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Alaska Journal of Commerce: Shell’s offshore drill plans drown in court battle: Drilling by Shell in 2008 may now be in doubt…

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The Nanuq, a 200-foot oil spill response and support vessel, sits at Dutch Harbor waiting to support Shell’s Beaufort Sea exploration. ASRC Energy Services crews the vessel for Shell. Photo courtesy of Shell Offshore Inc.  

Web posted August 26, 2007

By Tim Bradner
Alaska Journal of Commerce   
 
Shell Offshore Inc. could be facing an extended delay in exploring promising offshore oil and gas prospects in the Beaufort Sea. It looks as if the 2007 drilling season is a write-off for the company.

“It’s a $200 million investment that has been put on hold,” said Alaska Natural Resources Commissioner Tom Irwin. Shell would not confirm the figure, but did not dispute it either. Irwin said Shell’s exploration would have employed 700 people this year.

There are now concerns that the Aug. 15 federal 9th Circuit Court of Appeals decision that blocked Shell from drilling in the Beaufort Sea may now chill a federal offshore lease sale planned in February 2008 in the Chukchi Sea, located off Alaska’s northwest coast.

Shell spokesman Curtis Smith said the company is still weighing its options and has not given orders to disband a fleet of 16 vessels waiting at Dutch Harbor and in McKinley Bay, located in Canada’s Northwest Territories.

“We’re still hopeful that we can get some work done in 2007, although we realize some things will have to happen,” Smith said, referring to some change in the legal case.

But the prospects are nil that Shell will be able to engage in any significant exploration this year on its Beaufort leases. That is because the appeals court has scheduled its next proceedings for December, when ice conditions will be difficult in areas where Shell wants to drill.

The company isn’t about to walk away from Alaska, though.

“This is only the first year in a multi-year program. Shell remains committed to Alaska,” Smith said.

Migration stops drilling

The court ruling was on a lawsuit brought against the U.S. Minerals Management Service, the agency in change the federally owned Outer Continental Shelf, by a coalition of environmental groups, Inupiat Eskimo whalers and the North Slope Borough.

In its decision, the appeals court agreed with the plaintiff’s contention that the MMS had done an inadequate job on its environmental assessment of Shell’s exploration plans.

“Petitioners É have shown a probability of success on the merits (of their arguments), combined with the possibility of irreparable harm (to migrating whales) if relief is denied,” to the litigants, the court said in its order.

The order also said the litigants “have raised serious questions and demonstrated that the balance of hardships tips largely in their favor.”

State Resources Commissioner Irwin said he hopes the borough can be persuaded to withdraw from the case. But withdrawing would be tough for North Slope Borough Mayor Edward Itta to do because the borough has a long-standing policy opposing offshore drilling, where industry has limited ability to respond to oil spills that could affect sea mammals.

The borough does support onshore drilling, however, and development in shallow coastal waters is acceptable under certain conditions. The near-shore development done to date is six miles offshore at the farthest, and from gravel islands in water depths of 60 feet. Shell’s areas of interest are 15 miles to 20 miles offshore.

“As far as I’m concerned, this is not about Shell. It’s about MMS and its responsibility to protect the public from unintended consequences of development,” Itta said. “The law requires MMS to look carefully at potential impacts on wildlife in the area, and they really didn’t do a credible job.

“Shell will be drilling in the path of the bowhead migration, and MMS needs to pull together the best possible information and expertise to figure out what the risks are,” he said. “They ignored the most recent research, which raised new concerns about the impact of noise on migrating whales. They also ignored the expert opinions of their own scientists, who unanimously expressed concerns about this issue.”

Irwin said he was disappointed by the appeals court decision in view of substantial concessions Shell made to the Inupiat whalers and the borough in a conflict avoidance agreement the parties signed in July, he said. The concessions included a halt to drilling and vessel activity during the September whale hunts.

“Shell jumped through the hoops, above and beyond what was expected,” Irwin said.

The Alaska Eskimo Whaling Commission signed a conflict-avoidance agreement with Shell, indicating their acceptance of the terms. The agreement included the requirements to halt drilling. The lawsuit, however, was proceeding on a separate track.

What now?

Drilling by Shell in 2008 may now be in doubt, but that will depend on the outcome of the December proceeding. The court could reverse its ruling, which would clear the way for Shell to drill in 2008, but a reversal appears doubtful given the wording of the July court order.

There are two other outcomes from the hearing that are more likely. Since the main point at issue is the adequacy of the MMS environmental assessment, the court could order MMS to do a more thorough assessment. This could possibly be done in time for Shell to drill in 2008, although it would be a challenge.

Another outcome is that the court could order the MMS to do a more comprehensive environmental impact statement. An EIS normally takes two years, although a streamlined schedule is possible if the agency has most of the information that is needed. However, an EIS proceeding would mean Shell would not drill in 2008 and, most likely, not in 2009 either.

Tim Bradner can be reached at [email protected].
 
http://www.alaskajournal.com/stories/082607/hom_20070826002.shtml

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