Shell seeks extension of Alaska Chukchi drill season

ANCHORAGE, Alaska Tue Aug 28, 2012 6:00pm EDT

ANCHORAGE, Alaska (Reuters) - Royal Dutch Shell (RDSa.L) is seeking permission to extend its Arctic drilling season as it struggles with the logistics of exploring untapped oil reserves beneath icy waters off Alaska.

The oil giant, which so far has spent $4.5 billion on its Alaska exploration program, is seeking to drill the first wells in two decades in the remote Chukchi Sea, which sits between Alaska and Siberia. The effort is being closely watched by the energy industry.

Shell has asked the U.S. Bureau of Ocean Energy Management to extend allowable drilling in hydrocarbon zones in the Chukchi for up to 18 days beyond the current deadline, said Shell spokesman Curtis Smith.

Shell's BOEM-approved exploration plans require the company to cease drilling into known oil- or gas-bearing geologic depths in the Chukchi by September 24 due to dangers posed by ice. Shallower 'top-hole' drilling would be allowed after that date.

Drilling into hydrocarbon zones in the neighboring Beaufort Sea would be allowed until October 31, but under the plans, all operations must cease by the end of October.

Smith said the request for an extension in the Chukchi is based on scientists' expectations that open-water conditions will linger late into the fall. "We are looking at an ice-forecast scenario that indicates a mid-November freeze-up," he told Reuters.

Sea-ice cover in the Arctic Ocean reached a record low this week, dropping below the previous record set in 2007, the National Snow and Ice Data Center reported on Monday. It is expected to continue diminishing for at least the next week.

Long-term disappearance of sea ice in the Arctic Ocean has inspired development boosters to look to the area for new oil finds. So far, Shell has been the company with the most ambitious Arctic oil-exploration plans.

The usually ice-clogged Chukchi Sea is considered a promising but daunting frontier for oil drilling. The U.S. Department of Interior estimates the Chukchi holds over 15 million barrels of recoverable oil.

But remoteness and harsh conditions have hindered development. There have been only five wells drilled in the Chukchi, four of them by Shell, and all were abandoned.

Shell, which paid $2.1 billion in 2008 to acquire Chukchi leases from the federal government, is seeking to return to some of those previous drilling sites. Other companies hold leases in the Chukchi and have ambitions for drilling there too, but none has proceeded as quickly or spent as much money as Shell.

Shell has been frustrated so far this year in its attempt to drill up to three exploration wells in the Chukchi and up to two in the Beaufort during the ice-free season. Shell had hoped to start as early as the start of July, but no drilling has taken place due to a variety of setbacks.

Shell's drill-ship fleet was slowed in its travels north by lingering early-summer sea ice in the Bering Sea. The company is seeking modifications from the U.S. Environmental Protection Agency to its air-quality permits. Shell is also required, under its approved plans, to cease operations temporarily during the traditional fall Inupiat Eskimo bowhead whale hunt, which usually lasts a few weeks.

The company has yet to win approval from the U.S. Coast Guard for a crucial part of the drilling fleet. Without that approval, federal regulators cannot issue Shell's permits for drilling specific wells.

Shell's oil-spill barge, the Arctic Challenger, has been in Bellingham, Washington, for several weeks, undergoing inspections for seaworthiness. The barge contains an oil-well-capping system that Shell has touted as a major safety element of its drilling program. But deficiencies cited by the Coast Guard have forced the company to undertake modifications, including some construction work.

Shell's Smith said the company is seeking guidance from the Department of Interior on what site preparation can take place without the Arctic Challenger in place.

The department is considering Shell's concerns, a spokesman said Tuesday.

"We continue to engage with Shell as they work to fulfill the conditions necessary to proceed with potential drilling activities in Alaska. Any approved activities that occur in the Chukchi or Beaufort Seas will be held to the highest safety, environmental protection, and emergency response standards," Department of Interior spokesman Blake Androff said in an email.

(Reporting by Bill Rigby; Editing by Dan Grebler)

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