Shell’s Arctic drilling plans on track as Obama administration OKs lease sale

WASHINGTON — The Obama administration reaffirmed a 2008 government auction of Arctic drilling rights on Tuesday, delivering a major victory to Shell Oil Co. as it aims to resume exploratory drilling in the Chukchi Sea this summer.

In validating the seven-year-old auction, Interior Secretary Sally Jewell stressed that the Arctic “is an important component of the administration’s national energy strategy.”

“We remain committed to taking a thoughtful and balanced approach to oil and gas leasing and exploration offshore Alaska,” Jewell said in a statement. “This unique, sensitive and often challenging environment requires effective oversight to ensure all activities are conducted safely and responsibly.”

Related story: Feds propose Arctic drilling mandates

The move illustrated anew the balancing act the Obama administration has taken toward oil and gas development amid steep environmental opposition, coming the same day the White House formally pledged greenhouse gas emission cuts ahead of international climate talks. It also marked the second time the Obama administration has affirmed the Chukchi Sea lease sale in response to a court order and a long-running legal challenge that began even before the auction took place in February 2008.

The decision keeps the door open for Shell to return to the Chukchi Sea this summer and drill wells into its Burger Prospect about 70 miles from Alaska’s shoreline.

It is far from the final regulatory step for Shell, which still must secure individual drilling permits and win the Bureau of Ocean Energy Management’s approval of its broad exploration plan.

It is far from the final regulatory step for Shell, which still must secure individual drilling permits and win the Bureau of Ocean Energy Management’s approval of its broad exploration plan. But Jewell’s formal “record of decision” affirming the disputed lease sale was a critical hurdle for Shell’s 2015 Arctic ambitions.

Most immediately, it allows the ocean energy bureau to begin formally reviewing Shell’s Arctic exploration plan as soon as a new version is filed with the agency. Once the bureau deems the plan complete, it has 30 days to decide on the drilling blueprint.

“Above all, it means we can continue making plans to drill this summer,” said Shell spokesman Curtis Smith, though he noted that the company’s planned exploration program “remains contingent on achieving the necessary permits, legal certainty and our own determination that we are prepared to explore safely and responsibly.”

The company’s previous Arctic venture, in 2012, was marred by mishaps, including higher-than-permitted air pollution from a drillship while in the Chukchi Sea and the beaching of its Kulluk drilling unit on an Alaskan island weeks after exploration ended for the year.

Shell has already begun moving its two contracted drilling units to the United States in anticipation of operations this summer.

Read more: As Obama administration weighs Arctic drilling, Shell moves rigs to region

The company also just conducted drills of its emergency containment system for the Arctic, demonstrating the equipment in waters off Washington state for officials with the Interior Department and U.S. Coast Guard.

A Bureau of Safety and Environmental Enforcement spokesperson confirmed agency officials witnessed the successful deployment of the system.

“BSEE continues to work with Shell during its preparations for possible exploration activities to ensure that all activities meet safety standards and are in compliance with federal regulations,” the spokesperson said.

Read more: Shell conducts drills with Arctic oil spill response system

Although Tuesday’s decision was widely expected, it still disappointed environmentalists who have pushed the Obama administration to rule out Arctic drilling and have long questioned the validity of the 2008 auction.

“The Obama administration has steadfastly refused to fully and fairly evaluate the risks of selling leases in the Chukchi Sea and, instead, treats the leases sold in 2008 as if they’re set in stone,” said Susan Murray, Oceana’s deputy vice president for the Pacific. “Rather than once again committing to a risky, poorly justified decision to sell leases in the Chukchi Sea, the government should wipe the slate clean and start over.”

The Chukchi Sea lease sale has long been under a legal cloud. The Interior Department previously was ordered to redo its environmental analysis in 2010 after an Alaska-based federal district court found deficiencies with the review. The Interior Department issued a new environmental impact statement and validated the auction a year later, paving the way for Shell’s 2012 Arctic drilling campaign.

But the sale entered legal jeopardy again after the 9th Circuit Court of Appeals last year faulted the Interior Department’s initial calculation of how much crude would be extracted from the Chukchi Sea leases.

Previously, regulators had said up to 1 billion barrels of oil were economically recoverable from the available leases.

In a final environmental impact statement unveiled in March — as well as a draft released last October — the bureau produced a new estimate: 4.3 billion barrels of oil and 2.2 trillion cubic feet of natural gas.

The agency said the new, higher prediction is based on better information about where oil companies’ interests lie and a deeper understanding about geologic structures in the region. In revising its estimate, the bureau also relied on actual bidding data from the disputed 2008 auction, which brought in a record $2.6 billion in high bids. Most of them — $2.1 billion worth — came from Shell, which joined six other companies in nabbing Chukchi Sea drilling rights.

The new analysis also says there is a 75 percent chance of at least one large spill that releases more than 1,000 barrels of oil over 77 years of drilling and development on those Chukchi Sea leases.

The plaintiffs — including more than a dozen conservation organizations and Alaska native groups — did not say Tuesday whether they planned to keep fighting the lease sale in federal court.

They broadly faulted the Interior Department for issuing a final environmental impact statement less than two months after receiving hundreds of thousands of comments on the earlier draft — a timeline they said showed the administration was catering to Shell Oil’s drilling desires.

“We are disappointed in Interior’s rushed lease sale decision,” said Erik Grafe, a staff attorney with Earthjustice, which filed the lawsuit. “Interior still has time to make a better decision when evaluating Shell’s drilling plan, and we sincerely hope it says no to Shell’s louder, bigger, and dirtier tactics, loaded with potential environmental harm.”

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About The Author

Jennifer A. Dlouhy covers energy policy, politics and other issues for The Houston Chronicle and other Hearst Newspapers from Washington, D.C. Previously, she reported on legal affairs for Congressional Quarterly. She also has worked at The Beaumont Enterprise, The San Antonio Express-News and other newspapers. Jennifer enjoys cooking, gardening and hiking. She lives in Washington, D.C., with her husband and toddler son.