Obama administration delivers big blow to Shell’s Arctic drilling plans

WASHINGTON — The Obama administration delivered a major blow to Shell’s Arctic drilling plans on Tuesday, by ruling that wildlife protections bar the company from simultaneously boring two wells into the Chukchi Sea this summer.

The decision will force Shell to scale back its hopes of completing two exploratory oil wells in waters north of Alaska this summer and is another setback for the firm that has spent seven years and $7 billion trying to find crude in the Arctic Ocean.

At issue is the Fish and Wildlife Service’s decision to allow sound from Shell’s planned drilling to disturb walruses, polar bears and other marine mammals in the area. Although the agency authorized some of those animal disturbances, it said Shell cannot simultaneously bore planned wells that are just nine miles apart because a 2013 regulation requires a 15-mile buffer zone around active drilling rigs.

Under the ruling, Shell can still move two contracted rigs to its Burger prospect 70 miles northwest of Alaska’s coastline, but only one can be drilling at any given time.

Shell said it still plans to carry out curtailed drilling operations, which depend on the company on winning at least one more federal permit. The company has already committed about $1 billion to this year’s planned drilling activities and has already moved major assets to Alaska. One rig arrived on Saturday and a second is en route, after leaving a Washington state port early Tuesday.

Read more: Shell’s Arctic drillship heads to Alaska

“We are evaluating the letter of authorization issued today and will continue to pursue the 2015 program,” said Shell spokesman Curtis Smith. “That includes drilling in the Chukchi Sea once open water permits.”

Federal regulators are requiring Shell to have two rigs in the region, in case an emergency forces the company to bore a relief well. But Shell had hoped to keep both of those working simultaneously to maximize an already narrow window for drilling that opens July 15 and closes on Sept. 28.

That tight timeline means Shell’s hopes of finishing even two wells this summer were far from guaranteed. But Shell needs both to confirm its hunch that oil is lurking at the site and begin to define how big the bounty could be.

Shell and Obama administration officials have been grappling with the marine mammal disturbance provision for months. Shell had asked the Fish and Wildlife Service to grant a variance from the 15-mile buffer requirement, but the agency appeared to have little latitude to make such exemptions under the existing regulations.

“We have strong requirements, and we have to hold firm on those requirements — and we expect that Shell will comply with them,” said Tommy Beaudreau, chief of staff for Interior Secretary Sally Jewell.

The move disappointed environmentalists who last week insisted the 15-mile separation requirement should force the Interior Department to rescind a conditional approval it gave Shell’s broad Chukchi Sea exploration plan in May. When the Bureau of Ocean Energy Management conducted an environmental analysis of that exploration plan, it only scrutinized a two-well program with rigs running simultaneously and specifically eschewed analyzing the potential environmental impacts of Shell boring just one well at a time.

Read more: Shell’s Arctic drilling plans may hit permitting snag

“The Fish and Wildlife Service has prevented potentially harmful simultaneous drilling,” said Earthjustice staff attorney Erik Grafe. “But simultaneous drilling was a key assumption when Interior approved Shell’s exploration plan.”

“We think the Department of the Interior needs to rescind its approval because it was predicated on this double-drilling (scenario),” Grafe said.

Allowing just one well to be drilled at a time could translate to many more years of activities and wildlife disturbances, said Christopher Krenz, a senior scientist and Arctic campaign manager for Oceana.

“Rather than take adequate time to do the job right to ensure exploration drilling will not harm walrus or other parts of the ecosystem, the government is now taking a short cut to allow Shell to drill this summer,” Krenz said.

A senior Interior Department official suggested that the planned operations still constitute the two-rig and two-well program covered by the ocean energy bureau’s earlier environmental analysis. Both of Shell’s contracted drilling rigs, the Transocean Polar Pioneer and the Noble Discoverer, would still be expected at Shell’s Burger prospect and could conduct back-to-back drilling activities at different wells.

The Interior Department’s conditional approve of Shell’s Chukchi Sea exploration plan was contingent on the company meeting a host of requirements, including obtaining necessary letters of authorization for walrus disturbances.

Shell still needs to secure at least one drilling permit from the Interior Department’s Bureau of Safety and Environmental Enforcement before it can begin work on a Chukchi Sea well.

The company’s last Arctic drilling venture, in 2012, was marred by mishaps, including a drifting drillship and a rig running aground. Because emergency containment equipment wasn’t certified and in the region in time to safeguard drilling operations, Shell was limited to boring “top holes” that penetrating about 1,500 feet, well above any potential oil and gas.

The oil industry, environmentalists and federal regulators are closely watching Shell’s Arctic program, which represents the first offshore oil exploration in the region in decades. A significant discovery could spark new industry interest in the area and open up a major new offshore oil field potentially rivaling the Gulf of Mexico.

Environmentalists argue that offshore oil drilling is inherently risky — especially in the cold and unforgiving Arctic, which is subject to fierce storms and shrouded in darkness much of the year. Existing technology for cleaning up oil spills is geared for more temperate waters and would be no match against crude floating in slushy seas or slipping under ice, critics say.

Exploratory oil drilling in U.S. Arctic waters is confined to about three months a year, when waters are ice free. Shell ice experts predict the waters around the company’s Burger prospect will open up around the third week in July.

Although that is earlier than recent years, it still would be a week later than the July 15 start date for drilling under law. The company has a narrow window to conduct its work. Ice is projected to encroach on the site by Nov. 1, and regulators are insisting Shell halt drilling about a month earlier — by Sept. 28 — to allow time for boring a relief well in case of an emergency.

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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.