Shell Chukchi drilling this year

Shell remains committed to drill in the Chukchi Sea this year, provided the company can obtain the necessary permits and clear some continuing legal challenges, Ben van Beurden, the company’s CEO, said during the company’s fourth quarter earnings call on Jan. 29.

“We have retained a very significant capability to be ready this year to go ahead,” van Beurden said. “And we’ve kept all our capability in place, tuned it, upgraded it just to be ready to drill this coming summer season.”

But Shell still needs quite a few of its key permits for the Chukchi Sea operations, he said.

The company’s Chukchi drilling plans have been on hold as a consequence of a continuing appeal against the legality of the 2008 lease sale in which the company purchased its Chukchi Sea leases - the Bureau of Ocean Energy Management anticipates issuing a new record of decision for that lease sale in March, in response to a court order resulting from the appeal. The agency cannot approve Shell’s Chukchi Sea exploration plan until the new lease decision has been issued.

In addition, the 9th Circuit Court of Appeals has yet to rule on an appeal against the validity of Shell’s oil spill response plan for its Chukchi Sea operations.

Shell Chief Financial Officer Simon Henry said that this year’s drilling operation would cost more than $1 billion, if it goes ahead. And if the operation cannot proceed, it will still cost nearly $1 billion, because of Shell’s commitment to retain the fleet of ships that it needs for the drilling, Henry said, adding that the project is as much an exercise in logistics as it is a drilling operation. Van Beurden likened the complex supply chain required for drilling in the remote Chukchi to running a North Sea drilling operation out of New York.

Henry said that given the cost of Shell’s Alaska venture and the company’s total planned capital expenditure of $4 billion on worldwide exploration in 2015, spending outside Alaska would be limited to $3 billion, a reduction from 2014 spending levels.

In the Chukchi Sea, Shell plans to drill in its Burger prospect, about 80 miles offshore the western end of the North Slope, using two drilling vessels: the Noble Discoverer and the Polar Pioneer. Burger contains a known major natural gas pool, but Shell thinks that the structure is also likely to hold oil.

- Alan Bailey