Monday, September 17, 2012

Royal Dutch Shell (NYSE:RDS.A) Abandons Drilling for Oil in the Arctic this year

Royal Dutch Royal Dutch Shell plc (ADR)(NYSE:RDS.A) said on Monday that it has suspended drilling fir hydrocarbon deposits in the Arctic region this year due to damage to its Arctic Containment Systems.

The containment system is critical safety equipment that is mandatory if it is to get final approval to drill to great depths in hydrocarbon zones. It helps to contain the spread of oil in the event of a spillage. The company now plans to take up the drilling next year.

Last week Shell had called a temporary halt to its drilling exercise off the coast of Alaska as a safety measure against the shift in ice bergs.

Shell has got approval to drill shallow wells and the company plans to complete as many of these as possible before tackling the deeper wells next year.

The oil and gas producer needs to complete most of its task before the cold weather takes over, as then ice would settle over the sea and prevent further drilling. Ice starts forming as early as the end of this month.

It is also planning to start preliminary drilling of wells in the Beaufort Sea, which remains ice free for a long time.

This is a setback for the company as it has spent about $4.5 billion in the quest to search for oil in the Arctic region. It is a critical project both for the company as well as the economy in Alaska, where a lot of jobs could be created.

"This critical program ... could be an important national resource for the next several decades, and we are committed to doing it safely and responsibly," Shell spokeswoman Kelly op de Weegh said in a statement to the Los Angeles Times.

This is not the first time that Shell's oil containment system has given it trouble, having undergone troubles with getting retrofitted.

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