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Vol. 13, No. 26 Week of June 29, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Shell nixes 2008 drilling

Shell out of time to prepare for Beaufort season while it waits for court ruling

Alan Bailey

Petroleum News

With no sign of a ruling by the U.S. Court of Appeals for the 9th Circuit on a lawsuit over Shell’s U.S. Beaufort Sea exploration plans, the company has decided to call it quits on its planned Beaufort Sea drilling program during the 2008 open water season. The company had hoped to do some top-hole drilling at its Sivulliq prospect on the west side of Camden Bay, as well as conducting some geotechnical boring in the seafloor.

“Shell believes this is the responsible decision given the continuing uncertainty and need for our workers and contractors to pursue other opportunities,” Shell spokesman Curtis Smith said, in announcing the decision on June 20.

The 9th Circuit lawsuit involves an appeal by the North Slope Borough, the Alaska Eskimo Whaling Commission and several environmental organizations against MMS approval of Shell’s exploration plan. That appeal resulted in a court injunction on Shell’s Beaufort Sea drilling activities until the case is settled. The court heard oral arguments in December but has yet to issue a ruling in the case.

Unable to hold out

Pete Slaiby, general manager for Shell in Alaska, told Petroleum News June 24 that, faced with uncertainty over the court decision, the company felt unable to continue holding out the prospect of drilling work for people during the 2008 season.

“What was first on our mind was that people’s livelihoods are at stake,” Slaiby said.

And time had run out for the detailed planning and preparation needed for a drilling program that Shell had hoped to put into action starting in early August. In addition to planning the actual drilling, all of the support activities need to be planned and organized.

“We’ve actually got to have a handle on this sooner rather than later,” Slaiby said. “It’s not just an on-off switch. We’ve got to ramp up and plan into it. … We can’t ramp things up that quickly.”

The cancellation of the drilling program will result in the loss of 200-plus jobs, mainly in drilling contract work, during the open water season, Slaiby said.

Other activities

However, the company will proceed with other offshore activities, including scientific baseline studies, marine mammal monitoring and surveying for possible pipeline routes from Sivulliq. And seismic acquisition in the Chukchi and Beaufort Seas will continue as planned.

“Our planned program is still significant in size and requires support from hundreds of contractors including marine mammal observers, subsistence advisors and call center operators, most of whom are Alaskans,” Smith said in the June 20 announcement.

In fact the communications centers that Shell has established in North Slope communities are in operation, in support of subsistence whaling, Slaiby said. Already use of the centers has saved someone, he said.

Shell will continue with further planned upgrades to the Kulluk floating drilling platform that it plans to use for its Beaufort Sea drilling, Slaiby said. And the company will mobilize some of its offshore oil spill response personnel and equipment to conduct some training exercises, he said.

Long-term view

But continuing delays in Shell’s drilling program translate to deferral of the point at which oil or gas production from the Beaufort Sea might start and will result in mounting costs for the company. What does all of that mean for Shell’s views of Alaska as a place to do business?

“We are still committed to this as a heartland,” Slaiby said. “We’ve started to talk a little bit about this in terms of it being a marathon rather than a sprint. We do want to have relationships that go beyond a number of years.”

With a short annual exploration season in the Beaufort Sea, Shell would have liked to have jumpstarted its Sivulliq exploration with the top-hole drilling. But, although there are a significant number of people in Alaska who would view the delay as a lost opportunity, there are people in the villages who express legitimate concerns about Shell’s plans, Slaiby said. And the North Slope Borough has questioned the rapid pace with which Shell has been trying to move forward with its offshore plans.

“We’re sympathetic to that,” Slaiby said.

Slaiby said that Shell views delays in its plans as an opportunity for further dialogue.

“We do want to create a space where we can talk to communities and get their input into what we’re doing, rather than just going out there and telling them,” Slaiby said. “… Taking time is a good thing.”

More baseline data

The drilling hiatus will also provide an opportunity to collect more baseline environmental data, he said.

“We’re also continuing to collect the data and building an even more extensive database on the marine mammals and other … wildlife in the area,” Slaiby said.

And Shell is still negotiating with North Slope whalers for a conflict avoidance agreement for the summer seismic program.

“We’re not there but … the quality of the dialogue is good,” Slaiby said. “I’m encouraged.”

But what about the lack of a decision from the 9th Circuit court?

Shell is disappointed that the decision has not appeared in an opportune manner — no decision is the worst possible situation, because people don’t know where they stand, Slaiby said.

“We feel that MMS did a very thorough, fair and unbiased job in issuing us the permit,” Slaiby said. “… We’re expected to be on top of our game when we present these permits.”

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