Resource Development Council

Shell remains confident in its Alaska OCS

drilling program, Alaskans object to delay

Shell said it will continue to focus on future exploration in the Alaska OCS, despite President Obama’s decision to put drilling permits on ice. Meanwhile, Alaska’s governor and congressional delegation blasted the President’s decision to postpone offshore oil and gas exploration in the shallow waters of the Chukchi and Beaufort Seas for at least one year.

Shell was set to drill three wells this summer in the Chukchi Sea and two in the Beaufort Sea after its 2010 drilling program cleared major hurdles and court challenges this spring. The company, which was hoping to drill in previous summers but was forced to pull back, will be unable to drill until next summer at the earliest, and the most recent delay has the potential to cost the energy giant hundreds of millions of dollars.

Shell will “work closely with the government and other experts during this suspension in drilling activities,” said Pete Slaiby, the head of the company’s Alaska office.

“We respect and understand today’s decision in the context of the tragic spill in the Gulf of Mexico, but we remain confident in our drilling expertise, which is built upon a foundation of redundant safety systems and company global standards,” Slaiby said. “Our drilling plans have undergone an unprecedented level of review, including scrutiny from the courts, regulators and stakeholders,” he said.

The company spent more than $2 billion in February 2008 to acquire federal leases in the Chukchi Sea and has spent more than a billion dollars to prepare for drilling.

U.S. Secretary of Interior Ken Salazar said the White House put a freeze on offshore drilling in the Arctic until after the findings are released from a presidential commission studying the gulf spill. The commission will look for weaknesses in the offshore plan that the Deepwater Horizon rig was operating under up to the time of its explosion in April. The commission is expected to recommend measures to prevent a similar incident from happening again.

Senator Mark Begich expressed disappointment with the one-year postponement in Alaska offshore drilling and said Shell’s plans for the Arctic were a direct casualty of the gulf spill. “We have worked with them to meet the standards that the agencies have required of them,” Begich said. “They have moved through litigation, and most recently at the request of the administration, increased their safety efforts in order to reassure the administration that they were going far beyond what was required of them,” Begich said.

Senator Lisa Murkowski feared the administration’s move was a “backhanded way to kill offshore development in Alaska.” “If the delay is for a season to ensure we have the highest levels of protection in place, that’s one thing,” Murkowski noted. “But if it means that existing permits are allowed to lapse – effectively killing Shell’s participation in Alaska – that’s not acceptable to Alaska.”

Congressman Don Young called the delay a knee-jerk reaction to the hysteria of public interest groups opposed to oil and gas development. “The kind of event that happened in the gulf, while tragic, is so uncommon,” Young said. “It is akin to an American jetliner crashing. If a plane goes down, we don’t stop flying. We figure out what went wrong and correct the problem.”

Governor Sean Parnell said the decision was based more on fear than science. “I simply cannot understand how the federal government could approve plans of exploration only five months ago – approvals that were upheld in the Ninth Circuit Court of Appeals – but now refuse to take the final step in a long regulatory process and not authorize Shell’s permits to drill,” Parnell said. “Shell’s leases should be extended, and they should be able to continue seeking permits.”

Alaska’s state and federal leaders note conditions in the shallow waters of the Arctic are materially different from those encountered in the extreme deepwater Gulf of Mexico. They also point out Shell’s prevention and response plans meet or exceed stringent requirements to operate in Alaska.

Alaskans are concerned that the delay could extend beyond one year. If the deferment turns into a permanent ban, it would stifle any future development and have a significant impact on the economy. Development and production would create thousands of jobs and generate revenue for federal, state, and local governments. Moreover, OCS development represents the best hope for extending the life of the Trans-Alaska Pipeline System. Even though the pipeline is operating at only one-third capacity, it is a vital artery supplying 25% of the West Coast’s oil.

According to a University of Alaska study, production from the Alaska OCS would sustain Alaska’s economy for decades and create 35,000 new jobs in the state. It would also provide a major domestic source of oil and gas to help meet the nation’s energy needs and ease the country’s nearly 70 percent dependence on foreign sources. Over the long-term, Alaska production could generate hundreds of billions of dollars in revenues to the state and federal government.

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