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December 2008

Vol. 13, No. 52 Week of December 28, 2008

Shell pushes drilling out to 2010, ’11

Seismic cancellation unrelated to 9th Circuit ruling; company hopes to drill in Beaufort and Chukchi if it prevails in court; 3-D program cancelled — enough data has been acquired

Kay Cashman

Petroleum News

As reported in the Dec. 21 issue of Petroleum News, Shell Oil plans to ask for a rehearing from the full 9th Circuit Court of Appeals on a Nov. 20 ruling issued by a three-judge panel.

Shell’s announcement was made by company spokesman Curtis Smith in a Dec. 18 e-mail following Shell’s analysis of the Nov. 20 court decision.

Smith, who works for Shell media relations in Anchorage, Alaska, said that because of the panel’s decision, the company would defer its 2009 Beaufort Sea drilling program.

He also said Shell was cancelling a 3-D seismic program for the Beaufort. The cancellation of the 2009 drilling and seismic programs was made in the same Dec. 18 e-mail, but later that day Shell Alaska spokesman Phil Dyer told The Associated Press that the company’s decision to cancel its seismic program was unrelated to the Nov. 20 court decision. The seismic program was canceled because the company already had the information it needed, he said.

In February 2007 MMS approved an outer continental shelf exploration plan submitted by Shell that included drilling up to 12 exploration wells on 12 tracts over three years.

The company waited until last June to cancel its drilling plans for 2008. Dyer said Shell did not want to wait that long again.

Loss of 800-plus jobs

The deferment of the drilling program means the loss of about 700 jobs directly related to drilling, and well over 100 local support service jobs on the North Slope, Dyer said.

In its Nov. 20 ruling, a three-judge 9th Circuit panel said that the U.S. Minerals Management Service had not conducted an adequate environmental evaluation of Shell’s exploration plan. One of the three judges dissented from the opinion.

The 9th Circuit lawsuit merged three different appeals involving the North Slope Borough, the Alaska Eskimo Whaling Commission and several environmental organizations.

In its Nov. 20 ruling the panel ordered MMS to prepare a revised environmental assessment for Shell’s exploration plan and, if necessary, prepare an environmental impact statement before the plan could be approved. (The development of an EIS is a complex process that typically takes several years to complete.)

The panel also denied a request by Shell to lift the injunction that the 9th Circuit had placed on the company’s planned Beaufort Sea drilling since August 2007. Shell wanted to drill exploration wells in its Sivulliq prospect on the western side of Camden Bay offshore the eastern North Slope.

However, the three-judge panel did uphold MMS’ analysis of the potential impact of oil spills that might result from Shell’s drilling.

“Despite any other insufficiencies, MMS’s environmental analysis does adequately examine the impacts of a potential crude oil spill,” said Judge Dorothy Nelson in the panel’s majority opinion. “…The agency’s assessment makes the proper inquiry into the risk of an oil spill, and no further analysis is required in relationship to this exploration plan.”

Shell disagrees

Smith said Shell believes that MMS performed a thorough analysis of the company’s exploration plan.

“That analysis prompted the agency to properly conclude that any impact from exploration activity in the Beaufort would have minimal impact on marine mammals and subsistence activities,” he said.

Shell agreed with the dissenting judge who thought the court “exceeded its field of expertise, and in doing so, ignored the expertise of federal regulators,” Smith said. “Furthermore, the court’s recent decision places excessive requirements on any future exploration program that could result in unnecessary costs and delays in delivering much-needed energy supplies to U.S. markets.”

Judge Carlos Bea, the judge who disagreed with his colleagues on the panel, said that the 9th Circuit Court could not overturn the MMS exploration plan approval on the grounds that the approval was arbitrary or capricious.

For its Beaufort Sea lease sale program MMS had prepared a 1,500-page multi-sale environmental impact statement that “discussed potential environmental effects from the development of each of Shell’s lease-sale sites,” Bea said.

And, for Shell’s exploration plan, the agency had prepared an additional 100-page environmental assessment “that supplemented the multi-sale EIS for two of Shell’s lease plots about which MMS decided additional information was needed,” he said.

The petitioners and the majority on the panel of judges do not want MMS to “use its extensive prior work to inform its decisions on individual leases,” but instead they want the agency to prepare a new EIS for each lease, Bea said.

“This is worse than re-inventing the wheel: this is re-inventing the wheel for each wheel of the car,” he said.

The process will be expensive, time-consuming and largely duplicative, thus defeating the purpose of National Environmental Policy Act regulations that encourage tiering of NEPA documents, he said.

Hopes to drill Beaufort and Chukchi wells in 2010, 2011

The reduced 2009 program “means … our overall Alaska operating investment will be reduced by tens of millions of dollars. This will have a direct effect on the communities of the North Slope and other areas of the state. Our current level of investment in Alaska is not sustainable given our inability to drill,” Dyer said.

Shell, however, has no intention of abandoning its efforts to drill offshore in Alaska, despite court-induced delays, he said.

The original intention was to drill three exploratory wells in 2009. Instead, Shell will put together a drilling plan for 2010 and 2011 that includes both the Beaufort and Chukchi seas, Dyer said.

Alaska Gov. Sarah Palin said she was disappointed in Shell’s decision to defer drilling on the outer continental shelf.

“Alaska’s economic past and future are tied directly to the development of our abundant natural resources,” Palin said in a news release. “The loss of this exploration activity will cost our state’s families hundreds of jobs next year.”

The governor said the State of Alaska intends to support Shell’s petition to the 9th Circuit Court of Appeals for a rehearing in front of the full court.

Kevin Banks, director of the Division of Oil and Gas at the Alaska Department of Natural Resources, said Shell’s decision was troubling.

“They can say they will be back in 2010 but it would depend of course on them having some success working their way through the court,” he said.






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