UPDATE 2-In about-turn, Conoco shelves Alaskan Arctic drilling plan

Wed Apr 10, 2013 7:09pm EDT

By Yereth Rosen

ANCHORAGE, Alaska, April 10 (Reuters) - ConocoPhillips shelved plans to drill exploration wells in the Chukchi Sea off Alaska next year due to U.S. regulatory uncertainty, a month after the company said it would press ahead with drilling there.

In another major step back from drilling in Arctic waters near the state, ConocoPhillips said on Wednesday it would not be prudent to invest in the Chukchi Sea now because of "evolving" federal regulations and permit standards, and it was unsure whether it would even be ready by 2015.

"We really don't know yet," said spokeswoman Natalie Lowman.

She said the company wanted to better understand the requirements from the government and other leaseholders before deciding. "We're not putting a timeline on it."

Conoco's decision follows Royal Dutch Shell Plc's announcement in February that it would not drill in Alaska's Arctic seas this year after a 2012 season that culminated in the grounding of its drillship in a storm.

Just over a month ago ConocoPhillips said it was still planning two exploration wells in the Chukchi Sea next year, reassuring the public that the situation would be different from Shell's.

In 2008, Conoco was awarded 98 exploration lease tracts in the Chukchi Sea. Previously, it held leases in the Beaufort Sea but has let those lapse, Lowman said. Shell had started drilling in both Arctic seas.

Conoco had spent about $500 million in the U.S. Minerals Management Service's record-setting 2008 lease sale, second only to Shell's $2.1 billion.

"Companies can't be expected to invest billions of dollars without some assurance that federal regulators are not going to change the rules on them almost continuously," said Lisa Murkowski, a Republican senator for Alaska.

The Devils Paw prospect, which Conoco had hoped to drill in 2014, also had minority partners Statoil and OOGC, a unit of China National Offshore Oil Company.

Houston-based Conoco will pursue the rest of its Alaska plans, including development of the CD-5 field, which is expected to be the first producing oilfield in the National Petroleum Reserve-Alaska on the western North Slope.

"We're still on track for first oil at the end of 2015," Lowman said.

Senator Mark Begich, a pro-drilling Alaska Democrat, said he was disappointed after spending four years working with the administration and industry to promote development of the Chukchi and Beaufort seas.

Yet groups seeking to stop or at least slow down Arctic offshore development applauded Conoco's decision.

"We agree that the industry and federal government needs more time to figure out what the next steps should be," Cindy Shogan, executive director of the Alaska Wilderness League, said in a statement. "The risks associated with drilling in the pristine Arctic Ocean are just too great."

Marilyn Heiman, director of the Pew Charitable Trusts' U.S. Arctic program, said that more time was needed to develop safety and oil spill prevention and response standards to protect the ecosystem and local communities.

But Rebecca Noblin, Alaska director at the Center for Biological Diversity, said there was "no safe way to drill for oil" in that particular environment and called on the U.S. government to take the opportunity to stop it.

The U.S. government is certainly having a very close look. Last month, it emerged that a fourth government probe was under way into Shell's 2012 season - this time for possible violations of international marine environmental rules.

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Comments (5)
SeniorMoment wrote:
Drilling in Artic waters is not the same as drilling in the Gulf of Mexico or other warm waters. Winter ice can completely destroy drilling rigs installed during the summer in clear waters. This isn’t all about federal anything either. Alaska had raised its taxes on oil substantially, almost to the point of causing a winter shut down of the Alaskan pipeline for lack of new producing wells to keep the minimum flow necessary. That has effectively reduced justification for finding oil, which is costly to explore for and costly to recover in artic conditions as well.

Finally, the Coast Guard fleet in the Artic is too small to support growth in traffic in Artic waters, so drillers are pretty much on their own. Ice conditions are also far less stable than in the past when most shipments to drilling rigs continued in winter on routes marked on the ice sheet. For that to happen with heavy loads especially there is a serious limit to how thin the winter ice can be and still make it possible to deliver supplies.

Apr 10, 2013 7:47pm EDT  --  Report as abuse
SeniorMoment wrote:
Drilling in Artic waters is not the same as drilling in the Gulf of Mexico or other warm waters. Winter ice can completely destroy drilling rigs installed during the summer in clear waters. This isn’t all about federal anything either. Alaska had raised its taxes on oil substantially, almost to the point of causing a winter shut down of the Alaskan pipeline for lack of new producing wells to keep the minimum flow necessary. That has effectively reduced justification for finding oil, which is costly to explore for and costly to recover in artic conditions as well.

Finally, the Coast Guard fleet in the Artic is too small to support growth in traffic in Artic waters, so drillers are pretty much on their own. Ice conditions are also far less stable than in the past when most shipments to drilling rigs continued in winter on routes marked on the ice sheet. For that to happen with heavy loads especially there is a serious limit to how thin the winter ice can be and still make it possible to deliver supplies.

Apr 10, 2013 7:47pm EDT  --  Report as abuse
SeniorMoment wrote:
Federal regulations in the Artic have to evolve right along with the changes brought about by global warming. The Obama Administration is not anti-oil, but pro safety after the huge oil spill in the Gulf with the Horizon rig proved the oil industry was not operating safely enough to protect the environment and that submersibles can’t do everything that a well equipped diver can do in shallower waters, even wearing a full diving suit complete with Metal helmet and air lines. Submersibles used by the oil industry can do a great deal, which was education for me and made me wonder if the Thresher can be recovered or at least its nuclear missile warheads, but they cannot do everything a diver can do in warmer, shallower Gulf of Mexico waters.

There is also a quantum difference between an oil spill that can be scraped off ice with bulldozers before being shipped elsewhere or pumped back into a well, and one that enters otherwise pristine waters and coats the coastline for decades in areas that are hard even on deep diving submersibles because of the year around cold water.

Apr 10, 2013 7:58pm EDT  --  Report as abuse
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