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Interior chief says Shell equipment behind Arctic drilling delays

By Jennifer A. Dlouhy: Updated 9:48 p.m., Monday, August 13, 2012

WASHINGTON – Neither thick Arctic ice nor government red tape is holding back Shell’s plans to search for oil in waters north of Alaska this summer, a top Obama administration official said Monday.

Instead, Interior Secretary Ken Salazar told reporters, the delays are Shell’s own making.

A key oil spill containment system and the barge carrying it have not cleared a required Coast Guard inspection or been tested in front of federal drilling safety regulators. Instead, the 36-year-old Arctic Challenger barge has been docked and undergoing renovations in Bellingham, Wash.

“The cause for any delay here is Shell’s construction of its vessel,” Salazar said. “They have not been able to get it done. If they had got it done, they may already be up there today.”

He said waters are open in the area of the Chukchi Sea where Shell plans to explore, called the Burger find.

“It’s not a matter of ice, it’s a matter of whether Shell has the mechanical capability” to comply with the exploration plan that had been approved, Salazar added.

Salazar’s comments came during a news conference to unveil the Interior Department‘s new plan for managing oil production in the 23-million-acre National Petroleum Reserve-Alaska.

Salazar said the chosen management plan strikes a balance between conservation and energy production in the 89-year-old reserve in northwest Alaska. For instance, he said, while oil and gas development would be allowed in 11.8 million acres, the plan would wall off the activity in other regions that are home to caribou and polar bears.

Industry officials and their allies in Congress said the plan could make it difficult to connect future oil development in the Chukchi Sea – including the sites Shell is planning to drill – with the Trans Alaska Pipeline System on the North Slope.

Although Salazar said the plan does not intend to “foreclose” a future pipeline stretching across the reserve, it could make one more difficult to design and build, because it would have to navigate around newly protected areas, such as Teshekpuk Lake and Kasegaluk Lagoon, a likely spot for a pipeline to come ashore.

Shell Oil Co. is counting on such a pipeline to carry crude from any oil discoveries it makes in the Chukchi Sea. Even if the company strikes oil this summer, production would be years away.

Shell has spent nearly $5 billion and seven years preparing to drill in the Chukchi and Beaufort seas. The company awaits just a few government approvals – including drilling permits from the Interior Department’s Bureau of Safety and Environmental Enforcement – before it can launch the work.

But those permits are contingent on Shell satisfying the terms of its Interior Department-approved plan for responding to oil spills in Arctic waters, which includes a system for capping and containing a runaway underwater well.

Salazar left open the possibility that Shell could begin some prep work at its Arctic drilling sites – including excavation of the seafloor to accommodate emergency equipment that would guard the wellhead – even without the containment system.

But Shell has not requested any such “alternative,” Salazar said.

Shell spokeswoman Kelly op de Weegh said the company may consider a proposal to allow the company to begin site preparation and top-hole drilling in non-hydrocarbon zones before the containment barge is anchored nearby.

Salazar previously told reporters he anticipated Shell would win its well drilling permits, and he emphasized Monday that key decisions would come in the next several weeks.

Even if Shell wins every necessary government approval, the company’s window for drilling is short. Shell must stop drilling in hydrocarbon-bearing zones by Sept. 24 in the Chukchi Sea and Oct. 31 in the Beaufort Sea.

Shell officials now say just two out of 10 planned wells are likely to be completed this year. And Shell Alaska Vice President Pete Slaiby has conceded that even those two might be a challenge under the abbreviated schedule.

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