September 12, 2007
Wednesday PM

ANCHORAGE, Alaska -- Two decades ago, when Dutch oil giant Shell was poking holes in the ice-clogged Arctic Ocean, Rick Fox was a young buck managing the company's drilling rigs.

Some of the holes hit oil, and Fox and the other oil men felt pretty good about what they found.

But none of the discoveries was developed -- the price of oil was too low and the finds too remote -- and Shell abandoned Alaska's Arctic.

Now Fox, 55, and Shell are mounting an aggressive return to the polar ocean, staking hundreds of millions of dollars to lease vast offshore acreage, staff an Anchorage office and assemble a flotilla of drilling ships to sink more holes in the Beaufort Sea.

The reason for the return is the high price of oil plus potential for big discoveries, says Fox, now the company's Alaska asset manager.

"Conditions are right for us to re-enter and give it another shot," he says. "And we are committed in a very big way."

If Shell and other companies that might follow are successful, they could open a vast frontier and ignite a potentially dazzling new era for Alaska's most important industry, oil and gas.

But getting there has proven difficult. Recently, the 9th U.S. Circuit Court of Appeals in San Francisco dealt what could be a death blow to Shell's drilling plans -- at least for this year.

Citing "serious questions" raised by the North Slope Borough, Native whale hunters and national environmental groups, a three-judge panel ruled Shell can't drill until petitions opposing the project are resolved.

According to the court's schedule for the case, that will take until early December at best. By then the Beaufort Sea likely will be frozen, locking out Shell's drilling ships.

The opponents raise a complex set of objections, but they center on fears that industrial noise and spills could disturb or harm endangered bowhead whales, polar bears, fish and birds that sustain an ancient Inupiat subsistence culture.

They accuse regulators in a Bush administration eager to boost U.S. oil production of giving short shrift to the risks.

With the court order, which extends an earlier stay imposed July 19, Shell's drilling fleet sits idle in Dutch Harbor and a Canadian bay at great expense.

Shell spokesmen say the company is weighing its legal options and isn't mothballing its fleet just yet.

Gov. Sarah Palin decried the court order, calling it "a threat to our economic future."

North Slope Borough Mayor Edward Itta, himself a whale hunter, says he's just glad the court is listening to the concerns opponents have raised.

"From the beginning, we have opposed offshore development," he says.

Shell managers say they've assembled a powerful oil spill response fleet tailored especially for the Arctic drilling campaign. The flagship is the newly launched 305-foot Nanuq, which will carry 44 spill responders plus smaller boats to help deploy cleanup gear such as booms and skimmers.

Operations manager Susan Moore says Shell's response fleet is unusual because it won't be based on land. Rather, it will stand by the two drill ships continuously and be ready to jump on trouble immediately.

Shell had made some concessions outside of court in an effort to clear the way for drilling this summer and fall.

On July 26, the company and many of the Slope's whaling captains announced they had signed a "conflict avoidance agreement" to suspend drilling during the fall bowhead hunt.

Other groundwork Shell has laid could help it carry out its long-range plans.

The company has hired former officials in the Interior Department, which Shell must rely on to press the court fight. And it added George Ahmaogak Sr., a whaling captain and former North Slope Borough mayor, as community affairs manager.

Shell also gave Arctic Slope Regional Corp., the Native corporation for the North Slope, the contract to handle spill response -- a source of jobs for villagers.

Even if this drilling season is lost, Shell's Fox says people shouldn't look for the company to abandon the Arctic again. The company plans to move ahead with offshore seismic surveys this summer.

"We believe we have an inside track here because of our previous efforts," Fox says. "It's a very promising arena for us."

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