UPDATE 2-U.S. says Shell is not yet allowed to drill in Arctic oil zone

Wed Jul 22, 2015 5:44pm EDT
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(Adds comment from Shell, background)

By Timothy Gardner

WASHINGTON, July 22 (Reuters) - The U.S. Interior Department on Wednesday granted Royal Dutch Shell two final permits to explore for crude in the Arctic this summer, but said the company cannot drill into the oil zone until required emergency equipment arrives in the region.

The department's Bureau of Safety and Environmental Enforcement (BSEE) conditionally granted Shell permits for exploration in the Chukchi Sea off Alaska, in a season which sea ice limits from July until October.

But Shell must have emergency equipment to contain a potential blown-out well deployable within 24 hours before drilling into the oil zone, the office said. Shell discovered weeks ago that the Fennica icebreaker that holds the required equipment, called a capping stack, had a three-foot (1-meter) gash in it.

"Without the required well control system in place, Shell will not be allowed to drill into oil-bearing zones," BSEE Director Brian Salemo said.

Shell last week sent the Fennica, which it is leasing, to Portland, Oregon, for repairs. Fixing the gash and sending it back could take weeks more.

Shell spokeswoman Kelly op de Weegh said the Fennica's "stay in Portland will be determined by the time it takes to make a safe, permanent repair." It is likely the icebreaker will return to the Chukchi before the preliminary drilling reaches the oil zone, expected sometime in August.

"Once we have determined the area is clear of sea ice, support vessels are in place, and the Polar Pioneer (rig) is safely anchored over the well site, drilling will begin," op de Weegh said.

Shell has spent about $7 billion on Arctic exploration for before producing any oil or gas. If it finds the region to be rich in economically recoverable oil, production would not begin for at least a decade.

Environmentalists have criticized Shell's drilling plans in the Arctic, which is home to sensitive populations of whales, walrus and polar bears. (Reporting by Timothy Gardner; Editing by Sandra Maler and Leslie Adler)