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Continuing uncertainty for Shell’s plans Court debacle over Chukchi Sea lease sale raises further questions over when the company can resume its Arctic drilling program Alan Bailey Petroleum News
With the U.S. Court of Appeals for the 9th Circuit upholding a long-standing appeal against the Department of the Interior’s 2008 Chukchi Sea lease sale, Shell’s hopes of drilling in the Alaska Arctic offshore have yet again been thwarted by legal action. But what does this mean for the company’s Arctic exploration efforts?
On Jan. 22 the 9th Circuit Court, in response to an appeal against the validity of the environmental impact statement, or EIS, for the lease sale ruled that the EIS was flawed. The court remanded the appeal case back to the federal District Court in Alaska. Now, the lack of a legally valid EIS renders the lease sale itself invalid, thus raising question marks over the legal status of the leases that Shell and other companies purchased in the sale.
Shell, which had hoped to continue exploration drilling in its Chukchi leases during the coming summer, has announced a postponement of its drilling plans because of the uncertainties resulting from the appeal decision.
The District Court has yet to make a statement concerning the next steps in the case. However, a further significant modification to the EIS would appear to be an obvious requirement, with the time required to make the necessary changes unclear.
Varied responses Environmental organizations, all of which oppose Arctic offshore oil exploration, responded positively to the 9th Circuit decision.
“The oil industry is clearly not ready to operate safely in the Arctic Ocean, and lacks the technology to recover significant amounts of spilled oil from cold, remote and stormy seas,” said Nicole Whittington-Evans, Alaska regional director for the Wilderness Society. “The decision to cancel drilling plans in 2014, and possibly beyond, represents a major victory for not only bowhead whales and polar bears, but for the Alaska Native communities that have existed in the Arctic for thousands of years, and that depend on the Arctic Ocean as a source of food and cultural traditions.”
Alaska politicians, including the state’s congressional delegation and Gov. Parnell, expressed a different perspective.
“Today’s news is extremely disappointing for Alaska, but certainly understandable given the recent Ninth Circuit Court ruling,” Parnell said. “Multiple years of federal regulatory delay, litigation delay, and one year of operational issues have created barriers to Alaskans’ near-term economic prospects. Still, offshore energy development will play an enormous role in Alaska’s economic future, and I remain committed to responsibly developing our vast offshore resource basin. As we move forward, I am confident Shell can be part of Alaska’s bright future.”
Permits needed Prior to the 9th Circuit decision Shell had not, in fact, announced any final decision to drill in the Chukchi in 2014. The company had said that it hoped to drill in 2014 or 2015 but that its ability to drill was contingent on obtaining the necessary permits for the vessels and equipment in its drilling fleet. And, given some substantive changes to that fleet, Shell had faced a formidable challenge in acquiring all of the permits that it needed prior to sending its fleet into the Chukchi in time to make use of the 2014 summer open water season.
Shell has filed a revised Chukchi Sea exploration plan with the Bureau of Ocean Energy Management, or BOEM, for approval. BOEM has not yet deemed the exploration plan complete and ready for public review — Shell and BOEM have been exchanging communications regarding the completion of the plan to the federal agency’s satisfaction.
Just to complicate the permitting situation, Shell has been facing something of a moving permitting target, in that BOEM and the Bureau of Safety and Environmental Enforcement are preparing some new safety and environmental protection regulations, specific to oil drilling on the Arctic outer continental shelf. The agencies anticipate releasing the new regulations for public review by the end of March. The regulations will not be finalized until the public review period is over and until the agencies have revised the regulations based on the comments they receive.
And any plans or permits that are approved face running the gauntlet of legal challenge through the courts.
Strategic play Given that since starting its Alaska offshore exploration program in 2005 Shell has yet to complete a single well in either the Beaufort or the Chukchi Sea, people may wonder how much more patience the company can have with its frustrating multibillion dollar venture. But the company has consistently said that it sees the Alaska Arctic offshore as a strategic play for the long-term future, with the potential for major new oil resources, especially in the Chukchi.
During a media briefing in November, Simon Henry, Shell’s chief financial officer, confirmed that Shell sees Alaska, in particular the Chukchi, as a key component of its long-term plans.
“Individually, it is the largest single exploration prospect in the Shell Group,” he said.
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