WASHINGTON _ The Obama administration will decide soon whether to give in to Shell’s request for extra time to hunt for oil in Arctic waters, Interior Secretary Sally Jewell said Wednesday.
Without action, Shell’s oil and gas leases in the Beaufort Sea will begin expiring in 2017, followed by its drilling rights in the neighboring Chukchi Sea two years later.
The same fate awaits Chukchi Sea leases sold in 2008 to Statoil and ConocoPhillips, which have made similar appeals for more time, citing regulatory uncertainty, legal challenges and other obstacles.
“We are actively working with Shell and other leaseholders up there on their request for suspensions,” Jewell said during a Senate Appropriations subcommittee hearing. “We will be resolving that relatively soon.”
The companies’ bids for “suspensions of operation” would effectively stop the clock ticking on their 10-year leases. The Bureau of Safety and Environmental Enforcement is actively considering the requests from Shell and Statoil that were filed in July 2014; it previously rejected ConocoPhillips’ November 2013 bid for at least three more years. ConocoPhillips appealed the decision to an Interior Department appeals board, and settlement talks are now under way.
Neither Statoil nor ConocoPhillips has active plans to drill in U.S. Arctic waters, but Shell is preparing to resume exploration in the Chukchi Sea this summer, three years after its last try in 2012 resulted in two half-completed wells that stopped short of penetrating potential oil-bearing zones.
“This is good news for us, particularly at a time when the price of oil is causing many companies to really scrutinize their investment decisions on very large-scale projects,” said Sen. Lisa Murkowski, R-Alaska. “It makes it all the more important that Shell have the certainty it needs before it proceeds to spend even yet more billions of dollars. (Shell) needs to retain its existing lease portfolio to warrant this enormous investment.”
Murkowski cited the limited 75-day window for drilling in the Arctic, when waters are free of ice — as opposed to the year-round activity allowed in the Gulf of Mexico.
“There really are not enough drilling seasons (left) for Shell to complete more than a handful of exploration wells before the Chukchi Sea lease portfolio expires,” Murkowski said.
Legal uncertainties surrounding the government’s 2008 auction of Chukchi Sea oil leases have delayed work in the area, though the Interior Department has already granted Shell, Statoil and ConocoPhillips additional time to compensate for some of those legal delays.
Most recently, the Bureau of Ocean Energy Management completed a new environmental analysis of that seven-year-old sale in a bid to satisfy a 2014 federal court ruling that the first version was inadequate. But the final decision on whether to affirm, modify or vacate that sale rests with Jewell, who could issue a “record of decision” on the auction as soon as March 25.
In the meantime, the Chukchi Sea leases are under a suspension of operation tied to the ruling.
Jewell stressed that Interior Department regulators were focused on completing that essential environmental analysis. “We took our resources and focused them — as we were requested to do — on helping Shell move forward with this drilling season,” Jewell said.
Jewell also made a nod to the mishaps that marred Shell’s 2012 Arctic operation, including the grounding of its non-propelled Kulluk drilling rig during an ill-fated tow across the Gulf of Alaska and the company’s difficulty certifying and readying a unique emergency oil spill containment system so it could safeguard drilling. Shell halted its planned 2013 drilling in response, as it repaired one rig and searched for another to replace the Kulluk.
“We understand the circumstances that companies have,” Jewell told Murkowski. “We also understand the circumstances that Shell had in 2012.”
“We get that it’s complicated to do work up there,” she added. “We want to make sure it’s done safely and responsively, and we want to be responsive to the companies.”
Conservationists argue that Shell and other oil companies knew what they were getting into when they bought Chukchi Sea leases in 2008. Any Interior Department decision to give the company more time amounts to unwarranted “special treatment” said Oceana Deputy Vice President Susan Murray in a Feb. 27 letter to the safety bureau.
“Operating in the Arctic Ocean is dangerous, controversial, and logistically challenging,” Murray said. “Those facts, however, do not allow BSEE to bend its rules to grant Shell an unjustified extension of its leases.”
Extensions also could mean taxpayers — who own the oil at issue — are “no longer getting fair value,” said Michael LeVine, Pacific senior counsel for the group. “The government sold the rights to public resources under a certain set of circumstances and terms and shouldn’t then rule to change those terms.”
In general, leases expire at the end of their terms unless operators are “conducting operations” on the lease, such as drilling, reworking wells or producing oil and gas.
“Suspension of operation” requests are relatively common in the Gulf of Mexico, where they often are filed right before leases are set to expire, unlike the Arctic requests now pending before the safety bureau.
Safety bureau spokesman Nicholas Pardi said the agency “evaluates suspension requests on a case-by-case basis.”
Federal regulations give the agency relatively little authority to grant the suspensions, including to allow compliance with judicial decrees, when activities pose a threat of harm or damage, when they are needed to install safety equipment or conduct environmental analysis and to allow for “inordinate delays” in obtaining permits.
The oil companies’ requests may lay the groundwork for bigger changes, including potential action by Congress and the Obama administration to rewrite the terms of oil and gas leases in isolated Arctic waters.