Milestone for Shell: Feds approve first new deep-water plan since spill

The oil and gas industry cleared a major hurdle Monday in its path back to deep-water drilling, with the Obama administration’s approval of an offshore exploration plan that would pave the way for Shell to drill three new exploratory wells in the Gulf of Mexico.

Shell’s plan
is the first of its kind approved by the government since the 2010 Gulf oil spill triggered tougher safety and environmental mandates. To win approval, the company had to satisfy those new rules and withstand more environmental scrutiny than exploration plans filed before the Deepwater Horizon disaster, when regulators routinely waived environmental assessments that are otherwise required by federal law.

Interior Secretary Ken Salazar said the decision “lays a foundation for (Shell) to seek final permits to drill these wells” and is a “step forward that once again shows that we can and we are moving ahead with responsible offshore development.”

Legal fight likely

The administration’s decision faces an almost-certain legal challenge from conservationists who say the government is acting prematurely and is bound by federal law to first finish a post-spill environmental study of the Gulf of Mexico that could last until next year.

The outcome of that legal fight could dictate not only Shell’s future at its Cardamom Deep discovery 250 miles southeast of Houston but also whether federal regulators have the power to approve new deep-water drilling any time soon.

So far, the Obama administration has focused on restarting work on 57 projects that were already permitted before a ban on some deep-water drilling was imposed last year. The Bureau of Ocean Energy Management, Regulation and Enforcement still is waiving environmental assessments for those deep-water drilling projects and has approved three of them since Feb. 28.

Shell’s exploration plan presented the first real test of whether the government is empowered to swiftly review and approve newly proposed deep-water exploration plans that form the blueprint for well-by-well permitting decisions.

Shell hopes to drill three new wells in approximately 2,950 feet of water at Cardamom Deep. Shell CEO Marvin Odum told investors in September that the discovery could hold more than 100 million barrels of oil equivalent.

Under the just-approved exploration plan, Shell still would have to obtain separate drilling permits before it can begin drilling those wells.

Environmental review

In approving Shell’s exploration plan, the ocean energy bureau assessed the environmental consequences of the company’s proposed drilling and concluded there would likely be “no significant impact” from the work.

But conservationists say the government isn’t able to make a fully informed decision about the impact of the project now, because the ocean energy bureau is just beginning work on a supplemental environmental review of the Gulf,  essentially a post-spill update of a similar study conducted years ago. And, they argue, under a federal law known as the National Environmental Policy Act, the Gulf-wide study should provide the basis for more specific reviews of Shell’s exploration plan and others like it.

Bill Snape, a senior counsel with the Tucson-based Center for Biological Diversity, said the government was “putting the cart before the horse,” cutting off any detailed environmental review of Gulf drilling and bucking the federal law that requires robust studies — not just paperwork and box-checking.

“NEPA requires a hard look — not some sort of hop, skip and a dance where you just go through the procedure for the sake of doing it,” Snape said. The environmental law requires “excellent action — not excellent documentation.”

Snape said the government’s decision to approve an exploration plan and its associated environmental assessment without waiting for the Gulf-wide environmental study is “potentially illegal” and is “unfortunately another seemingly sad chapter in the Department of Interior bowing down (to the will of) the oil industry.”

The Center for Biological Diversity has challenged other administration decisions on drilling in the wake of last year’s spill, and is one of several organizations that could fight the Shell exploration plan approval in court.

“We are absolutely analyzing our options for future litigation,” Snape said. There’s no doubt about that.”

Under federal law, any challenge could be filed in the Gulf-bordering 11th and 5th Circuit courts of appeals, as well as the federal court of appeals based in Washington, D.C.

In any legal challenge, the pressure would be on the federal government to defend its environmental assessment of Shell’s plan.

Industry response

Industry officials said they were hopeful that Shell’s preparation — and the careful review by the ocean energy bureau — would allow the government to make a strong case that it has followed NEPA.

‘The government has to step up and show it’s done its work and made decisions that are supported by the record,” said Erik Milito, upstream director for the American Petroleum Institute. “Based upon the level of work and activity that’s gone into this plan from the company’s standpoint and from the government’s standpoint . . . we don’t see any reason why it should get held up in litigation.”

Michael Bromwich, head of the federal ocean energy bureau,  said he was optimistic that Shell’s exploration plan would survive a legal challenge. “I think so,” he told reporters Thursday, “and I hope so.”

The bureau completed the environmental assessment thoroughly, with an eye on potential legal challenges, Bromwich said.  “We need to try to get it right, and we need to take whatever extra time is necessary to make sure we get it right.”

A stepping stone for others

Under federal law, the government has 30 days to act on exploration plans, but the Obama administration has asked Congress to extend that to 90 days.

Bromwich said the approved Shell exploration plan could provide assurance to other operators and ease industry concerns about the environmental review process. Shell’s approval is a stepping stone for other assessments to come.

“(It) will serve to be very helpful in terms of future environmental assessments we do under future exploration plans,” Bromwich said. “That’s not to say for a minute that these will be cookie cutter …  but once you’ve done something it’s easier to do it a second time and a third time and a fourth time.”