Feds: Emergency containment equipment a must for Arctic

Oil companies seeking to drill in Arctic waters must have emergency equipment capable of reining in runaway subsea wells, a top Obama administration official said Wednesday.

The declaration by Deputy Interior Secretary David Hayes appears to answer a major question facing ConocoPhillips and other oil companies that have wondered whether they must follow Shell’s lead in building specialized emergency equipment before drilling in the area.

Shell constructed an oil spill containment system meant to trap any hydrocarbons flowing from a damaged subsea well before it launched exploratory drilling in the Chukchi and Beaufort seas last year.

While other oil companies won’t have to use an identical system, Hayes said, “we’ve been very clear we expect all drillers in the Arctic to have a capping stack and containment capability.”

ConocoPhillips blamed uncertainty surrounding Arctic drilling requirements when it decided to indefinitely delay its plans to begin drilling in the area next year..

Hayes said the rules for emergency response in the Arctic are “clear as a bell.” And they essentially boil down to this: Do what Shell did.

“There really is not much of a question about what the expectations are for folks drilling in the Arctic,” Hayes said at a Brookings Institution summit on the region. “We’ve laid it out with Shell. We’ve told the rest of the industry these are the expectations. They are common-sense expectations.”

The Interior Departments that oversee offshore drilling do not have Arctic-specific standards for oil drilling and development in U.S. waters north of Alaska.

Many of Shell’s moves — effectively blessed by regulators who issued drilling permits and approved the company’s broad Chukchi and Beaufort sea exploration plans — were voluntary.

But Hayes said they form a framework of expectations for other companies with Arctic drilling aspirations.

“We’re telling ConocoPhillips we’re going to expect everybody who wants to explore . . . they’re going to have to meet equivalent requirements,” Hayes said.

Hayes signaled that the Interior Department may seek to codify the requirements, rather than “proceed on a case-by-case basis.”

“We’re looking at, certainly, incorporating these requirements and making it clear that everyone doing business up there should meet these requirements,” Hayes said.

Hayes’ comments elaborate on testimony by Bureau of Ocean Energy Management Director Tommy Beaudreau, who told a Senate subcommittee last month that companies must show they have the ability to halt a gushing Arctic well at the source. While the main way to do that may be using a specialized capping stack and containment system, Beaudreau stressed that the requirement won’t be equipment-specific.

“Generally, we are going to look for the same things from ConocoPhillips that we looked for with respect to Shell’s operation, which is a performance standard around the ability to address any loss of well control at the source,” Beaudreau said at the time. “We don’t prescribe a one-size-fits-all solution to this issue, but we will be very demanding on this issue.”
Of course, federal regulators surely don’t want other companies to mimic some of the high-profile mistakes by Shell and its contractors as the oil firm launched a new era of oil exploration in the U.S. Arctic last year.

The mishaps — which included the Dec. 31, 2012 grounding of Shell’s Kulluk drilling unit — earned a rebuke from the Interior Department, which said in a report that the company did not sufficiently oversee and manage an array of contractors and seemed to focus on complying with regulations rather than holistically managing risks.

Alaska Lt. Gov. Mead Treadwell stressed at the Brookings summit that any requirements for Arctic oil exploration need to provide flexibility.

“There are many different ways to contain and clean up oil,” he said. “There’s not always one way to do it.”

Treadwell also suggested that the regulatory framework shouldn’t be built by the decisions of a big company that may be more willing to invest in certain equipment or processes.

“Even between Shell and ConocoPhillips, it’s two different-sized investments for two different-sized prospects,” Treadwell said. “If two companies can’t say we’re going to go about this in a different way, you’ve got a problem.”

ConocoPhillips had been planning to use a jack-up rig to drill up to two wells in 2014 at its Devil’s Paw prospect in the Chukchi Sea, about 80 miles off the coast of Alaska.
Shell, meanwhile, is taking a pause on its U.S. Arctic drilling program until next year, at the earliest.

Hayes noted uncertainties about whether Shell will be back in the area next year and suggested that might have been a factor in ConocoPhillips’ decision making.

“I think ConocoPhilliips will want to be there in theater with Shell and not without Shell, because that provides the mutual aid opportunities that could provide economic benefits to both companies,” Hayes said.

Former Interior Secretary Ken Salazar previously suggested oil companies might share some emergency resources — such as rigs to drill relief wells and containment equipment — as a way to keep down costs. That would be similar to the approach in the Gulf of Mexico, where two firms already offer containment equipment to the array of oil companies.

Under a federal requirement imposed after the 2010 oil spill, oil companies must prove they can swiftly contain a runaway well before getting approval to drill in deep water. U.S. Arctic waters around Alaska are generally shallow.