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Some lessons learned in the Arctic OCS Lawyer comments on the permitting situation as Shell’s drilling program in the Beaufort and Chukchi seas slowly moves forward Alan Bailey Petroleum News
On Sept. 18, a week or so after the drillship Noble Discoverer finally started drilling through the Chukchi seafloor towards Shell’s Burger prospect, attorney Eric Fjelstad, a managing partner in Perkins Coie LLP, talked to the Alaska Oil and Gas Congress about the lessons that can be learned from Shell’s experience in Arctic Alaska and the current status of Arctic outer continental shelf oil exploration permitting.
It has taken Shell several years, in the face of appeals against its permits, to reach the point of starting to drill. And this year, following multiple delays in the start of its drilling, the late completion of work on its containment barge and problems with sea ice at its Burger site, Shell has had to scale back its expectations in the current open water season from an original plan to complete several wells in the Chukchi and Beaufort seas to the drilling of just some so-called top-hole well sections.
Given the contingency of people who have a philosophical opposition to Arctic offshore oil development, with no possibility of changing their views, it will continue to be difficult to move forward with oil industry projects on the Arctic outer continental shelf, Fjelstad commented.
“With that said, I absolutely believe it’s doable,” he added.
Exploration plans The fact that in 2010 and 2012 the U.S. Court of Appeals for the 9th Circuit rejected appeals against approval of Shell’s outer continental shelf exploration plans is of major significance in paving the way for offshore drilling, Fjelstad said.
“That is huge. That is the most significant permit. That is the one that builds the momentum,” he said.
But appeals over the approval of Shell’s oil spill response plans for its drilling have yet to be resolved.
However, there is now some regulatory certainty over conducting outer continental shelf seismic surveys, with Shell, ConocoPhillips, Statoil and BP all having conducted offshore surveys in recent years. The permitting issues associated with offshore surveys are now quite well understood: If a company embarks on the permitting in the fall of one year it can have a high expectation of obtaining the necessary permits in time to conduct a survey during the summer open water season of the following year, Fjelstad said. But there is still some uncertainty over permitting seismic work when done alongside a drilling operation, he said.
Lease sale appeal An appeal challenging the legality of the 2008 Chukchi Sea lease sale in which Shell, ConocoPhillips and Statoil purchased the leases that they are now exploring has yet to be resolved. The appeal, contesting the legality of the environmental impact statement, or EIS, for the sale, first went to the federal District Court in Alaska. That court remanded the EIS to the Department of the Interior for rework over issues relating to missing environmental information. Interior undertook a very rigorous EIS revision, which the District Court eventually upheld, Fjelstad said. However, the appeal has now moved to the Court of Appeals for the 9th Circuit, with a ruling from that court anticipated in perhaps early 2013, he said.
Air permits The obtaining of air permits under the Clean Air Act for its drilling fleet proved to be a major challenge for Shell. Under what Fjelstad characterized as “the old regime,” the Environmental Protection Agency initially viewed the point of air quality compliance for an offshore drilling operation as the edge of the drillship, although the agency subsequently extended the point of compliance out to the edge of a 500-meter zone around the vessel.
But, with the drilling operation taking place many miles offshore, no one would experience any air degradation from the drillship’s diesel engines unless they took the implausible step of driving a boat out to the drill site, Fjelstad said.
Congress subsequently changed the law, transferring the responsibility for outer continental shelf air permitting to the Department of the Interior, the agency which was already responsible for air permits for outer continental shelf oil and gas operations in the Gulf of Mexico. That will result in a change of the Arctic offshore permitting standard to that of the Gulf of Mexico, where the point of air quality compliance is the shoreline, Fjelstad said.
“This is all positive,” he said.
Endangered Species Act Fjelstad thinks that concerns in Alaska about the impact of wildlife listings under the Endangered Species Act on Arctic resource development have been overblown, especially since the circumstances under which Arctic species are listed tend to be very different from those of listings that have taken place in the Lower 48. And industry has co-existed for a long time with the listed species in the Arctic. The bowhead whale, for example, has been listed for some time and its numbers have been increasing.
As part of the permitting process a federal agency will ask the National Marine Fisheries Service, for example, if a planned activity is expected to have an adverse impact on a listed species or its habitat. This is a permitting step, but it is not that scary, Fjelstad said.
Pre-emptive lawsuits Of particular interest to lawyers this year has been a series of pre-emptive lawsuits that Shell has filed against environmental organizations. One of these lawsuits, a request for an injunction against Greenpeace, prohibiting that organization from interfering with Shell’s operations, was not especially unusual. But the other Shell lawsuits, petitioning the federal District Court in Alaska to declare each of Shell’s permits valid, are highly unusual — for every permit issued Shell filed a lawsuit against the environmental organizations that had in the past opposed the company’s plans.
“I’m not aware that’s ever been done before,” Fjelstad said. Normally the environmental groups will file a lawsuit, challenging a permit and often waiting until the most awkward time before acting.
Judge Beistline in the District Court in Alaska is allowing the Shell lawsuits to move forward, having refused to dismiss the cases. The environmental groups have appealed Beistline’s decision to the Court of Appeals for the 9th Circuit.
“Stay tuned,” Fjelstad said. “This is a major, major strategic consideration about whether companies will be able to continue to do this.”
Exploration EIS Something else to watch for in the future is an EIS for Arctic offshore oil and gas exploration being prepared by the National Marine Fisheries Service in conjunction with the Bureau of Ocean Energy Management, Fjelstad said. The original draft of this document was very problematic: It assumed much more future offshore seismic activity than is likely to take place while placing significant restrictions on the amount of offshore drilling that might be allowed. Essentially, the proposal was to limit drilling to two operations per year in each Arctic sea, despite the fact that there are currently three operators with serious offshore drilling plans.
The agencies are apparently now working on revisions to the draft document, with a final version of the document expected in early 2014.
And the question of multiple offshore drilling operations will likely be the next big permitting issues.
“It’s one thing with one drilling operation, but what about two, what about three?” Fjelstad asked.
Coastal zone management is another permitting issue to watch for, possibly in the Alaska Legislature, given the recent debate on this topic, Fjelstad said. A citizen’s initiative to reinstate an Alaska coastal zone management program was defeated in a recent state election.
Is it possible? But Shell’s situation raises questions about where Arctic offshore drilling will go from here, given the narrow summer drilling window and the way in which ice comes and goes at various times. In the long term, who will be able to conduct operations in this type of environment? Is the Arctic offshore just an arena for the biggest of the big players?
“You have to wonder, frankly, whether we have a situation where it is so hard that … even a company as big as Shell, with all its resources, can’t pull it off,” Fjelstad said.
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