Shell faces 12 month setback in $4.5bn Arctic drilling campaign

The oil company has converted a 300-foot vessel to comply with heightened safety standards

Shell is racing to begin a massive drilling campaign in US Arctic waters before they freeze over and postpone activities by a year.

The FTSE 100 oil company has invested about $4.5bn (£2.9bn) over the past seven years and fought off more than 50 lawsuits, including from environmentalists and indigenous Alaskan groups, in its controversial attempt to access the US Arctic's vast oil reserves in the Chukchi and Beaufort seas. It had hoped to begin exploratory drilling in July off the coast of Alaska.

But delays in securing certification for its giant spill-containment barge, the Arctic Challenger, mean Shell has already missed that deadline and concerns are fast mounting in the City that if the vessel is not authorised this week the company will miss its chance to begin drilling this year.

"I'm starting to think it won't happen this year," Andrew Whittock, an analyst at Liberum Capital, said.

Iain Pyle, an analyst at Sanford C Bernstein, added: "We're at a crunch time. I don't know exactly how much time they need but we're at a point now where it's looking like it might not happen this year. And any wells they do begin drilling they will really want to complete. There is no point in starting a well this year, plugging it, and finishing it off next year. That will only add to the cost."

Shell has converted the 300-foot Arctic Challenger to comply with heightened safety requirements imposed by the US in the wake of BP's Gulf of Mexico oil spill in 2010. But the US Coast Guard still believes there are deficiencies in the barge's safety systems and so it remains moored in Bellingham in Washington State, while Shell fixes them. A Shell spokeswoman said it expected to have everything mended by the end of the month.

Shell's permit means it cannot begin drilling in the Chukchi sea until July each year and has to in effect end by 24 September, when the ice which has typically formed by that point makes it increasingly difficult to work – and to clean up oil spills. The Beaufort Sea has a later deadline of 31 October.

Analysts said it typically takes between two weeks and a month to drill an Arctic well, while it is expected to take between two and three weeks to sail the Arctic Challenger from Bellingham to northern Alaska, meaning any drilling would be unlikely to commence much before mid-September, at the earliest.

Last week, US Interior Secretary Ken Salazar, cast doubt on whether Shell would kick off its long-awaited drilling campaign this year, although he did not put a deadline on the proceedings.

A Shell spokeswoman said: "Our goal remains to drill and complete as many wells as time will allow this open-water drilling season."

Failure to start its drilling campaign this year could cost Shell "tens of millions if not hundreds of millions of dollars" by having highly specialised equipment lying around that can't practically be used elsewhere and could have been bought or rented a year later, one analyst said.

However, because any production in the US Arctic would be unlikely to commence for at least five years, delays are unlikely to impact Shell's bottom line much in the near future, he added.

Start your day with The Independent, sign up for daily news emails
Sport
footballHe started just four months ago
News
Nigel Farage celebrates with a pint after early local election results in the Hoy and Helmet pub in South Benfleet in Essex
peopleHe has shaped British politics 'for good or ill'
News
One father who couldn't get One Direction tickets for his daughters phoned in a fake bomb threat and served eight months in a federal prison
people... (and one very unlucky giraffe)
Travel
Streets ahead: Venice
travelWhat's trending on your wishlist?
PROMOTED VIDEO
ebooks
ebooksA year of political gossip, levity and intrigue from the sharpest pen in Westminster
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Selby Jennings: VP/SVP Credit Quant- NY- Investment Bank

Not specified: Selby Jennings: VP/SVP Credit Quant Top tier investment bank i...

Selby Jennings: Quantitative Research | Equity | New York

Not specified: Selby Jennings: Quantitative Research | Global Equity | New Yor...

Selby Jennings: SVP Model Validation

Not specified: Selby Jennings: SVP Model Validation This top tiered investment...

Selby Jennings: Oil Operations

Highly Competitive: Selby Jennings: Our client, a leading European Oil trading...

Day In a Page

Aren’t you glad you didn’t say that? The worst wince-and-look-away quotes of the year

Aren’t you glad you didn’t say that?

The worst wince-and-look-away quotes of the year
Hollande's vanity project is on a high-speed track to the middle of nowhere

Vanity project on a high-speed track to nowhere

France’s TGV network has become mired in controversy
Sports Quiz of the Year

Sports Quiz of the Year

So, how closely were you paying attention during 2014?
Alexander Armstrong on insulting Mary Berry, his love of 'Bargain Hunt', and life as a llama farmer

Alexander Armstrong on insulting Mary Berry and his love of 'Bargain Hunt'

From Armstrong and Miller to Pointless
Sanchez helps Gunners hold on after Giroud's moment of madness

Sanchez helps Gunners hold on

Olivier Giroud's moment of madness nearly costs them
A Christmas without hope: Fears grow in Gaza that the conflict with Israel will soon reignite

Christmas without hope

Gaza fears grow that conflict with Israel will soon reignite
After 150 years, you can finally visit the grisliest museum in the country

The 'Black Museum'

After 150 years, you can finally visit Britain's grisliest museum
No ho-ho-hos with Nick Frost's badass Santa

No ho-ho-hos with Nick Frost's badass Santa

Doctor Who Christmas Special TV review
Chilly Christmas: Swimmers take festive dip for charity

Chilly Christmas

Swimmers dive into freezing British waters for charity
Veterans' hostel 'overwhelmed by kindness' for festive dinner

Homeless Veterans appeal

In 2010, Sgt Gary Jamieson stepped on an IED in Afghanistan and lost his legs and an arm. He reveals what, and who, helped him to make a remarkable recovery
Isis in Iraq: Yazidi girls killing themselves to escape rape and imprisonment by militants

'Jilan killed herself in the bathroom. She cut her wrists and hanged herself'

Yazidi girls killing themselves to escape rape and imprisonment
Ed Balls interview: 'If I think about the deficit when I'm playing the piano, it all goes wrong'

Ed Balls interview

'If I think about the deficit when I'm playing the piano, it all goes wrong'
He's behind you, dude!

US stars in UK panto

From David Hasselhoff to Jerry Hall
Grace Dent's Christmas Quiz: What are you – a festive curmudgeon or top of the tree?

Grace Dent's Christmas Quiz

What are you – a festive curmudgeon or top of the tree?
Nasa planning to build cloud cities in airships above Venus

Nasa planning to build cloud cities in airships above Venus

Planet’s surface is inhospitable to humans but 30 miles above it is almost perfect