Oil company BP PLC says it will begin developing its Liberty oil field, which will involve drilling the world's longest wells to reach an offshore reservoir in the Beaufort Sea.

Royal Dutch Shell has a new face in the driver's seat for its U.S. operations. Marvin Odum became president of Shell Oil Co. more than a month ago upon John Hofmeister's retirement.

Marvin Odum, 49, is a native Houstonian who joined Shell in 1982 as a mechanical engineer. He stuck with the company through the oil bust of the 1980s, lean times amid low oil prices in the next decade, and through the current run-up that has pushed oil past $140 a barrel and gasoline north of $4 a gallon.

In his first interview since becoming the Netherlands-based company's top U.S. executive, Odum discussed challenges facing the oil industry at a time of tight supply, growing global demand and concern about energy affordability.

Q: It's an interesting time to take a top post at an oil company. Oil prices are setting records, gasoline prices are at all-time highs, climate change is at the forefront and companies are struggling to maintain, much less increase, oil and gas production. What do you think is the top challenge facing the industry, and how can it be tackled?

A: I'd almost call it even an aversion to the idea of what's "the" challenge or the biggest challenge. I can bring the whole challenge down to five words: More energy, less carbon dioxide.

The big challenge associated with the need for more energy is access. Advancement and development of alternative energies is clearly a challenge for us. We need to ensure that we have the right supply makeup of people with the technical skills and other skills required for this industry. Those are a few of the top concerns.

Q: In terms of access, are you talking about increasing access in the U.S. and getting better access globally? Shell experienced a host country taking control of an operation when Russia's Gazprom took over the majority of Shell's natural gas operation on Sakhalin Island in 2006. Other companies have had similar experiences in host countries.

A: Access is clearly a global issue. As we think of this long-term energy picture and this transition that we'll go through sometime in this century from the fossil fuels of today to a mix of fossil fuel and alternatives ultimately to alternative fuels, then we're going to need a constant and good supply of conventional oil and gas. It's extremely important that it's recognized by the government that the U.S. needs access to its resources. We can do it safely and responsibly and help this overall energy picture.

Q: Are you talking in terms of the recent debate about getting access to U.S. offshore areas that are now off limits as well as the Arctic National Wildlife Refuge?

A: That's exactly right. It's onshore and offshore. We are particularly interested in the offshore, the Outer Continental Shelf, including Alaska. We have a lot of experience in that area. We know we can do it well. We know the public doesn't have to be afraid of developing those resources.

Q: Opponents to drilling in off-limits areas say it won't lower gasoline prices in the short term. Your thoughts?

A: You're not going to get any results until you start. It is important to start, and it's important to start now. That self-help element, the fact that we can solve part of this ourselves, is so important — and an important signal to the rest of the world.

More conventional oil and gas access is not going to solve the entire problem. The energy demand in the world is growing so rapidly. We look at the energy demand of the globe and say by 2050, it will be twice what it is today. We need not only the oil and gas that we can gain access to, but we'll also need the alternative energies in terms of wind, solar, hydrogen, nuclear power potentially, you name it. It's going to take this full basket of energy sources to supply the world's needs.

Q: What do you think of the plan that was unveiled this week by T. Boone Pickens to increase wind power production so some natural gas can switch from generating power to fueling cars?

A: It's an important component of that "all of the above" answer. And technology is such an important part of this business. Putting that technology to work, using that technology to solve climate issues, as well as the additional resource challenges, is the right way to be looking.

Q: There are a lot of comparisons between what's happening now with energy prices and the oil shocks of the 1970s. What do you see that's the same, and what's different?

A: The difference is this convergence of supply capacity and demand and where the world is in terms of demand. What's causing a lot of these prices to rise is those that understand the industry are worried about those lines crossing, where demand could even exceed supply. Geopolitics of course are still very important today, but where that may have been heavily driving the exact situation in the '70s, I think it's more of a global capacity issue and a global demand issue today.

Q: A lot of consumers blame oil companies for what they pay at the pump. Do oil companies set the price of gasoline, and do they set the price of oil in the market, for that matter?

A: We clearly don't. This is a supply and demand system. I'll just point to my own company and say Shell, productionwise worldwide, probably makes somewhere around the order of 3 percent of global oil production. A very small number. It is a multiple group of supplies that come into the market clearly driven by the fundamentals.

Q: Even if it's far in the future, do you think it's really possible to completely wean ourselves from fossil fuels?

A: If we make the assumption that energy demand is going to double between now and 2050, then we would make a projection that says in a strong development case, where alternatives get public policy support and investment support they need to move forward, that by the middle of this century, alternative fuels could be supplying something along the order of 40 percent of that total energy demand. But you still have to ask yourself, where is the remaining 60 percent of energy being supplied from? We do think for multiple decades here that hydrocarbons will still have a role. So what you see in parallel to working on new technologies to develop alternative energies is how we can lower the carbon dioxide intensity of the existing hydrocarbon fuels. Technology is the key to all of this.

Q: It seems that the oil industry overall, and the majors more than smaller companies, have a credibility problem. CEOs get pummeled in congressional hearings. Consumers don't seem to believe what they say. How do you deal with that?

A: I think it's important for people to hear directly from us what we're doing as a company to try to solve the problem. I think it was built up over many decades, and part of it, we have to take responsibility for, which is not having told our own story well enough for a long time.

Q: What do you drive?

A: I drive a BMW. And my wife drives a Volkswagen Beetle.

Less than a month after declaring polar bears a threatened species because of global warming, the Bush administration is giving oil companies permission to annoy and potentially harm them in the pursuit of oil and natural gas.

The Fish and Wildlife Service issued regulations this week providing legal protection to seven oil companies planning to search for oil and gas in the Chukchi Sea off the northwestern coast of Alaska if "small numbers" of polar bears or Pacific walruses are incidentally harmed by their activities over the next five years.

Environmentalists said the new regulations give oil companies a blank check to harass the polar bear.

About 2,000 of the 25,000 polar bears in the Arctic live in and around the Chukchi Sea, where the government in February auctioned off oil leases to ConocoPhillips Co., Shell Oil Co. and five other companies for $2.6 billion. Over objections from environmentalists and members of Congress, the sale occurred before the bear was classified as threatened in May.

Polar bears are naturally curious creatures and sensitive to changes in their environment. Vibrations, noises, unusual scents and the presence of industrial equipment can disrupt their quest for prey and their efforts to raise their young in snow dens.

However, the Fish and Wildlife Service said oil and gas exploration will have a negligible effect on the bears' population.

"The oil and gas industry in operating under the kind of rules they have operated under for 15 years has not been a threat to the species," H. Dale Hall, the Fish and Wildlife Service's director, told the Associated Press on Friday. "It was the ice melting and the habitat going away that was a threat to the species over everything else."

The agency made no secret that oil and gas operations would continue in polar bear territory when it announced May 14 that melting sea ice threatened the creature's survival. But Interior Secretary Dirk Kempthorne assured the public that the bear population would not be harmed.

"Polar bears are already protected under the Marine Mammal Protection Act, which has more stringent protections for polar bears than the Endangered Species Act does," Kempthorne said.

Environmentalists already suing the agency over its determination that the bear's threatened status cannot be used to regulate global warming gases said Kempthorne's earlier assurances were misleading.

"Now, three weeks later, Interior issues a rule under the act that we view as a blank check to harass the polar bear in the Chukchi Sea," said Brendan Cummings, oceans program director at the Center for Biological Diversity. He added that his group believes the new regulations are illegal.

Exploring in the Chukchi Sea's 29.7 million acres will require as many as five drill ships, one or two icebreakers, a barge, a tug and two helicopter flights per day, according to the government. Oil companies also will be making hundreds of miles of ice roads and trails along the coastline.

"We are poorly equipped to address those risks and challenges," said Steven Amstrup, one of the foremost experts on polar bears and a scientist at the U.S. Geological Survey's Alaska Science Center. "To assess what the impacts are going to be, we should know more about the bears."

Last year, the Marine Mammal Oversight Commission, an independent government oversight agency, told the Fish and Wildlife Service it lacked the information to conclude that exploration will not affect the bear population.

The seven companies will be required to map out the locations of polar bear dens, train their employees about the bears' habits and take other measures to minimize clashes with them. In exchange, the companies are legally protected if their operations unintentionally harm the bears. Any bear deaths still would warrant an investigation and could result in penalty under the law.

"These rules are essentially an insurance policy," said Marilyn Crockett, executive director of the Alaska Oil and Gas Association, an industry group that in 2005 requested the new regulation. "They say if you conduct your operations in accordance to the requirement in this rule, you will not be held liable for the take of the bears."

Administration and industry officials said oil companies enjoyed similar status in the Chukchi Sea from 1991 to 1996 and in the Beaufort Sea since 1993 and there was no effect on polar bear populations.

There is no evidence of a polar bear being killed by oil and gas activities in Alaska since 1993, according to the Fish and Wildlife Service. Since 1960, when the hunt for oil and gas began in Alaska, only two fatalities of polar bears have been linked to oil and gas activities in the state, the service said.

As oil prices soared to record levels in recent years, basic economics suggested that consumption would fall and supplies would rise as producers drilled for more oil. But as prices flirt with $120 a barrel, many energy experts are becoming worried that neither seems to be happening. Higher prices have done little to suppress global demand or attract new production, and the resulting mismatch has sent oil prices ever higher.

That has translated into more pain at the pump, with gasoline setting a fresh record of $3.60 a gallon nationwide on Monday. Experts expect prices above $4 a gallon this summer, and one analyst recently predicted that gasoline could reach $7 in the next four years.

A central reason that oil supplies are not rising much is that major producers outside the Organization of the Petroleum Exporting Countries cartel, like Russia, Mexico and Norway, are showing troubling signs of sluggishness. Unlike Organization of the Petroleum Exporting Countries, whose explicit goal is to regulate the supply of oil to keep prices up, these countries are the free traders of the oil market, with every incentive to produce flat-out at a time of high prices.

But for a variety of reasons, including sharply higher drilling costs and a rise of nationalistic policies that restrict foreign investment, these countries are failing to increase their output. They seem stuck at about 50 million barrels of oil a day, or 60 percent of the world’s oil supplies, with few prospects for growth.

“According to normal economic theory, and the history of oil, rising prices have two major effects,” said Fatih Birol, the chief economist at the International Energy Agency in Paris. “They reduce demand and they induce oil supplies. Not this time.”

With global supplies tight, geopolitics continue to play a big role in pushing up oil prices. Oil futures closed at $118.75 a barrel, up 23 cents, on the New York Mercantile Exchange, after strikes by oil workers in Scotland and Nigeria that shut down nearly 1.7 percent of the world’s daily production.

Countries outside the Organization of the Petroleum Exporting Countries have been the main source of production growth in the past three decades, as new fields were discovered in Alaska, the North Sea and the Caspian region.

But analysts at Barclays Capital said last week that non-OPEC supplies were “seemingly dead in the water.” Goldman Sachs raised similar concerns last month, saying that growth in non-OPEC supplies “can no longer be taken for granted.”

At the same time, oil consumption keeps expanding. Global consumption is forecast to increase by 1.2 million barrels a day this year, to 87.2 million barrels a day, with much of the growth in demand coming from China, India and the Middle East, according to the International Energy Agency, a group that advises industrialized countries.

In the United States and through much of the developed world, the higher fuel prices have led drivers to reduce their consumption, and gasoline demand is expected to drop this year. But that drop will be more than offset by the rise in energy demand from developing countries. In the next two decades, demand is projected to jump by 35 percent, and developing countries will consume more oil than industrialized countries.

Higher oil prices mean record profits for oil companies that have, to some extent, masked the supply problems. ExxonMobil and Chevron are both expected to deliver knockout performances when reporting quarterly earnings this week, even as they struggle to increase production.

“What is disturbing here is that things seem to get worse, not better,” said David Greely, an analyst at Goldman Sachs. “These high prices are not attracting meaningful new supplies.”

The outlook for oil supplies “signals a period of unprecedented scarcity,” Jeff Rubin, an analyst at CIBC World Markets, said last week. Oil prices might exceed $200 a barrel by 2012, he said, a level that would very likely mean $7-a-gallon gasoline in the United States.

Some regions are simply running out of reserves. Norway’s production has slumped by 25 percent since its peak in 2001, and in Britain, output has dropped 43 percent in eight years. Production from the giant Prudhoe Bay field in Alaska has dropped by 65 percent from its peak two decades ago. In many other places, the problems are not below ground, as energy executives like to put it, but above ground. Higher petroleum taxes and more costly licensing agreements, a scarcity of workers and swelling costs, as well as political wrangling and violence, are making it harder to raise production.

“It’s a crunch,” said J. Robinson West, chairman of PFC Energy, an energy consulting firm in Washington. “The world is not running out of oil, but rather it’s running out of oil production capacity.”


Mexico, the second-biggest exporter to the United States, seems increasingly helpless to find new supplies to offset the collapse of its largest oil field, Cantarell. A combination of falling production and rising domestic consumption could wipe out Mexico’s exports within five years.

Foreign investment could help Mexico produce oil from deeper waters, but that is a controversial proposition in a country where oil has long been seen as part of the national patrimony.

Another country, Russia, is also a focus of analysts’ worries. Russia is not exactly running out of places to look for oil — a huge chunk of eastern Siberia remains unexplored — and the country has been the biggest contributor to the growth in energy supplies in the last decade.

But Russian energy officials warned recently that the days of stunning growth that followed the collapse of the Soviet Union were over, as the country focuses on stabilizing its output. Russia today produces about 10 million barrels of oil a day, up from a low of 6 million barrels in 1996.

The Russian government has been muscling Western companies to gain more control over its energy resources. That rise in energy nationalism could freeze new investment and slow any meaningful growth in supplies there for years.

As countries like Russia slow output, analysts say Organization of the Petroleum Exporting Countries will have to pick up the slack. The oil cartel accounts for 40 percent of the world’s oil exports and owns more than 75 percent of global reserves. But there are serious concerns that Organization of the Petroleum Exporting Countries will also find it tough to increase production.

Saudi Arabia, the world’s top oil exporter, is completing a $50 billion plan to increase capacity to 12.5 million barrels a day, but it signaled recently that it would not go beyond that. That means Saudi Arabia could fall short of the 15 million barrels a day that most experts had expected it to produce in the long run.

Organization of the Petroleum Exporting Countries’s 13 members plan to spend $150 billion to expand their capacity by five million barrels a day by 2012. But Organization of the Petroleum Exporting Countries will need to pump 60 million barrels a day by 2030, up from around 36 million barrels a day today, to meet the projected growth in demand. Analysts say that without Iran and Iraq — where nearly 30 years of wars and sanctions have crippled oil production — reaching that level will be impossible.

Not everyone is pessimistic about energy supplies. A study by the National Petroleum Council, an industry group that provides advice to the secretary of energy, concluded that the world still had plenty of petroleum resources that could be tapped.

In fact, high prices have set off a global dash for oil. Brasil, for example, has struck large offshore fields that could turn the country into one of the world’s top 10 producers. But developing new fields can take many years. To make up the shortfall, the world is also increasingly turning to fuels from unconventional sources, like biofuels or heavy oil. Canadian tar sands, for example, have attracted large investments.

But the International Energy Agency estimates that current investments will be insufficient to replace declining oil production. The energy agency said it would take $5.4 trillion by 2030 to raise global output. Otherwise, it warned that a crisis before 2015 involving “an abrupt run-up in prices” could not be ruled out.

Bordeaux Energy Inc. and its joint venture participant Savant Alaska LLC (Savant) commences drilling of the Kupcake-1 well located on the North Slope of Alaska on March 26th, 2008.

Under its previously agreement with Savant, on drilling the Kupcake-1 well Bordeaux will earn a 30% undivided interest in seven leases (the "Leases") currently held by Savant, located on and offshore the North Slope of Alaska. The Leases are situated 20km from the 13.6 billion barrel Prudhoe Bay oil field and immediately adjacent to the 100 million barrel Liberty Field operated by BP but not yet in production.

Bordeaux anticipates drilling of the Kupcake-1 exploratory well will take approximately 30 days to reach its target depth of 3350 metres. The well is expected to cost a total of approximately US$14 million to drill and log, of which Bordeaux's share is currently estimated to be US$5.6 million.