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Shell asks for 5-year extension for Beaufort and Chukchi leases
Shell spokeswoman Megan Baldino has confirmed a report that Shell has requested the federal Bureau of Safety and Environmental Enforcement to issue five-year extensions to the company’s Alaska Arctic outer continental shelf oil and gas leases.
“The request reflects the extent of the actual delays we have experienced as a result of court decisions and agency actions for the last several years,” Baldino told Petroleum News in an Oct. 27 email.
The report originated from a Freedom of Information Act request to the Bureau of Safety and Environmental Enforcement from environmental organization Oceana. Oceana asked for a letter that Peter Slaiby, vice president, Shell Alaska, sent to the agency on July 10, requesting a five-year suspension of operations on Shell’s Beaufort and Chukchi Sea leases, an action that would in effect extend the original lease terms by five years.
Returned in 2005 Shell returned to Alaska in 2005, with plans to conduct exploration in the state’s Arctic outer continental shelf but since then has run into multiple issues relating, in particular, to lawsuits against the government permits that it needs and against the government leasing actions. To date, the company has only succeeded in drilling the top-hole sections of two exploration wells, one in the Beaufort Sea and one in the Chukchi Sea. Although a series of issues relating to that drilling, conducted in 2012, appears to have been a prime reason for the company deciding not to drill in 2013, a continuing appeal case challenging the legality of the 2008 lease sale in which Shell purchased its Chukchi Sea leases has caused the continuing postponement of further drilling. Shell is also waiting to evaluate the possible impact on its program of new Arctic offshore drilling safety regulations that the Department of the Interior has yet to release for public comment.
Some of Shell’s Beaufort Sea leases expire as soon as 2017. The company’s Chukchi Sea leases were issued in 2008 on 10-year terms, but are currently under suspension with no exploration activity allowed, because of the appeal against the 2008 lease sale.
Beaufort Sea plan In his July 10 letter Slaiby said that Shell, having originally purchased Beaufort Sea leases, planned to conduct drilling in those leases in 2007 and 2008. But the company abandoned this plan, in part because of a court decision upholding an appeal against government approval of the company’s exploration plan, Slaiby wrote.
Then, following a legal challenge to the five-year lease sale program under which Shell had purchased its Beaufort Sea leases, Shell abandoned a plan to drill in the Beaufort Sea in 2009, he wrote. The company then hoped to drill in the Chukchi and Beaufort seas in 2010. But following a delay in the issuance by the Department of the Interior of a new environmental sensitivity analysis, and then with a halt to offshore drilling permitting following the Deepwater Horizon oil spill, Shell’s 2010 drilling hopes came to naught, Slaiby wrote.
A July 2010 decision by the federal court in Alaska to require the Department of the Interior to rework its environmental impact statement for the 2008 Chukchi Sea lease sale, following the appeal against that sale, caused Shell to lose its 2011 Arctic drilling season, Slaiby wrote. And contributing to the loss of drilling seasons in the years 2007 to 2011 came difficulties, delays and legal challenges in the issue of air permits that Shell needed for its drilling fleet, he wrote.
2014 court ruling A January 2014 ruling by the 9th Circuit Court of Appeals, upholding the continuing appeal against the 2008 Chukchi Sea lease sale, and a subsequent further rework of the lease sale environmental impact statement, nixed Shell’s hopes of returning to the Chukchi Sea for the 2014 drilling season, Slaiby wrote.
Shell has diligently carried out its obligations as a leaseholder and has spent more than $6 billion on its Arctic Alaska venture, Slaiby wrote. But the delays and uncertainties, exacerbated by the challenging nature of operating on the Alaska outer continental shelf, have impacted Shell’s ability to conduct a sustainable strategy.
“The limited primary (lease) terms and lack of certainty on whether additional time may be granted on the leaseholds pose a significant challenge to Shell’s ability to continue to invest in the Alaska OCS,” Slaiby wrote. “Suspending the leases for five years now would provide Shell assurance that any further investment of the billions of dollars and effort to proceed with exploration and development will not be lost due to expiration of the remaining lease portfolio that would be necessary to support a commercial development.”
Oceana, in its response to Shell’s letter to BSEE, said that Shell was aware of the risks it was taking when purchasing its Arctic leases.
“Shell spent billions of dollars fully aware of the risks to that investment, and the government should not bend the rules to allow the company to continue business as usual,” said Susan Murray, Oceana’s deputy vice president. “Shell deserves no special treatment and, to the contrary, has a track record of irresponsible choices that warrants close scrutiny and the highest standards.”
Other companies apply Conoco Phillips spokeswoman Amy Burnett has confirmed to Petroleum News that BSEE has turned down a ConocoPhillips lease extension request similar to Shell’s and that the company has appealed the decision.
“ConocoPhillips will continue to engage with the government and other leaseholders to help ensure a clear and stable regulatory program prior to drilling in the Chukchi Sea,” Burnett said in an Oct. 30 email.
Statoil spokesman Jim Schwartz also confirmed to Petroleum News that his company applied to BSEE in July for Chukchi Sea lease extensions. Schwartz said that Statoil is concerned about committing to the huge cost of Arctic offshore exploration without certainty about being able to use its leases.
“Given the realities of working in the Arctic and the long lead times … we believe it’s prudent to confirm if lease extensions will be granted before contracts are agreed to that have some significant funding commitments associated with them,” Schwartz said.
- Alan Bailey
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