Shell's Arctic ambitions dented by mishaps Royal Dutch Shell has been forced to abandon its plans to drill wells off the coast of Alaska this year, after a vital piece of safety equipment was damaged during testing. It is the latest in a series of mishaps that has bedevilled what has been one of the most closely watched drilling programmes in the oil industry. Shell, Europe's largest oil company by production, had hoped its Arctic campaign would be a showcase for its technological prowess, highlighting its ability to operate at the frontiers of oil exploration. But the programme has so far failed to take off. Shell originally planned to drill five Arctic wells this summer but cut that down to two in July: now it will not complete any. "Shell has had seven years to get this far, and they're still palpably not ready," said Ben Ayliffe, an Arctic expert at Greenpeace. The Arctic is clearly not the promised land the oil companies have led us to believe it is. But some investors took a more benign view, saying that Shell is right to take so cautious a line. "In a way, this only enhances its credibility," says Christopher Wheaton, an energy fund manager at RCM/Allianz. Shell wants to get it right first time. They realise that up there, you don't get a second chance. Marvin Odum, president of Shell's US operations, said there was "disappointment," but the latest setback did not change Shell's view of its Arctic programme. "Yes, we'd like to be drilling into hydrocarbons this year," he said. But in the scheme of things, it's not that significant a change. And it doesn't change the potential of the resources that are out there. The latest setback concerns the containment dome, equipment that is designed to catch any oil leaking on to the seabed and this is seen as a last line of defence in the event of a spill. It is mounted on a barge, the Arctic Challenger, which has been converted into an oil spill containment vessel and which is still in port in Washington state, undergoing tests for seaworthiness by the US Coast Guard. Shell says that the containment dome was damaged during a final test, and will take several days to repair, forcing the company to revise its plans for the 2012-2013 exploration programme and forgo drilling into oil-bearing rocks this year. Shell says it will, however, begin a series of "top holes" for wells, which it will then cap and abandon until next year. "We are disappointed that the dome has not yet met our stringent acceptance standards," the company says. But as we have said all along, we will not conduct any operation until we are satisfied that we are fully prepared to do it safely. Among the supermajors, Shell has long been one of the most enthusiastic advocates of Arctic oil. In the 1980s, it drilled exploration wells in the Chukchi and Beaufort Seas, an area it now believes contains some 25bn barrels of crude. But at the time, oil prices were too low to justify developing fields in such remote, hostile locations. So in 1991, Shell focused on the Gulf of Mexico instead. It returned to Alaska in the past decade, spending billions of dollars on leases in the northern seas. But from the start it faced fierce opposition from environmental groups and indigenous peoples living along the north coast of Alaska, who fear oil exploration will scare away the whales they hunt. Shell finally agreed to pull its drilling rig out of the Beaufort Sea during the summer whale hunt. Campaigners, however, continued to argue that the oil industry should not be operating in what is in effect a pristine wilderness, and questioned Shell's ability to mount an effective oil-spill response in Arctic waters. Their cause was helped by the 2010 Deepwater Horizon disaster, which triggered a moratorium on new offshore drilling, including in the Arctic. After fighting off a flurry of legal challenges, Shell finally announced that it would start drilling in July. However, problems arose with the Arctic Challenger after the US Coast Guard, which certifies ships for seaworthiness, raised concerns about its firefighting system and did not allow it to leave port. There were other setbacks: in July, Shell's drillship, the Noble Discoverer, slipped its mooring and drifted toward shore in Alaska's Dutch Harbor. Drilling finally began in the Chukchi earlier this month, but Shell had to suspend operations a day later and move its rig to avoid encroaching sea ice. That left the company very little time to start drilling before regulators" deadline of September 24 for the Chukchi Sea. Some people have questioned whether drilling in the cold, dark, remote waters of the far north, where sea ice is an ever-present danger, will ever make economic sense. That's especially true of the US, where tough regulations - such as the requirement to have an additional rig on standby to drill a relief well in the event of a Macondo-like blowout - can significantly drive up costs. However, Shell continues to be upbeat about its Arctic exploration programme, which it says "remains critically important to America's energy needs, to the economy and jobs in Alaska and to Shell." Investors, too, are keeping the faith. Even utter failure in the Arctic will not be too damaging to a company of Shell's size, says Errol Keyner, deputy director of VEB, the Dutch shareholders" association. "As a big oil company, they have to invest in uncharted territory, and some of their investments won't pay off," he says. It's the cost of doing business.