Shell (NYSE: RDS.A) Begins Arctic Drilling

On Sunday, Royal Dutch Shell (NYSE: RDS.A) began drilling in the Arctic after six years of preparation.

The first well is located roughly seventy miles off the coast of Alaska in the Chukchi Sea. For now, it will remain 8.5 inches wide and about 1,400 feet below the sea floor until an oil spill containment barge arrives at the location.

Shell had been set to begin drilling several years ago, with government approval on the way, when the blowout occurred at BP’s (NYSE: BP) Deepwater Horizon rig.

The spill was one of the worst in the U.S. and set back Shell’s plans significantly. But after a number of safety precautions in the well plans, Shell was given the go-ahead on August 30.

From CNN:

“Today marks the culmination of Shell’s six-year effort to explore for potentially significant oil and gas reserves, which are believed to lie under Alaska’s Outer Continental Shelf,” company spokesman Curtis Smith said in a written statement. “In the days to come, drilling will continue in the Chukchi Sea, and we will prepare for drilling to commence in the Beaufort Sea.”

A U.S. Geological Survey estimated that the Arctic location has over 90 billion barrels of potentially recoverable oil and 1,700 trillion cubic feet of recoverable natural gas. But Shell won’t start bringing up oil this summer.

Drilling season in this part of the Arctic ends on September 24th, in order to allow time for companies to take all the necessary steps to close the well before the area freezes over. Shell’s wells will be capped and abandoned for the winter.

But Shell has also been granted an 18-day extension beyond the season’s close in order to allow it time to finish the well. It’s encountered a number of setbacks, including the slow movement of the Arctic Challenger containment barge.

Shell has assured officials that it has taken the necessary precautions to avoid a disaster similar to BP’s in 2010. First off, its blowout preventers will be located below the sea bed, allowing the rig to disconnect more safely in case of an emergency. BP’s blowout preventer was located above the sea bed.

The company also plans to have a capping stack close on hand. In the event of a blowout, this will be used to prevent a massive spill.

But Shell’s situation in the Arctic is also very different from that of BP’s in the Gulf. BP’s well was under 5,000 feet of water and roughly 13,000 feet below the sea floor. Shell’s Chukchi Sea well will be below only 200 feet of water and 8,000 feet below the sea bed, making for significantly less pressure.

Shell officials are excited about this latest breakthrough. Not only did the company endure significant setbacks after BP’s blowout, but it also faced environmental lawsuits and had to meet new regulatory requirements. In addition, because of the freezing conditions, it was looking at a very short open-water drilling season.

From USA Today:

“It’s the first time a drill bit has touched the sea floor in the U.S. Chukchi Sea in more than two decades,” [Shell Alaska vice president Pete] Slaiby said in a prepared statement. “This is an exciting time for Alaska and for Shell. We look forward to continued drilling progress throughout the next several weeks and to adding another chapter to Alaska’s esteemed oil and gas history.”

Shell has invested nearly $5 billion in this project over its six-year development. The company is still facing opposition by environmental groups and some Alaskan locals, but others agree the development could be beneficial to the local economy as long as the company observes necessary precautions.

That’s all for now,

Brianna Panzica

@brianna_panzica on Twitter

Energy & Capital’s modern energy guru, Brianna digs deep into the industry with accurate and insightful updates into the biggest energy companies and events. She stays up to date with the latest market moves and industry finds, bringing readers a unique view of current energy trends.