http://fuelfix.com/blog/2015/03/04/feds-weighing-shell-bid-for-more-time-in-arctic/
[links in on-line article]
Feds weighing Shell bid for more time in Arctic
Posted on March 4, 2015 at 5:03 pm by Jennifer A. Dlouhy
WASHINGTON _ The Obama administration will decide soon whether to give
in to Shell’s request for extra time to hunt for oil in Arctic waters,
Interior Secretary Sally Jewell said Wednesday.
Without action, Shell’s oil and gas leases in the Beaufort Sea will
begin expiring in 2017, followed by its drilling rights in the
neighboring Chukchi Sea two years later.
The same fate awaits Chukchi Sea leases sold in 2008 to Statoil and
ConocoPhillips, which have made similar appeals for more time, citing
regulatory uncertainty, legal challenges and other obstacles.
“We are actively working with Shell and other leaseholders up there on
their request for suspensions,” Jewell said during a Senate
Appropriations subcommittee hearing. “We will be resolving that
relatively soon.”
The companies’ bids for “suspensions of operation” would effectively
stop the clock ticking on their 10-year leases. The Bureau of Safety and
Environmental Enforcement is actively considering the requests from
Shell and Statoil that were filed in July 2014; it previously rejected
ConocoPhillips’ November 2013 bid for at least three more years.
ConocoPhillips appealed the decision to an Interior Department appeals
board, and settlement talks are now under way.
Neither Statoil nor ConocoPhillips has active plans to drill in U.S.
Arctic waters, but Shell is preparing to resume exploration in the
Chukchi Sea this summer, three years after its last try in 2012 resulted
in two half-completed wells that stopped short of penetrating potential
oil-bearing zones.
“This is good news for us, particularly at a time when the price of oil
is causing many companies to really scrutinize their investment
decisions on very large-scale projects,” said Sen. Lisa Murkowski,
R-Alaska. “It makes it all the more important that Shell have the
certainty it needs before it proceeds to spend even yet more billions of
dollars. (Shell) needs to retain its existing lease portfolio to warrant
this enormous investment.”
Limited window
Murkowski cited the limited 75-day window for drilling in the Arctic,
when waters are free of ice — as opposed to the year-round activity
allowed in the Gulf of Mexico.
“There really are not enough drilling seasons (left) for Shell to
complete more than a handful of exploration wells before the Chukchi Sea
lease portfolio expires,” Murkowski said.
Legal uncertainties surrounding the government’s 2008 auction of Chukchi
Sea oil leases have delayed work in the area, though the Interior
Department has already granted Shell, Statoil and ConocoPhillips
additional time to compensate for some of those legal delays.
Most recently, the Bureau of Ocean Energy Management completed a new
environmental analysis of that seven-year-old sale in a bid to satisfy a
2014 federal court ruling that the first version was inadequate. But the
final decision on whether to affirm, modify or vacate that sale rests
with Jewell, who could issue a “record of decision” on the auction as
soon as March 25.
In the meantime, the Chukchi Sea leases are under a suspension of
operation tied to the ruling.
‘Helping Shell’
Jewell stressed that Interior Department regulators were focused on
completing that essential environmental analysis. “We took our resources
and focused them — as we were requested to do — on helping Shell move
forward with this drilling season,” Jewell said.
Jewell also made a nod to the mishaps that marred Shell’s 2012 Arctic
operation, including the grounding of its non-propelled Kulluk drilling
rig during an ill-fated tow across the Gulf of Alaska and the company’s
difficulty certifying and readying a unique emergency oil spill
containment system so it could safeguard drilling. Shell halted its
planned 2013 drilling in response, as it repaired one rig and searched
for another to replace the Kulluk.
“We understand the circumstances that companies have,” Jewell told
Murkowski. “We also understand the circumstances that Shell had in 2012.”
“We get that it’s complicated to do work up there,” she added. “We want
to make sure it’s done safely and responsively, and we want to be
responsive to the companies.”
‘Special treatment’
Conservationists argue that Shell and other oil companies knew what they
were getting into when they bought Chukchi Sea leases in 2008. Any
Interior Department decision to give the company more time amounts to
unwarranted “special treatment” said Oceana Deputy Vice President Susan
Murray in a Feb. 27 letter to the safety bureau.
“Operating in the Arctic Ocean is dangerous, controversial, and
logistically challenging,” Murray said. “Those facts, however, do not
allow BSEE to bend its rules to grant Shell an unjustified extension of
its leases.”
Extensions also could mean taxpayers — who own the oil at issue — are
“no longer getting fair value,” said Michael LeVine, Pacific senior
counsel for the group. “The government sold the rights to public
resources under a certain set of circumstances and terms and shouldn’t
then rule to change those terms.”
In general, leases expire at the end of their terms unless operators are
“conducting operations” on the lease, such as drilling, reworking wells
or producing oil and gas.
“Suspension of operation” requests are relatively common in the Gulf of
Mexico, where they often are filed right before leases are set to
expire, unlike the Arctic requests now pending before the safety bureau.
Safety bureau spokesman Nicholas Pardi said the agency “evaluates
suspension requests on a case-by-case basis.”
Federal regulations give the agency relatively little authority to grant
the suspensions, including to allow compliance with judicial decrees,
when activities pose a threat of harm or damage, when they are needed to
install safety equipment or conduct environmental analysis and to allow
for “inordinate delays” in obtaining permits.
The oil companies’ requests may lay the groundwork for bigger changes,
including potential action by Congress and the Obama administration to
rewrite the terms of oil and gas leases in isolated Arctic waters.
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