Royal Dutch Shell Plc has begun laying off workers in Alaska amid an ongoing legal battle that has held up the company's plans to drill for oil in the Beaufort Sea, the company said in a statement. Shell had planned to drill up to four oil exploration wells on its Sivulliq prospect in the Beaufort Sea off Alaska's north coast this summer. However, a federal appeals could in July ordered a halt to the drilling until a challenge to the federal permitting process brought by environmental activists and Alaska native groups could be heard.

"Because we are unable to pursue our drilling plans, Shell has been forced to initiate a staged release of contract personnel, including workers on the drill ship Frontier Discoverer," the Shell statement said.

The Ninth Circuit Court of Appeals is scheduled to hear the case the week of December 3, after the close of the Arctic drilling season. Opponents of Beaufort drilling say the environmental impact studies carried out by Shell and approved by the U.S. Department of the Interior failed to take seriously the threat posed by drilling to bowhead whales and other Arctic wildlife.  Alaska native groups, which hunt bowhead whales for food in the summer, are also concerned that offshore activity could disturb the bowheads and make hunts more difficult and dangerous.

Shell hired over 700 workers for its 2007 drilling plan. Despite the ruling barring drilling Shell continues to carry out seismic surveys of the area where it intends to drill and has no plans to lay off staff associated with those operations. Shell Chief Executive Jeroen van der Veer on Wednesday described the impasse in Alaska as "very disappointing," although the company remains committed to finding a solution that would permit drilling to occur.

Oil was discovered at Sivulliq in the 1980s but the field was never developed due to the high cost of producing oil in the harsh environment of the Beaufort Sea. Significantly higher world oil prices and advances in drilling and production technology have led western oil firms to reevaluate previously unattractive frontier oil provinces such as the Beaufort Sea.

BP began the process of obtaining federal permits to develop its Liberty oil discovery in the Beaufort Sea this May after a 10-year delay to development due to high costs. Liberty is expected to produce up to 40,000 barrels of oil per day if the $1 billion development of the field is approved by BP's board of directors in 2008.

(By Robert Campbell and Scott Haggett, Reuters, 13/09/2007)