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DOI says it will honor leases, assessing Shell’s drilling application

Petroleum News

Alan Bailey: Week of December 5, 2010

On Dec.1 Secretary of the Interior Ken Salazar announced a much-awaited new strategy for oil and gas leasing on the U.S. outer continental shelf, in the wake of the Gulf of Mexico Deepwater Horizon disaster. And the Department of the Interior confirmed that as part of that strategy the Bureau of Ocean Energy Management, Regulation and Enforcement will continue to honor existing oil and gas leases in the Beaufort and Chukchi Seas.“In the Arctic, which is a frontier area where leases have been issued but there is limited development, we will proceed with utmost caution,” Salazar said during a press briefing announcing the new strategy. “The challenges of operating in the Arctic are different than the Gulf of Mexico. In the Arctic, oil and gas resources are under shallow waters, not deep waters, but there are issues we must address about spill response capabilities, environmental sensitivities and operations in often very harsh conditions.”

Shell drilling permit 

In early October Shell, the company that has been spearheading efforts to explore in the Alaska Arctic OCS, submitted to Interior an application to drill a single well in its Sivulliq prospect in the Beaufort Sea. And during the press briefing BOEMRE Director Michael Bromwich said that his agency is still reviewing that application.

“We are reviewing and processing Shell’s application to drill a single exploratory well in the Beaufort Sea,” Bromwich said. “We will move forward with a careful and complete review of Shell’s application to determine if the project meets all existing and new safety standards, has robust oil spill response capabilities in place and can move forward under strong oversight and inspection.”

On Dec. 1 BOEMRE issued a notice, saying that it is preparing a supplemental environmental assessment, with a public comment period ending Dec. 22, for Shell’s Beaufort Sea exploration plan. And, according to a BOEMRE fact sheet, if the agency approves Shell’s drilling, “BOEMRE would have safety personnel on site throughout the drilling operation to monitor the operation and hold them accountable for compliance with BOEMRE’s drilling safety and environmental regulations.”

No timeline

Bromwich declined to commit to any specific timeframe for processing Shell’s application.

“We’re not going to be constrained by any deadlines,” Bromwich said. “We understand that Shell needs a decision and when we complete the review and analysis we will be in a position to make our decision.”

Shell has said that it needs a permit decision by December, to enable sufficient time for mobilizing its drilling operation by the summer of 2011.

“Today’s announcement was a positive one for Alaska and acknowledges that responsible oil and gas exploration can take place in the Arctic,” Shell spokesman Curtis Smith told Petroleum News Dec. 1. “While Shell continues to make plans to drill in 2011, a final decision on our Beaufort Sea drilling permit is needed soon for Shell to continue to pursue 2011 exploration drilling.”

Mayor Edward Itta of the North Slope Borough, the borough that includes the North Slope communities potentially impacted by Shell’s Beaufort Sea drilling, said Dec. 1 that the decision to continue the review of Shell’s drilling application makes sense, given the government’s plan to re-evaluate safety issues and environmental impacts. North Slope communities have expressed strong concerns about the possible impacts of offshore industrial activity on subsistence hunting.

“The plan that’s on the table is closer to something we can live with,” Itta said. “So the process should go forward, but let’s not forget that there are still outstanding issues. Some of Shell’s proposed safety measures — such as their capping system — aren’t yet contained in the permit application. Also, EPA hasn’t granted air quality and water discharge permits, and NOAA’s Incidental Harassment Authorization is still in the works.”

More lease sales? 

Interior also seems to have upheld a commitment made in March to consider the possibility of new Chukchi Sea and Beaufort Sea lease sales within the scope of its next five-year lease sale program, the program spanning the years 2012-17. However, there is a strong caveat around the need for further environmental studies and an analysis of Arctic oil spill response capabilities.

“BOEMRE will soon begin to hold public meetings in Alaska to gather important public input and information for an environmental impact statement that will help inform Secretary Salazar’s decision on whether and where to schedule Alaska lease sales under the 2012-2017 program,” the Interior fact sheet said, “The public meetings will cover the Beaufort, Chukchi, and Cook Inlet planning areas.”

And in the press conference Salazar hinted at a willingness to allow some exploration action in the interim.

“I also recognize that cautious, limited exploratory activities can help develop critical information about the Arctic and its resources,” Salazar said. “Those exploratory activities, however, must be conducted safely and with strong oversight.”

Significant change 

Interior’s Dec. 1 announcement did indicate a significant change in the agency’s strategy for leasing offshore the Lower 48. The agency has decided to prepare a supplemental environmental impact statement for remaining Gulf of Mexico lease sales in the 2007-12 lease sale program, with those lease sales deferred until the SEIS is published. Interior will make every effort to reach a position where it can conduct those lease sales by the end of 2011 and into 2012, Salazar said.

And, having now decided to focus oil and gas development on OCS areas where there are existing leases rather than expanding leasing into new areas, Interior is not considering planning any lease sales in Atlantic regions before 2017, a reversal of the leasing strategy that Interior announced in March. The agency has also decided to cancel a plan to investigate the potential for oil and gas leasing in the eastern Gulf of Mexico, an area currently the subject of a Congressional drilling moratorium.

Sen. Lisa Murkowski, in responding to the Dec. 1 announcement, pressed for the opening of more of the OCS to the oil and gas industry.

“I am pleased and relieved that Alaska’s offshore leases are being honored, but I strongly believe that the Eastern Gulf of Mexico, as well as the Atlantic and Pacific, should be open to exploration,” Murkowski said. “These areas represent some of the most abundant oil and gas resources available for domestic production in the Lower 48. Restricting their development will only further stunt our economic recovery.”

Salazar, however, had made it clear that he wants a more cautious approach to future offshore oil and gas development.

“Taken together, the next steps we are taking in each of the OCS planning areas ensure we are moving forward prudently while also maintaining a careful, responsible path for meeting our nation’s energy needs,” Salazar said.

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