Feds: All companies should heed Arctic drilling lessons

Federal regulators have focused scrutiny on Shell’s Arctic drilling program, but top Obama administration officials say ConocoPhillips and other companies planning to search for oil in the same area better be paying attention.

Lessons learned from Shell’s problem-plagued 2012 Arctic drilling operations will apply not just to that company’s future work in the Chukchi and Beaufort seas, but any other firms with leases in those waters, said Interior Secretary Ken Salazar.

That could include ensuring that the firms have access to specialized oil spill containment equipment or do a better job broadly assessing and managing risks in the remote region north of Alaska. A high-level Interior Department probe of Shell’s program last month concluded 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.

“We will take those lessons and apply them across the board, including to ConocoPhillips,” Salazar said in an interview. “So if ConocoPhillips is thinking that there are parts of this report that aren’t going to very much affect them and their efforts, they are mistaken. We are going to make sure that the lessons that were derived from the Shell preliminary efforts this last year are applied . . . Arctic-wide.”

Shell has decided to pause its hunt for oil after last year’s high-profile mishaps, including the Dec. 31 grounding of one of its rigs on an Alaskan island. But the company hopes to resume the work in 2014, using two floating drilling units.

ConocoPhillips, meanwhile, is working with regulators to finalize its plans 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.

ConocoPhilllips spokeswoman Natalie Lowman said the company was still reviewing the Interior Department’s probe of Shell’s 2012 Arctic drilling program “and is not ready to say what impacts it may have on our plans for exploration drilling in the Chukchi Sea.”

ConocoPhillips is still revising a broad drilling blueprint that must be approved by the Bureau of Ocean Energy Management in response to questions from the agency. Before ConocoPhillips could launch its work, the company also would have to get drilling permits from the Bureau of Safety and Environmental Enforcement and secure the agency’s approval of its Arctic oil spill response plan.

The company has submitted an oil spill response plan to the safety bureau, which under federal regulations would allow ocean energy regulators to begin reviewing ConocoPhillip’s broad Chukchi Sea drilling blueprint. But according to a Department of Interior official, BSEE has asked ConocoPhillips for additional information before it can make any decision on the company’s spill response plan.

From scratch:Arctic oil development carries Alaska-sized challenges

While regulators likely will require ConocoPhillips to have access to a second drilling rig to bore a relief well in case of an emergency, it’s unclear whether the firm will have to establish its own containment system for reining in a runaway well in the region.

Testifying before a Senate Commerce subcommittee field hearing in Anchorage last week, Bureau of Ocean Energy Management Director Tommy Beaudreau said the key won’t be having specific containment equipment — just the proven ability to halt a gushing well at the source.

“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. “We don’t prescribe a one size fits all solution to this issue, but we will be very demanding on this issue.”

Beaudreau noted the importance of having emergency equipment on hand, given the remoteness of the region, hundreds of miles from the closest deep-water port, and where even in the summer, air travel can be fickle.

“That is extremely important, particularly in the Arctic environment where opportunities for spill response in the event of a loss of well control are limited by the remoteness of the geography, the encroachment of sea ice and other factors,” Beaudreau said. “And so we will be working very closely with ConocoPhillips on their ability to perform with respect to source control.”

Environmentalists insist that existing technology can sop up only a small percentage of spilled crude from even calm, warm seas — much less in slushy, cold Arctic waters.

Oil companies can already tap into some established spill response vessels and equipment in Alaska, but the resources are far different in the Gulf of Mexico, where two companies have built giant capping stacks and other containment systems in response to the 2010 Deepwater Horizon disaster. Shell built its own containment system in case of emergencies, though that equipment was not ready in time to get to the region last year.

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As in the Gulf, companies with Arctic drilling leases could band together to share containment equipment and even rigs for drilling relief wells in emergencies. Tim Dodson, executive vice president of global exploration for Statoil, suggested in a recent interview that kind of collaboration was essential to keeping down compliance costs in the region.

“The challenge in places like Alaska and a lot of the more remote areas of the Arctic is that each company is really targeting just one prospect at a time, so ultimately, you need more of a collaborative effort,” Dodson said. “I think we all agree that generically, this is not really the place to go it alone. This is the place where you need to be learning from each other, where you need to be sharing both experiences and sharing facilities and common costs.”

Although Statoil is a minority partner in ConocoPhillips’ Devil’s Paw prospect, the Norwegian firm has delayed plans to explore its own U.S. Arctic leases until at least 2015 (and may not drill there at all). Statoil has until 2019 to begin developing its Chukchi Sea leases before forfeiting them.

Salazar said he anticipated more collaboration on emergency response in the Arctic.

“Right now you only have one company — Shell — but if you end up in three years having ConocoPhillips, Statoil and others (working there), having the same sort of safety net that we’ve been able to complete in the Gulf may have huge applicability,” he noted.

Environmentalists insist that existing technology can sop up only a small percentage of spilled crude from even calm, warm seas — much less in slushy, cold Arctic waters.

“A major oil spill in the Chukchi Sea poses extraordinary risks to fragile Arctic marine ecosystems and the coastline including the extraordinary fish and wildlife species that reside there all or part of the year,” Oceana, the Alaska Wilderness League, Earthjustice and other groups said in a March 25 letter to the Bureau of Safety and Environmental Enforcement. “Very importantly, a major oil spill also would harm people who live in the Arctic and depend on the Chukchi Sea for subsistence and to maintain their cultural traditions, and to whom the United States owes a trust responsibility.”

Joined by Alaska residents, the conservationists have asked regulators to make the company’s oil spill response plan available for public review before any decision is made.

“The Department of the Interior repeatedly has stated that it will hold all Arctic drilling to the highest standards and that this approach is important to protect Arctic peoples and wildlife as well as to set an example for other nations,” the groups told BSEE. “Making critical decisions on fundamental aspects of Arctic drilling such as oil spill response plans with full public involvement will foster the achievement of Interior’s stated goals.”

Separately, environmentalists and engineers advising the Interior Department on offshore drilling safety have recommended regulators develop Arctic-specific standards to govern oil exploration and development in the region, given the unique challenges of remoteness, ice and forbidding weather.