Shell President Odum optimistic on chances for 2012 Arctic offshore drilling

Shell Oil President Marvin Odum has faith that his company can develop vast reserves in the Chukchi Sea off Alaska’s northwest coast. But he’d like to get on with exploratory drilling to tap into a resource that could be crucial to meeting the country’s energy needs.

“That’s an area where working in Alaska has, frankly, been disappointing to us as a company,” Odum said in an interview with The Associated Press. “It has taken much longer that we originally thought it would.”

Shell Oil Co. spent $2.1 billion on Chukchi leases in 2008 but has yet to drill an exploratory well. The Houston-based subsidiary of Royal Dutch Shell PLC has been stymied by an appeal of an Environmental Protection Agency clean air permit, a lawsuit that challenged the legitimacy of the lease sale, and a determination by federal regulators to move slowly in the Arctic after the blowout of BP’s well in the Gulf of Mexico.

Shell says it has spent more than $3.5 billion drilling in the Arctic, including the Beaufort Sea off Alaska’s north coast. The potential prize is the estimated 26.6 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas in the Alaska outer continental shelf.

That’s nearly four times the amount of oil the U.S. consumes in a year, and more than five times the nation’s annual gas consumption.

Information the company has accumulated over the last five years, including three-dimensional seismic data, has increased Shell’s enthusiasm for Arctic drilling, Odum said.

But drilling is bitterly opposed by some Alaska Native groups who fear a spill — and even exploration itself — will hurt their ability to harvest the bounty of the ocean waters, from whales to walrus and ice seals.

Environmental groups have challenged the legitimacy of the Chukchi sale in court, claiming the former federal Minerals Management Service failed to conduct adequate environmental studies. They question oil companies’ ability to safely operate or clean up a spill in the region’s notorious harsh region, where waters are frozen or ice-choked most of the year.

Odum said Shell recognizes the challenges and can meet them.

“What we deal with in the Chukchi is the remoteness,” he said. “We deal with the fact that we have extreme temperatures, and some of the environmental factors are fairly extreme. But the technology that we have now to do it is absolute.”

Exploration wells must be drilled to confirm accumulations of Chukchi oil and gas, he said, but that’s just the start of Shell’s planned investment. The company must assess the economics and make a development plan to move oil to shore and then roughly 400 miles to the trans-Alaska pipeline system. That underscores what Shell believes is available in the Chukchi.

“With these huge investments, what makes that work is the fact that we think the resources are very, very large, therefore strategically important to the country, and of course to the state of Alaska, and that those will be sufficient to make the economics of this development work,” he said.

Shell hopes to drill six exploratory wells in the Chukchi during the short summer open water drilling season and four in the Beaufort over the next two years.

A federal Arctic offshore drilling coordinator would help, Odum said.

“We have a number of different agencies in our government that are tasked with supplying permits to move this kind of process forward. And those are independent agencies. So what we lack in this system is, we lack a coordination, if you will, of agencies that can work together, that can share data, that can do this more efficiently,” he said.

He can understand why laypeople compare the Gulf of Mexico and Arctic waters. From an industry expert’s perspective, the two are not related because of differences in drilling depth, water depth and pressure in the wells, he said.

Odum said exploratory drilling should have been allowed this year.

“The system we had set up for 2011 was absolutely prepared, from all environmental protection and exceeding regulatory standards, no matter how you look at it, to do that drilling,” he said.

But Shell hopes the disputes will be resolved so it can drill next summer. The air permit appeal may be nearing completion and the company is awaiting a judge’s ruling on whether sufficient environmental work has been done, but Interior Secretary Ken Salazar has said he will proceed with caution on any decision to lift the government’s Arctic drilling suspension.

The drilling areas are more than 1,000 miles from the nearest Coast Guard base on Kodiak Island, and Shell would operate without the resources available in the gulf if it has to cap a blowout or respond to a spill.

Odum insists the company is prepared. The exploratory drilling plan calls for upward of a dozen vessels accompanying the drilling ship, a second drilling ship to relieve pressure in a blowout well, an oil spill containment system that could cap a blowout, and additional staged resources.