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Vol. 15, No. 50 Week of December 12, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Confusion reigns over Arctic moratorium

Court testimony presents contradictory views of whether or not DOI imposed an Arctic OCS drilling moratorium after Deepwater Horizon

Alan Bailey

Petroleum News

The war of words over whether or not the U.S. Department of the Interior imposed a drilling moratorium on the Arctic outer continental shelf earlier this year is continuing in the United States Court for the District of Alaska, where the State of Alaska has sued Interior on the grounds that Interior has imposed a de facto Arctic moratorium without going through the required public process, as prescribed under the U.S. Administrative Procedures Act.

In a Nov. 30 court filing, the U.S. Department of Justice has claimed that Interior has never imposed an Arctic moratorium and that the state, therefore, is challenging an agency action that does not exist.

No Arctic notice

In May of this year Interior clearly imposed a deepwater drilling moratorium in the Gulf of Mexico following the Deepwater Horizon disaster, with the agency issuing official notices to lessees about the ban. But, although the agency never issued any official notice specifying a corresponding ban for the Arctic outer continental shelf, on May 27 Interior Secretary Ken Salazar issued a press release saying that he was postponing consideration of an application by Shell to drill an exploratory well in the Chukchi Sea in 2010: Shell subsequently withdrew its application to drill and no drilling took place.

In a Sept. 3 press conference in Anchorage, Alaska, Salazar said that he had put Shell’s exploration plans on hold, pending the gathering of lessons learned from the Deepwater Horizon incident, and that that Interior had imposed a drilling moratorium on the Arctic OCS. In that press conference Salazar also said that following the imposition of the deepwater drilling moratorium he had informed Shell that Interior would not issue permits for the company’s 2010 Arctic drilling program.

State sues

Subsequent to the September press conference the State of Alaska filed its court case against Interior, saying that the state will suffer financial loss, that hundreds of Alaska job opportunities have been lost and that local companies have lost business as a consequence of the deferral of Shell’s plans.

Given unresolved litigation over the 2008 lease sale in which Shell bought its Chukchi Sea leases, it remains arguable whether Shell could have drilled during the 2010 open water season, regardless of any action by the Department of the Interior. But, with Shell now wanting to drill in the Beaufort Sea in 2011, the question of whether there is some form of de facto ban on Arctic drilling is important.

But there is no drilling moratorium for the Arctic OCS, and therefore there is no case to answer, attorneys for the U.S. Department of Justice wrote in its Nov. 30 court filing. Referencing Salazar’s May 27 press release, the attorney’s said that a press release does not constitute an agency action and that there has been no agency action to challenge.

“BOEMRE never implemented a moratorium in Alaska; press statements are not final agency action because they do not mark ‘the “consummation” of the agency’s decision making process’ or determine rights or obligations,” the attorneys wrote.

The attorneys also challenged the legal basis for the State of Alaska’s claims that the Department of the Interior is in breach of the Administrative Procedures Act, or for an additional state claim that interior had violated the Outer Continental Shelf Lands Act.

BOEMRE actions

The Department of Justice in part justified its claim that there is no Arctic drilling moratorium by using testimony from Jeffrey Walker, regional supervisor for field operations in the BOEMRE Alaska region. Walker said that on April 15 Shell had submitted its application to drill in the Chukchi Sea in 2010 and that the U.S. Minerals Management Service, the precursor agency to BOEMRE, had continued to process that application after the explosion of the Deepwater Horizon in the Gulf of Mexico on April 20.

On May 6 Elizabeth Birnbaum, then director of MMS, wrote to Marvin Odum, president of Shell Oil Co., requesting information on additional safety procedures that Shell might propose following the Deepwater Horizon disaster, Walker said. Odum responded to Birnbaum’s request on May 14 but in early June Shell withdrew its application, following Salazar’s May 27 media announcement saying that he was postponing consideration of Shell’s drilling application, Walker said.

On June 24 Shell asked BOEMRE’s Alaska region to issue a “directed suspension of operations” to relieve Shell of its lease rental obligations in the Chukchi Sea, but BOEMRE has taken no action on that request, Walker said. And on July 21, the U.S. District Court for Alaska banned lease-related activities in the Chukchi Sea as part of that court’s ruling in an appeal against the 2008 Chukchi Sea lease sale.

Application for 2011

The only other application that BOEMRE has received for Arctic OCS drilling is a second Shell application to drill, this time for the drilling of a single exploration well in the Beaufort Sea in 2011, Walker said. BOEMRE received that application on Oct. 5 and subsequently requested and received revisions to Shell’s Beaufort Sea exploration plan, to line up the exploration plan with Shell’s new drilling plan. BOEMRE must approve the revised exploration plan before the agency can approve the drilling application, Walker said. BOEMRE is still processing both the revised exploration plan and the drilling application, and will complete a supplemental environmental assessment in conjunction for the exploration plan, he said. And in testimony filed on Nov. 30, Walker said that Shell had not yet provided some additional information that BOEMRE had requested on Oct. 25 for the drilling application.

So, did Salazar’s statements about the deferral of Shell’s drilling amount to a de-facto drilling moratorium in the Arctic? Or did the chain of events simply represent the routine processing of permit applications by BOEMRE? And can the State of Alaska appeal an agency action that, at least on official paperwork, does not appear to exist?

Presumably the court will need to decide.

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