Shell scraps efforts to hit Arctic oil this year

Royal Dutch Shell is abandoning plans to strike oil in Arctic waters off Alaska’s coast this year following damage to spill-containment equipment that the company is required to have ready for deployment.

The oil giant has already commenced limited preparatory drilling off Alaska’s northern coast, but said it will be unable to proceed with drilling into oil-bearing zones.

Damage to the containment system is the latest in a series of problems that have bedeviled the multibillion-dollar oil exploration project, which has received close scrutiny on Capitol Hill.

Republicans have blamed Shell's long wait for federal approval on red tape from the Obama administration that they say hinders energy development.

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Environmentalists, meanwhile, bitterly oppose drilling off Alaska’s coast, calling it a threat to whales, polar bears and other endangered and sensitive wildlife that inhabit the Arctic seas.

Shell said Monday that the containment dome, which is designed to control a subsea blowout, aboard the Arctic Challenger barge suffered damage during final testing of the overall spill-containment system.

There’s not enough time to repair and assess the dome during this year’s window for drilling into oil-bearing subsea formations, Shell said.

“The time required to repair the dome, along with steps we have taken to protect local whaling operations and to ensure the safety of operations from ice flow movement, have led us to revise our plans for the 2012-2013 exploration program. In order to lay a strong foundation for operations in 2013, we will forgo drilling into hydrocarbon zones this year,” Shell said in a statement.

The company had not yet won federal approvals for drilling into oil but has received the Interior Department's go-ahead to begin initial, "top hole" drilling in the Chukchi Sea, and began that well-construction work earlier in September.

Shell had faced a looming deadline to complete any drilling into oil-bearing regions beneath the Chukchi Sea, and must clear out of the Chukchi and adjoining Beaufort Sea entirely by the end of October.

There’s not enough time to drill into the oil-bearing zones this year, Shell said, while touting its limited preparatory drilling.

“We will begin as many wells, known as ‘top holes,’ as time remaining in this season allows. The top portion of the wells drilled in the days and weeks ahead will be safely capped this year, in accordance with regulatory requirements,” Shell said.

Shell has spent several billion dollars — about $4.5 billion, according to numerous reports — purchasing and seeking to develop leases in the area. 

Greenpeace, in a statement Monday, said the Arctic is proving to be Shell’s “Waterloo.”

“Today’s news is vindication for the efforts of the global movement to stop Shell, but the fight continues,” said Dan Howells, the group’s U.S. deputy campaigns director. “The fragile Arctic environment should be off-limits to industrial exploitation, and the worldwide Save the Arctic campaign won’t stop until the region wins protection.”

But despite the latest setback, Shell said it took vital steps this year in commencing the project.

“Important progress has been made in Shell’s multiyear drilling program to explore for new oil and gas resources in high-potential blocks offshore Alaska. With two drill ships, more than 20 support vessels, an approved capping stack, and other redundant oil spill response equipment already in position, Shell continues to demonstrate the strength and extent of its Arctic preparations,” Shell said.

Shell began preparatory drilling in the Chukchi Sea on Sept. 9 but was forced to quickly halt the effort, moving the Noble Discoverer drillship away as a “precautionary” measure to avoid sea ice that might have been encroaching.

The company plans to resume that work in the “days ahead,” Shell said Monday, and also plans to begin the “top hole” drilling soon in the Beaufort Sea.

“These operations will follow the conclusion of the fall whale hunt and the anticipated receipt of a top hole drilling permit,” Shell said of the work in the Beaufort.

This post was updated at 9:43 a.m.

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