Shell submits a new plan to explore for Alaskan Arctic oil

Environmentalists expected to oppose the latest proposal

Royal Dutch Shell sub­mit­ted a plan to the fed­eral gov­ern­ment Thurs­day to try once again to ex­plore for oil in the Alas­kan Arc­tic, af­ter years of le­gal and lo­gis­ti­cal set­backs as well as dog­ged op­po­si­tion from en­vi­ron­men­tal­ists.

While the plan is just a first step in the pro­cess, it re­flects the en­ergy po­ten­tial in the Arc­tic. Shell’s pro­posed pro­grams con­sist of two drill­ing rigs work­ing si­mul­ta­ne­ously in the Chuk­chi Sea, which could pro­duce more than 400,000 bar­rels of oil a day. Shell em­pha­sized that it had not made a fi­nal de­ci­sion on whether to drill next sum­mer. But it said the fil­ing with the In­te­rior Depart­ment pre­served its op­tions.

The ef­forts, even in this pre­lim­i­nary stage, are likely to ran­kle en­vi­ron­men­tal­ists, who ar­gue that drill­ing in the Arc­tic is overly risky be­cause of ice floes, dark­ness in win­ter and the pres­ence of sev­eral spe­cies of threat­ened wild­life such as po­lar bears. Sev­eral en­vi­ron­men­tal groups were quick to say they would op­pose Shell’s lat­est plan, in­clud­ing with court chal­lenges, if it re­ceives gov­ern­ment ap­proval.

Over the past eight years, Shell’s Alas­kan Arc­tic ef­forts have been plagued by blun­ders and ac­ci­dents in­volv­ing ships and sup­port equip­ment, cli­max­ing with the ground­ing of one of its drill­ing ves­sels in late Decem­ber 2012 in stormy seas. En­vi­ron­men­tal groups seized on the ep­i­sodes as ev­i­dence to sup­port their claims about the risks.

The com­pany, which has spent roughly $6 bil­lion on the ef­fort, drilled two shal­low wells in Alaska’s Arc­tic dur­ing 2012. But the fed­eral gov­ern­ment did not al­low Shell to reach the deeper, oil-bear­ing for­ma­tions. The com­pany did not have the equip­ment to con­tain spills af­ter the test­ing fail­ure of a con­tain­ment dome de­signed to cap a run­away well and col­lect oil in case of an ac­ci­dent.

After Shell’s prob­lems, Cono­coPhil­lips and the Nor­we­gian oil gi­ant Sta­toil sus­pended their Alas­kan Arc­tic drill­ing plans.

Shell’s plans for the Alas­kan Arc­tic had looked doubt­ful since Ben van Beur­den took over as the com­pany’s new chief ex­ec­u­tive nearly nine months ago. Mr. Van Beur­den pledged to in­crease dis­ci­pline on ris­ing costs and im­prove cash flow. Under his guid­ance, the com­pany has be­gun to sell off un­der­perform­ing nat­u­ral gas and oil fields around the United States while step­ping up pro­duc­tion from its deep-wa­ter Bra­zil­ian and Gulf of Mex­ico oil wells. Profit is im­prov­ing, though Shell’s in­vest­ments in Rus­sia could be at risk if Western sanc­tions tighten.

The com­pany an­nounced in Jan­u­ary that it would not make an ef­fort to drill in Alaska this sum­mer, given the le­gal ob­sta­cles. A fed­eral ap­peals court had ruled that the In­te­rior Depart­ment’s en­vi­ron­men­tal im­pact re­view was flawed when it sold Shell more than $2 bil­lion in oil leases in the Chuk­chi Sea.

But in re­cent weeks, Shell has shown re­newed in­ter­est in its Alaska ef­forts, by sign­ing an agree­ment with sev­eral Alaska Na­tive cor­po­ra­tions to share prof­its from off­shore drill­ing. Wall Street an­a­lysts said Shell could not af­ford to watch other com­pa­nies suc­ceed else­where in the Rus­sian and Ca­na­dian Arc­tic and not par­tic­i­pate.

“These peo­ple are paid to play, and not to watch,” said Fadel Gheit, a se­nior oil com­pany an­a­lyst at Op­pen­heimer & Co. “After all the hic­cups and bad luck, the com­pany has de­cided that the up­side po­ten­tial is greater than the down­side risk, and it’s worth an­other shot.”

The Alas­kan Arc­tic is one of the great un­tapped fron­tiers for off­shore drill­ing in the United States, with the po­ten­tial to pro­duce as much as a mil­lion bar­rels a day, in­dus­try ex­perts say. But Alaska has suf­fered a long de­cline in its oil pro­duc­tion be­cause of the aging of its on­shore fields and un­der­in­vest­ment.

Gov. Sean Par­nell last year pushed a tax over­haul sup­ported by the oil in­dus­try through the Alaska Leg­is­la­ture, and this month beat back a bal­lot ref­er­en­dum ef­fort in­tended to re­turn the state to its old tax re­gime. With new tax breaks and in­cen­tives, the in­dus­try has pledged to in­vest more in Alaska’s oil fields.

Still, Shell faces many hur­dles in its re­newed ef­forts. The In­te­rior Depart­ment’s Bureau of Ocean Energy Man­age­ment must redo the orig­i­nal in­ad­e­quate en­vi­ron­men­tal im­pact as­sess­ment by the spring, when Arc­tic wa­ters be­gin to open, and Shell can start to move its drill­ing and sup­port ves­sels into po­si­tion.

A co­a­li­tion of en­vi­ron­men­tal groups, in­clud­ing the Center for Bi­o­log­i­cal Diver­sity and Earth­justice, are pre­par­ing to chal­lenge a new as­sess­ment if it reaches a sim­i­lar con­clu­sion as the pre­vi­ous one. A le­gal chal­lenge, even if it’s ul­ti­mately un­suc­cess­ful, could mean more de­lays for drill­ing. “Drilling in the Arc­tic makes no more sense in 2015 than it did when it was first pro­posed,” said Bren­dan Cum­mings, se­nior coun­sel for the Center for Bi­o­log­i­cal Diver­sity, an en­vi­ron­men­tal ac­tiv­ist group.

Shell will also need to have its ex­plo­ration plan ap­proved by the In­te­rior Depart­ment. Shell spokes­man Cur­tis Smith said the new plan had for­ti­fied safety fea­tures, in­clud­ing new tug­boats, an ex­tra he­li­cop­ter, ad­di­tional off­shore sup­ply ves­sels and bet­ter man­age­ment of con­trac­tors. “All to say we’ve taken a crit­i­cal look at the ex­pe­ri­ences we’ve had in Alaska over the last sev­eral years, and this ex­plo­ration plan takes those learn­ings into ac­count,” he said.

En­vi­ron­men­tal­ists are sim­i­larly ex­pected to chal­lenge any ap­proval of those plans. Shell’s sep­a­rate spill re­sponse plan is also now be­ing con­tested in a fed­eral ap­peals court in San Fran­cisco. But Green­peace spokes­man Travis Nic­hols was highly crit­i­cal of Shell’s plan­ning. “Any­one who has been fol­low­ing this story knows Shell is not Arc­tic-ready,” he said, “and more im­por­tantly, the Arc­tic will never be Shell-ready.”

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