After Watching Shell, Statoil Considers Walking Away From Arctic Offshore Leases

Kulluk oil rig after running aground. Photo: U.S. Coast Guard

By Kiley Kroh

This week a top executive with Norway-based Statoil said it would be willing to walk away from Arctic offshore drilling if exploration in the harsh and remote environment proves too risky.

In an interview at the IHS CERAWeek conference in Houston, Tim Dodson, Statoil’s executive vice president of global exploration, acknowledged the numerous challenges associated with Arctic offshore drilling and reiterated his company’s cautious approach to exploration in the region.

After spending $23 million on Chukchi Sea leases in 2008, Statoil had planned to begin drilling in 2014, but delayed those plans by a year after watching Shell’s struggle to comply with safety and environmental standards and navigate the challenging conditions — all before drilling into any oil-bearing zones. Now, Dodson said, that may be pushed back even further:

We’ve [said] we wouldn’t drill before 2015. Whether that means we drill in 2015, or maybe not until 2016 or whether we’d drill at all, I think maybe the jury’s still a little bit out on that.

One key reason for Statoil’s reluctance to rush into Arctic offshore operations is the cost involved. Shell has spent approximately $5 billion on equipment and preparations, only to see its state of the art oil spill response equipment “crushed like a beer can” in a routine test off Puget Sound. And both of the company’s specialized Arctic drilling rigs were so badly damaged in accidents last year that Shell will tow them to Asia for substantial repairs — delaying its own exploration plans until at least 2014.

In the aftermath of Shell’s debacles, the Department of the Interior is nearing the end of a 60-day review of the company’s Arctic Ocean drilling program, the results of which are expected as soon as the end of this week.

While the potential for reward may be great, the risk of Arctic offshore drilling is tremendous. First, the remoteness of the region and its glaring lack of infrastructure necessary to respond to a potential oil spill or marine accident significantly complicate the industry’s ability to prove its preparedness. Next, the volatile conditions in which any company would be operating — including long periods of darkness, fog, hurricane-force winds, massive swells, and ice-infested waters for the majority of the year — further compromises safety and preparedness.

And the private sector has taken notice. Insurance giant Lloyd’s of London released a report last year warning companies that responding to an oil spill in a region “highly sensitive to damage” would present “multiple obstacles, which together constitute a unique and hard-to-manage risk.” German Bank WestLB announced last year that it would not provide financing to any offshore oil or gas drilling in the region, saying “the risks and costs are simply too high.” And Total SA, the fifth largest oil and gas company in the world, announced it wouldn’t seek to drill in the Arctic because an accident there would be a “disaster.”

Despite Shell’s temporary hiatus and Statoil’s caution, the debate over oil and gas exploration in the U.S. Arctic Ocean is far from over. Both Shell and ConocoPhillips have affirmed their intention to begin exploratory drilling in 2014. As the Center for American Progress’ Chair John Podesta stated in reaction to Shell’s recent announcement, “One company hitting the pause button will not mitigate the risks involved; the Department of the Interior should hit the stop button to prevent any oil and gas drilling from taking place in the Arctic Ocean.”

Kiley Kroh is the Associate Director for Ocean Communications at the Center for American Progress.

2 Responses to After Watching Shell, Statoil Considers Walking Away From Arctic Offshore Leases

  1. fj says:

    Unique concept: Let reality guide your decisions.

  2. Mike Roddy says:

    What are they waiting for? We already know it is too risky.