Shell's Last Ditch Play for Arctic Drilling -- New Safety Promises It, Er, Overlooked Before

Last Updated May 18, 2010 5:28 PM EDT

Royal Dutch Shell (RDS) is just one federal OK away from drilling offshore in the Arctic this summer. But now, with initial permits in hand and after pushing through a number of regulatory hurdles and legal battles, the Gulf of Mexico oil spills threatens to derail Shell's Arctic plans. The oil spill from BP's well has incited widespread hesitation among federal regulators, leaving Shell scrambling to make assurances and promises that it does, indeed, have a plan for oil spills. These latest assurances from Shell stand out not because they were added, but because they weren't part of the plan to begin with.

It's not that Shell didn't have some sort of contingency plan. The company's 2010 Arctic exploration program did have an environmental and safety component. But the Gulf of Mexico oil spill caused federal regulators to take pause and ask Shell for more detail on what it would do in the event of an oil spill. Shell delivered, and in a letter to the Minerals Management Service, the company outlined its current plan and even added more safety measures.

Shell's interest in Alaska and the Arctic goes back decades. The company already has loads of money vested in offshore Arctic drilling and for good reason: undiscovered, economically recoverable resources in the Chukchi are estimated to have as much as 12 billion barrels of oil and 54 trillion cubic feet of natural gas. In the Beaufort Sea, there are n estimated 7 billion barrels of oil.

Shell paid upwards of $2.1 billion to acquire 275 lease blocks in the Chukchi Sea in 2008, but has yet to turn a single drill bit because of legal challenges. Which means the company will fight -- heck, even if it means beefing up its safety and environmental plans -- to be able to drill there.

A heftier contingency plan is absolutely warranted in this case. The Arctic, aside from its fragile ecosystem, also is incredibly remote and known for its severe cold and storms. Drilling operations in the Arctic won't be next door to the kinds of resources available in the Gulf of Mexico. If there were a spill, Shell would need access to boats, boom and skimming equipment and of course, people trained to operate in the severe environment. The closest airport to Shell's proposed Chukchi site is 100 miles away. Alaska Clean Seas, the main oil spill cleanup industry co-op, is trained for the conditions, but it's located about 240 miles away in Prudhoe Bay.

Other oil and gas companies, especially Exxon (XOM) and ConocoPhillips (COP) will be paying close attention to Shell's last ditch effort to get approval in the Arctic. If Shell manages to get final approval -- in an off limits, eco-sensitive area -- amid the Gulf of Mexico tragedy, let's just say the future of offshore drilling is bright.

Here's a sampling of Shell's new safety measures:

  • A prefabricated coffer dam ready for immediate use in case of a blowout, t sudden buildup and release of pressure that caused the Gulf of Mexico oil spill;
  • Improve its blowout prevention equipment and testing of the equipment every week, instead of every 14 days;
  • Oil and gas reservoirs will be evaluated for pressure, fluid content and temperature before full-scale coring begins in a separate bypass hole. This aims to reduce the risk of a "kick" or unwanted flow in the main wellbore.
  • Will have a fully functioning remote operated vehicle (ROV) diver on its support vessels in addition to ROVs on the drilling rig and science vessel in case of blowout preventer equipment failure or malfunction. (These divers are used to fix underwater equipment).
  • Dispersants available if other efforts fail.
Photo of Shell operating in Alaska from Shell See additional coverage of offshore drilling and Alaska oil: