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Vol. 15, No. 20 Week of May 16, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

A halt to OCS drilling

Interior puts moratorium on permits; federal permits for state waters not included

Alan Bailey

Petroleum News

In the continuing fallout from the sight of spilled oil spreading across the waters of the Gulf of Mexico, Secretary of the Interior Ken Salazar announced May 7 that the U.S. Department of the Interior will not approve any new permits for offshore oil and gas drilling until Interior completes an offshore drilling safety review requested by President Obama. Interior is scheduled to deliver its safety review to the president by May 28.

The halt on new permits does not apply to the two relief wells that BP is drilling to staunch the flow of oil from the out-of-control well in the Gulf.

Shell’s planned drilling

Shell plans to drill exploration wells on the outer continental shelf of the Beaufort and Chukchi Seas in 2010. And, although the U.S. Minerals Management Service has already approved Shell’s exploration plans for this drilling, Shell will require MMS drilling permits before starting any drilling operations, perhaps in early July.

“MMS Director Liz Birnbaum sent a letter today to Shell Oil Company President Marvin Odum confirming that MMS will not make a final decision on the requested permits for the drilling of exploration wells in the Chukchi and Beaufort Seas until the Department of the Interior’s report to the president has been submitted and evaluated,” Interior said May 5.

Salazar’s May 7 statement put specific permitting flesh on the brief but widely reported statement made by David Axelrod, senior adviser to President Obama, during an April 30 ABC television interview in which Axelrod commented that no new offshore drilling would be authorized until the administration had determined what had happened in the Gulf of Mexico.

Impact on state waters?

But the Interior hiatus in issuing new drilling permits only applies to federal waters on the U.S. outer continental shelf, leaving speculation about what action the Obama administration might take with regard to oil and gas drilling in offshore waters that come under the jurisdiction of individual states. State waters typically extend out to a distance of three miles from the coastline.

And the Alaska state waters encompass fields such as Oooguruk and Endicott off the North Slope, as well as the aging offshore oil fields of the Cook Inlet.

The federal government could in principle call a halt to the issuing of some of the federal permits required for drilling in state waters, such as U.S. Environmental Protection Agency hazardous waste or air quality permits. That would, in effect, prevent drilling from taking place.

However, at press time, Petroleum News had not found any evidence to indicate that federal regulatory agencies were taking any actions of this type to limit drilling in state waters.

The Alaska Department of Natural Resources is the primary state agency with oversight of oil and gas activities on state land, including state coastal waters, with the Alaska Oil and Gas Conservation Commission responsible for issuing state drilling permits.

Jonne Slemons, section chief for oil and gas leasing in Alaska’s Division of Oil and Gas, told Petroleum News May 12 that DNR is not aware of any moves by federal agencies to place holds on ancillary federal permits required for drilling in state waters.

“We haven’t received any communication on that,” Slemons said.

State allowing drilling

In addition, the state is continuing to allow drilling in state waters.

“The state has no plans to halt or withhold permits and we base that on the safety record of operators in state waters, which is very good,” Slemons said.

A state Cook Inlet oil and gas lease sale will go ahead as planned on May 26, she said. However, although lease sales provide oil and gas companies with opportunities to gain access to land for exploratory drilling, the sales do not in themselves authorize drilling activities.

AOGCC Commissioner Dan Seamount told Petroleum News May 7 that under state statutes the commission would need to continue dealing with state drilling permits as specified within the commission’s regulations. The commission would only be able to consider changing its regulations once the cause of the Gulf of Mexico incident is known and there is an assessment of what could be done to prevent a similar incident occurring in the future, Seamount said.

Liberty moving ahead

The Liberty field, which BP is in the process of developing in the federal outer continental shelf of the Beaufort Sea, is in a unique position. Project plans call for the use of ultra-extended reach wells to drill into the OCS field reservoir from state surface land on an artificial island at the Endicott field, off the central North Slope. Liberty’s drilling program should start soon following the installation at Endicott of the project’s massive drilling rig.

Phil Cochrane, vice president of external affairs for BP Exploration (Alaska), told Petroleum News May 7 that BP does not expect the halt in new federal drilling permits to impact the Liberty drilling.

“We have all of our permits in place for the Liberty project,” Cochrane said.

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