Shell puts freeze on exploration in controversial waters of the Arctic

By ERIKKA ASKELAND
Published on 17/09/2012 19:12

TOUGH arctic conditions and technical troubles have caused oil giant Shell to delay its hunt for oil in Alaska until next year.

The group, which has spent about $4.5 billion (£2.8bn) on its efforts to look for Arctic oil, said yesterday it will not attempt to drill into any oil or gas-containing rocks in the Chuckhi Sea this year as a dome which would be used to contain oil in the event of a spill will take time to repair.

In a statement, Shell said: “In order to lay a strong foundation for operations in 2013, we will forgo drilling into hydrocarbon zones this year.”

It added: “This exploration programme remains critically important to America’s energy needs, to the economy and jobs in Alaska, and to Shell.”

The Anglo-Dutch oil major is not the only company to encounter difficulties in the tough Arctic conditions.

Shell’s arch-rival BP indefinitely suspended a $1.5bn offshore oil project in Alaska due to cost overruns and technical setbacks in July, while the Russian state-owned Gazprom’s Shtokman gas project in the Barents Sea has also been stopped due to spiralling costs.

There is a short drilling season in the Chuckhi Sea, which is only navigable for a few months a year.

Environmental campaigners hailed the Shell delay as a vindication of its call to halt arctic drilling. Ben Ayliffe, head of Greenpeace’s campaign on the issue, said: “Investors must now be asking whether investing such vast sums of money trying to exploit the fragile Arctic is really worth it.”

Meanwhile, shares in Trapoil, the North Sea oil and gas explorer, fell 5 per cent after the firm said Centrica, the parent company of Scottish and British Gas, had decided not to drill an appraisal well on the Inverewe prospect.

Trapoil currently has a 20 per cent working interest in the UK North Sea prospect, formerly called Kew, but that will rise to 80 per cent under the terms of its farm-in agreement with Centrica, which will pay the company a £1.5 million “walk away” fee.

As a result of Centrica’s decision, Trapoil is in talks with its other partner in the prospect, JX Nippon Exploration and Production. It said it believes that the Japanese company remains supportive of drilling an appraisal well, subject to the involvement of a new partner to replace Centrica as operator by 9 January.

A spokesman said: “Trapoil remains of the view that Inverewe represents an exciting opportunity and is committed to finding a partner to work alongside it and JX Nippon to exploit the potential that exists within the licence area.”

Brent crude futures dipped yesterday while US crude edged higher in choppy trading as worries that high prices may hurt demand kept the markets in check even as expectations that Federal Reserve stimulus will boost commodities lent support.

On Friday, Brent posted a seventh straight higher settlement and hit a four-month high of $117.95 per barrel, after Thursday’s Fed launch of a third round of quantitative easing aimed at bolstering the economy and supporting job creation.

Protests continued over a film mocking the Prophet Muhammad that has unleashed a wave of anti-Western sentiment in the Muslim and Arab region, keeping worries about disruptions to oil supplies in focus.