future. She pointed out that Shell stopped its 1991 Arctic exploration effort to focus on the gulf because of low oil prices and the high cost of technology. She said, “Sound familiar?”

A quarter century later technology has dramatically improved efficiency, including advancements in seismic that lead to fewer wells drilled. Shell last week during its first-quarter earnings webcast reported plans to drill 3-4 exploration wells as part of its 2-year Arctic program (OGJ Online, Apr. 30, 2015).

Regarding regulations, Pickard also echoed a common theme mentioned among representatives of offshore operators during recent OTCs. “US regulations are overly prescriptive and permits arrive too late,” she said, adding that regulations should be performance-based like in Norway.

She said that regulations dictate the length of drilling season at 3-4 months while leases last 10 years—rules that need to be adapted based on operators and their varying capabilities. She noted that Shell has 8 permits pending at the moment. In an environment where operations are already subject to strict, narrow schedules, Shell can ill-afford even more time it sees as wasted.

Contact Matt Zborowski at matthewz@ogjonline.com.

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