Oil companies want more time for Arctic drilling

WASHINGTON — Three oil companies with billions invested in Arctic drilling leases are pleading with the Obama administration for extra time to hunt for crude under waters north of Alaska, but so far, federal regulators have been skeptical.

Without the extensions, leases held by Statoil, Shell Oil Co. and ConocoPhillips will begin expiring in 2017.

At stake is the future of oil development in U.S. Arctic waters and the regulatory regime that governs it. If Interior Department officials turn down the companies’ bids for more time, it could halt exploratory oil and gas drilling in the region long before the deadlines start hitting in 2017, even as other countries search out vast crude resources at the top of the globe.

The oil companies’ requests also may lay the groundwork for bigger changes, including action by Congress and the Obama administration to rewrite the terms of oil and gas leases in isolated Arctic waters, where extreme weather and limited infrastructure could make 10-year timelines impractical.

Sustaining development

Charles Ebinger, director of the energy security initiative at the Brookings Institution, suggested lease extensions are needed to sustain oil development in the U.S. Arctic.

“To deny them altogether, I think, would be crippling to the Arctic,” he said. “It is simply very hard to navigate around these deadlines; the licenses should be for longer periods.”

Shell is seeking an additional five years for an array of leases in the Chukchi and Beaufort seas, saying that legal disputes, seasonal drilling restrictions and other challenges justify the additional time.

Repeated barriers

“Prudent exploration is now severely challenged prior to the current lease expiration dates . . . due to the repeated erected barriers to exploratory activities, the already severe disruption to Shell’s exploratory efforts, limited rig availability, brief operating windows and the unusually long lead times required to mobilize activities in Alaska,” Shell Alaska Vice President Peter Slaiby said in a letter requesting the extension.

“Despite Shell’s best efforts and demonstrated diligence, circumstances beyond Shell’s control have prevented — and are continuing to prevent — Shell from completing even the first exploration well,” Slaiby added.

Initially sent in July to the Interior Department’s Bureau of Safety and Environmental Enforcement, the letter was just released in response to a Freedom of Information Act request by the conservation group Oceana.

Shell has already gotten several temporary “suspensions of operation” that paused the clock on its Beaufort leases at times between 2007 and 2011 and its Chukchi Sea leases in 2010 and 2011 to compensate for legal delays and other factors, according to separate documents provided in response to Oceana’s request.

Statoil and ConocoPhillips have made similar requests, seeking extensions on Chukchi Sea leases they bought from the government in 2008.

A bureau spokesman said the agency was still reviewing the requests from Shell and Statoil. But the bureau has already rejected ConocoPhillips’ plea for more time, prompting the Houston-based company to challenge the decision before an Interior Department appeals board.

Settlement talks are now underway, according to records obtained by FuelFix.

Seeking clarity

A ConocoPhillips spokesperson said the company “is engaging with the government and other leaseholders to help ensure a clear and stable regulatory program prior to drilling in the Chukchi Sea.”

That includes waiting for the government to establish new Arctic drilling standards, which have not yet been formally proposed and are now being vetted by the White House. Final rules could be a year away, under the most optimistic scenarios.

Read more: Administration studies Arctic requirements

“ConocoPhillips will re-evaluate the timing of a Chukchi Sea exploration well after the new regulatory standards have been vetted with the public, adopted by the agency and incorporated into the company’s planning processes,” the spokesperson said.

Statoil spokesman Jim Schwartz said the company’s request “is warranted given the unique operating environment for Arctic exploration,” with offshore drilling limited to just a few ice-free months annually, in contrast to year-round work schedules in the temperate Gulf of Mexico.

“Given the realities of operating in the Arctic and long lead times associated with purchases of services and materials needed for Arctic exploration, we believe it’s prudent to confirm if lease extensions will be granted before contracts are agreed with significant funding commitments,” Schwartz added.

Neither Statoil nor ConocoPhillips have launched exploratory drilling in the region, and neither firm has given the government a required blueprint for the activity.

Shell, which has already spent some $6 billion in its Arctic quest, drilled the top part of wells in the Chukchi and Beaufort seas in 2012, and is planning to return to the Chukchi next year.

The company’s last attempt, in 2012, was marred by blunders, including the grounding of its non-propelled Kulluk drilling unit during an ill-fated tow across the Gulf of Alaska and problems getting a unique emergency oil spill containment system tested and transported to the Arctic in time.

Michael LeVine, Pacific senior counsel for Oceana, said the oil companies that bought Arctic drilling rights knew what they were getting into.

“Each and every company knew that its leases would expire after 10 years. Each company certainly should have been aware of the potential difficulties of operating in Alaskan waters, the limitations imposed by sea ice and other factors and the controversy their proposals would generate,” he said. “We owe these companies no special treatment, and the government should not bend rules to accommodate poorly planned or justified investments.”

Shell said court challenges that precluded drilling some summers, regulatory delays and other logistical constraints have eaten away much of their 10-year leases.

‘Disingenuous’

Shell did not acknowledge any of the 2012 mishaps in its request for an extension, prompting Oceana’s deputy vice president for the Pacific, Susan Murray, to call its plea “incomplete, and, at best, disingenuous.”

For companies operating in the Gulf of Mexico, the Bureau of Safety and Environmental Enforcement regularly approves “suspension of operation” requests, which effectively pause the 10-year deadline for developing a lease and moving toward actual oil and gas production — not just initial exploration. Companies must prove they are making significant progress toward development.

But in the Arctic, there’s a clash between the government’s interest in ensuring the safety of Arctic drilling operations and those 10-year-timetables, said David Goldwyn, who served as the coordinator for international energy affairs under former Secretary of State Hillary Clinton.

While the U.S. is “essentially committed to Arctic development as a matter of national strategy, at the same time there is a big push for making sure we have got the environmental and safety practices right and we have the impact on indigenous communities right,” he said. “The timing framework we have in place doesn’t match our policy objectives very well.”

Delicate balance: Oil and tradition try life together in far north Alaska

“We don’t really want these companies to rush through a lot of this process,” he added.

The National Petroleum Council is set to advise Energy Secretary Ernest Moniz on the issue next spring, including a likely recommendation to extend the standard duration of Arctic oil and gas leases.

Goldwyn said more time could help regulators achieve three sometimes-competing goals: energy development, environmental protection and safety.

Brookings’ Ebinger stressed that longer Arctic drilling leases — perhaps spanning 15 years — should be buttressed by stiff oversight: “You have to keep (companies) to the grindstone and make sure something is happening and they aren’t just sitting on a lease, hoping the price will go to $200 and then they’ll do something.”

SHOW MORE