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Vol. 13, No. 45 Week of November 09, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

Shell seeks drilling OK

Company asks 9th Circuit court to lift injunction for ’09 Beaufort exploration

Alan Bailey

Petroleum News

In a motion filed with the U.S. Court of Appeals for the 9th Circuit on Oct. 30, Shell Offshore Inc. has asked the court to lift the temporary injunction against the company’s planned Beaufort Sea exploration drilling. The court imposed the injunction in August 2007, pending resolution of an appeal against the U.S. Minerals Management Service’s approval of Shell’s Beaufort Sea exploration plan.

The North Slope Borough, the Alaska Eskimo Whaling Commission and several environmental organizations had lodged the appeal. The court heard oral arguments in December 2007 but has yet to issue a ruling in the case.

Drilling cancelled

Because of the court injunction Shell had to abandon its plans for drilling in the Beaufort Sea in the summer and fall open water seasons of 2007 and 2008. In 2008 the company held its crews on standby until June, in the hope that drilling would be possible.

In October Marvin Odum, president of Shell Oil Co., told Petroleum News that his company would need to make a go-no go decision on 2009 drilling much earlier in the year. To be properly prepared for a drilling season Shell has to hire hundreds of people and ensure that everyone is properly trained, both from a safety and from a skill perspective, Odum said.

“You can’t go into a drilling season without being totally prepared,” Odum said. “… And so you have to start spending and developing very early in the year, in anticipation of drilling in the summer.”

And in the Oct. 30 motion to the court, Shell attorney Kyle Parker said that to proceed with its 2009 drilling program, Shell needs to begin preparations immediately “and in no event later than Dec. 31, 2008.”

In a declaration accompanying the motion, Chandler Wilhelm, exploration manager for Shell Exploration and Production, said that Shell would not be able to recover the nearly $300 million in up-front costs that it had already committed to its exploration plan if the drilling program is further delayed.

Changed circumstances

Shell says that circumstances have changed significantly since the court injunction was placed on the drilling.

In the first place, Shell says it plans to drill at just two specific sites in its Sivulliq prospect on the west side of Camden Bay in 2009. Those sites are Sivulliq K, on OCS-Y 1807, Flaxman Island block 6070, and Sivulliq G, on OCS-Y 1805, Flaxman Island block 6658.

“Both of these wells were specifically identified in the exploration plan previously approved by MMS,” said Parker in the motion.

The fact that Shell is stating exactly which wells it will drill undermines one of the arguments put forward by the petitioners against approval of Shell’s exploration plan, Parker said. That argument claims that MMS’s failure to require Shell to identify all of the specific well sites where the company intends to drill creates excessive uncertainty about the effect of Shell’s activities, he said.

Not only that. A 2008 9th Circuit decision in the case of Lands Council vs. McNair has established a precedent that a government agency need not affirmatively address every uncertainty in an environmental impact statement, Parker said.

“Lands Council teaches that an agency need not address every uncertainty that may exist,” he said. “Here, that teaching is particularly important because there is no uncertainty about Shell Offshore Inc.’s limited plans for the 2009 season.”

One drilling vessel

Moreover, Shell only plans to use one drilling vessel, the Kulluk, for the 2009 drilling program, Parker said. That undermines an argument that MMS had not adequately assessed the environmental impact of Shell using two drilling vessels, as planned for the 2007 season, he said.

“While this argument had no merit even as it related to Shell Offshore Inc.’s planned activities during the 2007 season, it definitely has no bearing on Shell Offshore Inc.’s plan for the 2009 open water season, which involves only a single drill vessel,” Parker said.

And the previous history of drilling, including drilling by the Kulluk, in the Sivulliq prospect (previously known as Hammerhead) gave MMS adequate information to evaluate Shell’s plans.

“Any claim that the MMS did not have a sufficient basis to conclude that the activities Shell Offshore Inc. plans for the 2009 season should be allowed is specious,” Parker said. “Any claim that irreparable harm would result from those activities also fails.”

Public interest

Parker also said that public interest in favor of offshore oil and gas exploration has intensified.

“Responding to sharply rising oil and gas prices and the uncertainty of the world financial markets, public officials in the executive and legislative branches have strongly advocated for the development of dependable domestic energy sources,” Parker said. “Both the president and the current Congress have specifically focused on expanding oil and gas exploration in the Outer Continental Shelf. … There appears to be broad bipartisan support for immediate exploration and development of hydrocarbon resources in those portions of the Outer Continental Shelf that have already been leased.”

In addition, Shell has suffered significant cost and loss of opportunity as a consequence of the injunction on the Beaufort Sea drilling, Parker said. The balance of hardships has shifted in favor of allowing Shell’s planned 2009 drilling activities, he said.



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