Royal Dutch Shell Plc’s drilling costs in the Arctic will rise after the U.S. barred the company from boring more than one well at a time in its approval of the proposals, a person with direct knowledge of the plans said.
Expenses would be higher because Shell can only operate for about two and half months a year in the Arctic before ice moves in, the person said, asking not to be identified as the plans aren’t public. It planned to drill two wells over two years for an annual $1.4 billion, according to the person.
Shell won approval from the U.S. Fish and Wildlife Service on June 30, leaving the company with only one more permit to get before it can start operating. The restriction on simultaneous drilling is because of the need for a 15-mile buffer zone around active rigs to prevent marine mammals being disturbed.
Shell is targeting the Arctic as it reckons resources are 10 times the oil and gas produced so far in the North Sea. The first well is planned in the Chukchi Sea at a water depth of about 50 meters (165 feet) in the third week of this month, the person said. It has to leave by Sept. 28 before winter ice moves in.
The company seeks to resume work halted in 2012 when its main drilling rig ran aground and was lost. It also was fined for air pollution breaches. Shell discovered gas in the area in 1989 and is now targeting oil in the prospect, the person said. A spokesman declined to comment on the Chukchi Sea drill plans.
If Shell doesn’t find oil or gas in the first well in the current program, it may abandon drilling in the Arctic for the time being as it would need to plan again, the person said.
Shell has already committed $7 billion including the $1.4 billion for drilling this year to the Arctic project. The plan to return to the Arctic is being resisted by environmental groups. Greenpeace activists occupied Shell’s oil rig in the Pacific this year in a latest effort to stop Alaska drilling.
Shell won approval for its Arctic plans from the Interior Department in May. In its review, the department found drilling in the Chukchi Sea would have no major environmental impact.