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ConocoPhillips Delays 2014 Arctic Marine Drilling

By Associated Press - Apr 10, 2013 at 1:53PM

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ConocoPhillips said uncertainties of evolving federal regulatory requirements are the reason for backing off.

ANCHORAGE, Alaska (AP) -- ConocoPhillips (COP 0.39%) Alaska announced Wednesday it will not drill in Arctic waters off Alaska's northwest shore in 2014.

Environmental groups hailed the decision and said the experience of Royal Dutch Shell (RDS.A) in 2012 demonstrated that oil companies are not prepared to drill in the fragile Arctic environment.

ConocoPhillips said uncertainties of evolving federal regulatory requirements are the reason for backing off.

"While we are confident in our own expertise and ability to safely conduct offshore Arctic operations, we believe that more time is needed to ensure that all regulatory stakeholders are aligned," said ConocoPhillips Alaska President Trond-Erik Johansen in the prepared statement.

It would not be prudent to commit financial resources to preserving the option to drill in 2014 at this time, the company said.

The company cited an Interior Department report released last week that said industry and government should work together to create an Arctic-specific model for petroleum exploration. The model would focus on standards for drilling and emergency response.

"We welcome the opportunity to work with the federal government and other leaseholders to further define and clarify the requirements for drilling offshore Alaska," Johansen said. "Once those requirements are understood, we will reevaluate our Chukchi Sea drilling plans. We believe this is a reasonable and responsible approach given the huge investments required to operate offshore in the Arctic."

U.S. Sen. Lisa Murkowski, R-Alaska, called the decision disappointing but not unexpected.

"Companies can't be expected to invest billions of dollars without some assurance that federal regulators are not going to change the rules on them almost continuously," she said in a prepared statement. "The administration has created an unacceptable level of uncertainty when it comes to the rules for offshore exploration that must be fixed if we're going to end our dependence on oil from the Middle East."

But environmental groups said oil companies simply are not ready to drill -- or to clean up a major spill if it occurs in waters with ice that can vary from slush to many feet thick.

"The Arctic is dangerous and a tough place to work," said Chris Krenz of Oceana by phone from Juneau. "Shell certainly demonstrated that in spades. It's a tough place to work."

Shell estimates that it has spent upward of $5 billion on Arctic offshore drilling but its drilling was bedeviled by problems last year.

Shell performed preliminary work on exploratory wells in both the Chukchi Sea and the Beaufort Sea but was restricted from drilling into oil-bearing rock because it had not finished work on a spill response barge promised in its spill response plan. A containment dome, a key piece of equipment, was damaged in testing off the Washington coast.

Seasonal ice in the Chukchi Sea delayed Shell vessels from moving north. When Chukchi drilling began in September, a major ice floe forced Shell's drill ship off a prospect less than 24 hours later.

When the drilling season ended, the Coast Guard announced that it had found safety violations on the Noble Discoverer, which drilled in the Chukchi. The Coast Guard has turned over its investigation of the vessel to the U.S. Department of Justice.

Problems peaked in late December when the drill vessel Kulluk, a circular barge that operated in the Beaufort, broke away from its towing vessel on its way to a shipyard in Washington state and ran aground on an Alaska island.

Both vessels will be repaired in Asia shipyards. Shell previously announced it would not resume drilling in 2013

Krenz said existing technology is not sufficient to protect Arctic ecosystems and opportunities for subsistence from drilling and a possible oil spill. He agreed that specific standards must be developed for the Arctic.

"The oil is not going anywhere but the technology to protect the Arctic can improve," Krenz said.

Marilyn Heiman, director of the Pew Charitable Trusts' U.S. Arctic program, said in a statement that challenges in the Arctic are considerable.

"Clearly, more time is needed to develop world-class safety and oil spill prevention and response standards," she said.

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