Post-spill milestone: Feds permit first new exploration well

The federal government today granted Shell the first permit to drill a new deep-water exploration well proposed since last year’s Gulf spill, marking a major milestone for the oil and gas industry and offshore regulators.

Under the move, Shell Oil Co. will be allowed to drill the first of three deep-water wells in the Gulf of Mexico about 250 miles southeast of Houston that were outlined in the company’s just-approved offshore exploration plan.

The government has issued seven other permits for six deep-water projects that were permitted — and in some cases under way — when the deep-water moratorium was imposed last year. By contrast, Shell’s new drilling permit is for a newly proposed well under an exploration plan submitted after last year’s spill.

Environmentalists are poised to challenge the government’s approval of both the exploration plan and the drilling permit issued today, setting up a legal battle that could determine not just whether Shell’s project can go forward, but whether federal regulators can move swiftly to green light others like it.

Michael Bromwich, the head of the Bureau of Ocean Energy Management, Regulation and Enforcement that issued the drilling permit to Shell, cast the announcement as a milestone.

“Today’s permit approval represents a culmination of a broad and comprehensive review process involving an exploration plan, a site-specific environmental assessment, and the application for the drilling permit — all of which complied with our rigorous safety and environmental standards,” Bromwich said. “The completion of this process further demonstrates that we are proceeding as quickly as our resources allow to properly regulate offshore oil and gas operations in the most safe and environmentally-responsible manner.”

Under the permit, Shell will be able to drill an exploratory well in 2,721 feet of water at its Cardamom Deep discovery located about 137 miles off the Louisiana coast.

Shell President Marvin Odum has said the discovery could hold more than 100 million barrels of oil equivalent.

Last week, Odum said Shell’s exploration plan approval could provide a regulatory template for drilling new exploration wells in the deep-water Gulf.

“You already are seeing a number of applications for exploration plans and permits to drill,” Odum said. “I think it’s (been made) easier now that we’ve clarified the rules of the game.”

To secure the new drilling permit, Shell had to comply with safety and environmental mandates issued since last year’s spill and prove that it had the resources and equipment to respond to a blowout in deep water. Shell is relying on equipment from the Marine Well Containment Company to capture crude in case of a blowout at the site.

A legal challenge has been threatened by 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. They take issue with the bureau’s assessment of the environmental consequences of Shell’s proposed drilling and the agency’s conclusion that there would likely be “no significant impact” from the work.

Environmentalists could challenge both the new well permit and the offshore exploration plan in federal court and seek an injunction to stop drilling even before it begins.

If successful, that would cast a long shadow over the ability of the ocean energy bureau to permit other deep-water projects without doing detailed site-specific environmental assessments on proposed drilling or waiting for a separate study of the entire Gulf that might not be complete until early next year.

A ruling against the ocean energy bureau and Shell’s drilling “would stop things,” Bromwich told reporters today. “And depending on what the grounds for the injunction were, it could have ramifications for a wide variety of other exploration plans and permits that we’re currently in the course of reviewing and that will be submited in the future.”

“I haven’t fully consider all of the impacts and ramifications of an injunction,” Bromwich added, “but it would not be a pretty sight.”

The threat of a lawsuit has been hanging over the agency as it considered Shell’s offshore exploration plan and its subsequent drilling application. Regulators are mindful that the environmental assessments they did of the Shell plan could face higher scrutiny.

“We took the time and put the effort into this environmental assessment on Shell’s exploration plan and we hope it will stand up to the test of litigation,” Bromwich said. “No one can predict that in advance, but we wanted to do everything we could to raise the chances that it would withstand a challenge.”

“We think a challenge is coming,” Bromwich added. “We’ve essentially been warned about that . . . and all we can do is put in high quality work which we have done.”