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Same game. Different rules? Phillips cancels McCovey project due to new DEC policy; former Oil and Gas Division director says state has changed rules in the middle of the game Kay Cashman PNA Publisher
Phillips Alaska Inc. has halted permitting of its Beaufort Sea McCovey project due to stipulations from the Alaska Department of Environmental Conservation that would make the project uneconomic. Ken Boyd says DEC’s stipulations, which include stopping exploratory drilling as early as April 1 versus a standard May timetable, represent an unexpected, major and disturbing change in state policy.
Boyd, who gained a reputation for protecting the state’s interests in his tenure as its Oil and Gas Division director, told PNA May 16, “The state has changed the rules in the middle of the game. … After over 20 years of safe operations in the Arctic, why have drilling policies been modified?” NPRA, entire coastal zone impacted DEC’s new policy, Boyd said, “will effect a lot of wells, not just McCovey – NPRA, Alpine, anything offshore – I should say, anything in the coastal zone — will likely be negatively impacted by this.” According to state officials, the coastal zone extends inland approximately 20-25 miles from the coast on the North Slope and several miles outward from rivers and creeks.
“Companies bought leases from the feds and the state in good faith. Now the rules have changed. There is no sense issuing leases in lease sales and not allowing the companies to drill. That’s not fair,” Boyd said.
“The state shouldn’t be holding lease sales if it can’t set standards up front,” he said.
Boyd predicted “there won’t be any work in the coastal zone” if DEC holds firm to its new policy.
A spokesman from Alberta Energy Co. Ltd., a new player on Alaska’s North Slope and a partner in McCovey, told PNA they were “very surprised and disappointed” by the state’s decision regarding McCovey.
Michael Richter, Phillips Alaska’s vice president of land and exploration, said the problems with permitting were “unanticipated.”
Beyond that neither company was willing to comment. Chevron USA, the third partner in the project, had not responded to a query from PNA prior to press date.
Boyd attributes their reticence to concern that talking to the press will anger the two state agencies responsible for the problems with McCovey permitting – the state Division of Governmental Coordination and DEC.
“The companies are being careful in how they respond to agencies because they are afraid of retribution.,” Boyd said. Initially approved by state, feds But the immediate chance for a McCovey offshore project doesn’t look promising. Phillips not only stopped its permitting process with the state in early May, but also pulled its exploration plan with the U.S. Minerals Management Service, Jeff Walker told PNA May 18. Walker is the regional supervisor for field operations for MMS in Alaska.
The McCovey unit, which was approved in August by MMS and the state Department of Natural Resources’ Division of Oil and Gas, included three federal and four state leases in the central Beaufort Sea. The proposed drilling location lies approximately 12.5 miles northeast of West Dock at Prudhoe Bay, 60 miles northeast of Nuiqsut, 7 miles northwest of Cross Island, and 110 miles northwest of Kaktovik.
The unit agreement required that all work commitments be completed by April 30, 2002, including drilling an exploratory well.
This past winter, Phillips planned to construct an ice road and island and to drill the McCovey No. 1 exploratory well. on federal lease OCS-Y-1578.
Initially, Phillips ran into permitting problems with the North Slope Borough for building an ice road to the McCovey prospect. The borough, opposed to offshore development, eventually was persuaded by legal arguments from Phillips to issue the permit.
But the real trouble came when the state Division of Governmental Coordination, which was required to review the McCovey exploratory plan to make certain it was consistent with the state coastal management plan, got involved. DGC voices concerns late DGC was given the opportunity to raise any concerns it had with the exploration plan during a standard 30day review process prior to the approval of the McCovey unit. Instead, according to a Nov. 28 letter from Walker to the agency, DGC raised concerns involving “relief well planning, critical operations and curtailment plans and platform verification” several months later and well into the permitting process.
In April, DGC issued a proposed consistency determination with stipulations from DEC that Phillips spokeswoman Dawn Patience told PNA made the project uneconomic and prompted Phillips to pull the plug on the project.
At the time all but one of the four permits needed to proceed had been issued. The fourth permit would have been issued by the Minerals Management Service, Patience said.
“DEC added a long list of things Phillips would have to do, like not drilling in oil bearing zones after April 1,” Boyd said. “The season is short enough as is. An April deadline doesn’t give the company enough time to build an ice road, build an ice island, drill the well and test the well.
“Companies spend a lot of money on projects like these. To find themselves in the position of not having enough time, say, to test the well and having to do it all over again the next year, is unacceptable,” he said. MMS disagrees with state Walker, too, disagreed with DGC’s consistency review and the DEC stipulations it contained. He told DGC in a recent letter: “Arbitrary shut down dates for drilling and testing operations can result in premature abandonment of the well. This can prevent testing and evaluating the productivity of the well. We do not believe that the recommended SDR (seasonal drilling restriction) is warranted or necessary.”
Walker told DGC that there was low risk of an oil spill and that Phillips was capable of implementing oil spill response as late as June.” He said that the May 15 date the state has used in the past under the “1984 Tier II decision” is a “conservative planning date for demobilization” of a drill rig.
“The McCovey spray-ice island location, while seaward of the Barrier islands, is in a floating fast ice zone, and ice can remain stable into June,” Walker told DGC.
“What DEC is asking for is no chance of a spill or blowout. One hundred percent certainty,” Boyd said.
“If planes only were only allowed to fly in good weather, if cars were only allowed to drive at 10 miles per hour we would have fewer accidents. Our economy would suffer as a result. What is the acceptable level of risk?
“The oil companies are extraordinarily careful on the North Slope,” Boyd said. “They bid in our lease sales because they accepted the rules. Because they thought they could still get their work done,” Boyd said.
But they can’t work on much of the North Slope under these new rules, he said: “Alaska is open for business but, it seems, with limited hours. Why have the standards changed? Where is the science? What is the rationale for these changes? If a company like Phillips with years of experience in the Arctic – those are ARCO Alaska people at Phillips – and Phillips partner Alberta Energy, which has experience in Canada’s Arctic, can’t meet the state’s standards, then who can?”
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