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May 2010

Vol. 15, No. 22 Week of May 30, 2010

Obama halts Alaska drilling until 2011

Suspension of OCS drilling effectively kills Shell drilling in Beaufort and Chukchi Seas for 2010, state waters not impacted

Eric Lidji

For Petroleum News

The Obama Administration is suspending two planned exploration programs off the coast of Alaska until at least 2011 in the wake of the ongoing oil spill in the Gulf of Mexico.

The suspension is part of a broader re-examination of domestic offshore drilling policy in the weeks since the Deepwater Horizon offshore drilling rig exploded at a BP exploration project, causing crude oil to spill from the ocean floor. “This oil spill has made clear that more reforms are needed,” President Obama said in a May 27 news conference.

“We will suspend the planned exploration of two locations off the coast of Alaska,” Obama said, referring to Shell’s plans to drill in the Beaufort and Chukchi seas.

The move also includes cancelling a pending lease sale in the Gulf of Mexico and planned lease sale off the coast of Virginia, extending a moratorium on deepwater drilling for six months, and suspending action of 33 exploratory wells currently being drilled.

In Alaska, Shell is the largest casualty on the decision. The company hoped to drill five wells in the Chukchi and Beaufort seas this summer. In the wake of the spill, Shell proposed additional safety measures for its program, but opposition contends that Alaska is too remote for quick mobilization and that clean-up technology isn’t proven on ice.

“We respect and understand today’s decision in the context of the tragic spill in the Gulf of Mexico, but we remain confident in our drilling expertise, which is built upon a foundation of redundant safety systems and company global standards,” Pete Slaiby, Shell Alaska vice president, said in a statement. “In Alaska, our drilling plans have undergone an unprecedented level of review, including scrutiny from the courts, regulators and stakeholders. We welcome this scrutiny and will work closely with the government and other experts during this suspension in drilling activities.”

State spared, Liberty maybe

The U.S. Minerals Management Service confirmed that the suspension does not include offshore drilling in state waters, like Pioneer Natural Resources’ Oooguruk project or Eni Petroleum’s Nikaitchuq project, both in the near shore waters of the Beaufort Sea.

Tadd Owens, a spokesman for Pioneer in Alaska, said in an e-mail to Petroleum News on May 27, “We do not anticipate any direct impact to our operations at Oooguruk.”

However, the MMS could not say whether the ruling impacts BP’s Liberty project, directing the question to the U.S. Department of the Interior. The DOI could not respond to questions immediately about the ruling, directing all questions to an e-mail account.

The DOI did not respond to an e-mail by press time.

BP plans to use ultra-extended reach wells at Liberty to tap federal reservoirs in the Outer Continental Shelf from state surface land on an artificial island at the Endicott field.

The federal decisions follow a safety and environmental review of offshore drilling started earlier in May, during which time the administration did not approve new permits for offshore drilling. Obama connected his decision to the ongoing oil spill and to recent allegations of corruption at the U.S. Minerals Management Service, citing the oil industry’s “cozy and sometimes corrupt relationship” with the regulatory agencies that oversee it.

Alaska delegation opposed

The Alaska Congressional delegation roundly opposed the move.

Sen. Mark Begich and Sen. Lisa Murkowski both said they want to make sure that the currently temporary suspension of drilling in Arctic waters could not become permanent.

“We are a casualty of the BP tragedy in the Gulf,” Begich said in a press conference.

Murkowski said Shell Pres. Marvin Odum told her before the announcement that Shell “wants to continue to responsibly develop Alaska’s offshore resources, but understandably needs firm commitment that the delay will not go beyond next spring.”

Rep. Don Young called the drilling suspension “irrational and careless” and “based only in response to the hysteria of interest groups that want to cripple our country.”

In a statement, Young called the spill “tragic” but “uncommon,” and wrote, “We need to figure out what went wrong and fix the problem and not put our economy in further gridlock because of fear mongering from extremists. It’s not smart and it’s not right.”

Alaska Gov. Sean Parnell said the decision was based on “fear, not sound science.”

“I simply cannot understand how the federal government could approve plans of exploration only five months ago — approvals that were upheld by the 9th Circuit Court of Appeals — but now refuse to take the final step in a long regulatory process and not authorize Shell’s permits to drill,” Parnell said in a statement. “Shell’s leases should be extended, and they should be able to continue seeking permits from the Environmental Protection Agency and the National Oceanic and Atmospheric Administration.”

Early response from the environmental community, though, praised the decision.

“Together with people on the Arctic Slope, we extend our gratitude and thanks to President Obama and Secretary Salazar for their decision today to suspend Shell Oil’s plans for drilling in the Arctic Ocean this summer,” Cindy Shogan, executive director of Alaska Wilderness League, wrote in a statement. “We look forward to working with the administration to make sure that any development in these pristine waters is only allowed to proceed when it can be done safely.”






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