Shell, ConocoPhillips plead White House for flexibility in Arctic

WASHINGTON — Oil companies hoping to find crude under Arctic waters north of Alaska are imploring the Obama administration to ensure new rules governing drilling in the region don’t force them to stash emergency equipment nearby or block them from using chemical dispersants to clean up any spills.

The pleas for flexibility were delivered by Shell Oil Co. and ConocoPhillips in private meetings earlier this month with the Office of Management and Budget, which is reviewing an Interior Department proposal that would set standards governing oil development in the remote Arctic frontier.

The actual proposal is under wraps during the government’s interagency review, but regulators have signaled their desire for companies operating in the region to have equipment on hand to combat a blown-out well, possibly including containment systems, cap-and-flow devices that provide a path for crude out of a damaged well in a destabilized formation and rigs that can drill a relief well.

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But according to just-released documents from separate Sept. 10 and Sept. 18 meetings with OMB’s Office of Information and Regulatory Affairs, both Shell and ConocoPhillips want more freedom to respond to emergencies.

For Shell, that means not being forced to keep a second rig nearby, ready to drill a relief well in case of an emergency.

Although the company already has told regulators it aims to use two rigs to drill separate wells in the Chukchi Sea as early as next year, which would satisfy a relief rig requirement, Shell said a standby rig would cost $250 million annually, “with no demonstrated environmental benefit.”

“Other technologies, such as a capping stack, provide equivalent or better opportunities for well control,” Shell said in a Sept. 10 presentation to the regulatory affairs office. The company says that if a same-season relief rig is required, new regulations should accommodate the use of “equivalent” technologies, including a capping stack.

That could potentially mean capping any blowout temporarily to keep oil and gas locked underground and returning months or a year later to drill a relief well.

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As part of its argument, Shell asserts that in the past four decades, drilling blowouts have never been controlled by relief wells, including BP’s failed Macondo well in the Gulf of Mexico.

But in that case, while containment caps were used atop Macondo to temporarily corral leaking oil, the ultimate, lethal prescription for killing the well was a relief well drilled to intercept it. And while the oil industry has developed new containment equipment in response to the Gulf spill, several iterations were used at Macondo in the five-month fight to keep the well in check.

Shell officials have stressed that the shallow wells it aims to drill in the U.S. Arctic would be shallow targeting low-pressure formations — unlike the more challenging long and deep-water wells now being bored on the Gulf’s frontier.

Shell spokesman Curtis Smith stressed that the company’s “paramount concern . . . is safety and environmental protection.”

“Our message to the OMB was that we support clear, consistent regulations that further these imperatives,” he said. “At every step, we continue to work with federal agencies, the state of Alaska, local communities and contractors to develop a program that achieves high technical, operational, safety and environmental standards.”

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Critics say that the remote, isolated nature of U.S. Arctic waters — 1,000 miles from the nearest major port — means emergency equipment and people trained to deploy it must be nearby.

“It is imperative that they have a relief rig in the Arctic; if they do not, it could take months to control a blow out,” said Marilyn Heiman, director of the U.S. Arctic Program for Pew Charitable Trusts. “The damage that can ensue to marine wildlife and the ecosystem in that time is not worth the risk.”

Heiman noted “it took months in the Gulf to drill a relief well, and they were not contending with extreme cold, darkness, high seas and ice.”

Shell and ConocoPhillips also said they want the freedom to use a broad arsenal of weapons against an oil spill.

At issue is a possible requirement in the Interior Department’s draft rule that would force companies to have sufficient booms, skimmers and other physical equipment on hand to clean up worst-case oil spills from proposed wells in the Arctic — rather than letting them rely on chemical dispersants, burning and natural erosion for some of the crude that models estimate could be spilled.

“Non-mechanical means should be included in the calculations for recovery and clean-up of a skill, and realistic mechanical recovery calculations should be calculated,” ConocoPhillips asserted in its Sept. 18 handout to the office that was disclosed Tuesday.

Offshore drilling regulators generally assume 5 percent of spilled oil will naturally disperse in the Gulf of Mexico and give companies credit for 20 percent of spilled crude to be broken down by dispersants and burning.

But if that same approach doesn’t carry over to the Arctic, Shell told the regulatory affairs office, it could mean an additional $51 million a day for a well estimated to spill up to 75,000 barrels per day in a worst-case scenario. The six Chukchi Sea wells Shell wants to drill have estimated worst-case discharges ranging from 8,700 to 23,100 barrels per day.

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“A 100 percent mechanical requirement leads to increasing costs and environmental impacts — less recovery of oil — as operators enter plays with higher daily worst-case discharges,” Shell said in its presentation.

Shell’s financial focus is key because a major factor in the regulatory affairs office’s review is the estimated cost and benefits of proposed rules.

Environmentalists, including some offshore drilling opponents, say chemical dispersants would be devastating to the fragile Arctic ecosystem — even if they worked to break down oil in the frigid, icy waters. The Governmental Accountability Office has said too little is known about how chemical dispersants would behave there.

It is unclear when the Interior Department will formally propose the Arctic standards rule, though a draft is expected later this year. Government records do not show any other meetings with the regulatory affairs office on the rule, though others may be scheduled and the data generally lags meetings by a week or two.

Statoil, another lease holder in the area, has not met with OIRA to discuss the draft, according to government records.