Obama administration gives thumbs up to Shell’s Arctic drilling plans

With the Olympic Mountains in the background, the Polar Pioneer drilling rig arrives in Port Angeles, Wash., aboard a heavy-lift transport ship in April. Shell Oil Co. hopes to use the rig for exploratory drilling during the summer open-water season in the Chukchi Sea off Alaska's northwest coast, if it can get the permits. (Daniella Beccaria/seattlepi.com via AP, File)
With the Olympic Mountains in the background, the Polar Pioneer drilling rig arrives in Port Angeles, Wash., aboard a heavy-lift transport ship in April. Shell Oil Co. hopes to use the rig for exploratory drilling during the summer open-water season in the Chukchi Sea off Alaska’s northwest coast. (Daniella Beccaria/seattlepi.com via AP, File)

WASHINGTON — The Obama administration on Monday gave its blessing to Shell’s broad plans for exploratory oil drilling in Arctic waters, putting the firm one step closer to resuming its $6 billion quest for crude at the top of the globe.

The decision came in the form of an Interior Department agency’s conditional approval of Shell Oil Co.’s Chukchi Sea exploration plan, which envisions drilling up to six wells into the company’s Burger prospect 70 miles northwest of Wainwright, Alaska.

The company still needs to secure seven other permits, resolve a fight over its plan to moor rigs near Seattle and win the cooperation of Mother Nature before it can begin any drilling once ice clears this summer. But the approval marked a major milestone for Shell, even as it handed a big defeat to environmentalists who argue that a major oil spill in the Chukchi Sea could irrevocably damage the fragile Arctic ecosystem, jeopardizing whales, walruses and other marine life.

And the move illustrated anew the balancing act the White House has taken to energy and the environment, with the administration imposing a mix of regulations clamping down on oil and gas development even as it endorses oil exploration in frontier areas.

Shell spokesman Curtis Smith said the government approval “signals the confidence regulators have in our plan.”

“However, before operations can begin this summer, it’s imperative that the remainder of our permits be practical, and delivered in a timely manner,” Smith added. “In the meantime, we will continue to test and prepare our contractors, assets and contingency plans against the high bar stakeholders and regulators expect of an Arctic operator.”

Permits needed

The Bureau of Ocean Energy Management stressed that its approval was conditional — predicated on Shell obtaining necessary state and federal permits, including individual drilling authorizations from a separate Interior agency. The company also is seeking incidental harassment authorizations from the National Marine Fisheries Service, letters of authorization from the Fish and Wildlife Service and wastewater discharge approvals from the Environmental Protection Agency.

The company’s emergency oil containment system has already been certified, and the Interior Department’s 2012 approval of Shell’s oil spill response plan is still in force.

Regulators insisted they had conducted a deliberate review of Shell’s drilling blueprint, despite the relatively brief 30-day window that federal law gives the Interior Department to make a final decision on complete exploration plans.

As part of its analysis, the Bureau of Ocean Energy Management concluded that Shell’s proposed drilling would have cause no “significant impacts” on the environment, with any adverse effects to threatened or endangered species are “expected to be short term and localized.” The agency also asserted that “the potential affects of the proposed (activity) are not anticipated to be highly controversial.”

“We have taken a thoughtful approach to carefully considering potential exploration in the Chukchi Sea, recognizing the significant environmental, social and ecological resources in the region and establishing high standards for the protection of this critical ecosystem, our Arctic communities and the subsistence needs and cultural traditions of Alaska Natives,” bureau director Abigail Hopper said in a statement.

Environmentalists blasted the administration’s move, saying regulators had signed off on a risky plan for Arctic oil exploration without proof that Shell has significantly improved its operations since a series of mishaps in 2012.

The incidents during the 2012 campaign included an engine fire, a drifting drillship and the grounding of Shell’s Kulluk drilling rig on an Alaskan island. Although most of the incidents took place before and after Shell’s contracted drilling rigs and vessels were actively working in the Chukchi and Beaufort Seas, they illustrated the challenges to mounting major exploration in the remote and forbidding region.

Susan Murray, deputy vice president of the Pacific for the conservation group Oceana, suggested federal regulators were bowing to Shell’s corporate interest.

“Shell’s need to validate its poorly planned investment in the U.S. Arctic Ocean is not a good reason for the government to allow the company to put our ocean resources at risk,” Murray said. “Shell has not shown that it is prepared to operate responsibly in the Arctic Ocean, and neither the company nor our government has been willing to fully and fairly evaluate the risks of Shell’s proposal.”

Related story: Arctic drilling could be more difficult and costly than Shell lets on, environmentalists tell SEC

Under Shell’s exploration plan, the company would put two rigs to work drilling separate wells in the Chukchi Sea during a brief ice-free window this summer: the drillship Noble Discover and Transocean’s Polar Pioneer, a semi-submersible offshore drilling unit that does not have its own propulsion.

A typical drilling season — constrained by seasonal sea ice and regulatory restrictions — could start as early as July 1 and close by Oct. 31.

The narrow window for work means it is possible but unlikely the company would be able to complete a well and reach potential oil- and gas-bearing zones before Shell must suspend operations and flee for winter. But Shell officials are viewing its Arctic exploration as a two-year campaign, with any wells begun this summer likely finished in 2016.

Regulators have insisted that offshore oil operators must halt work early enough to allow time to drill a separate relief well in case of an emergency, before water freezes.

Related story: Feds propose Arctic drilling mandates

Marilyn Heiman, director of the U.S. Arctic Program at the Pew Charitable Trusts, cheered the ocean energy bureau’s decision to stick with that same-season relief rig requirement. “(It) will ensure Shell ends drilling in enough time to drill a relief well before ice moves in if a blowout should occur,” Heiman said.

Oil industry leaders have argued that other interventions can wrest a runaway well under control — negating the need for a same-season relief rig that eats into their already short drilling season.

Well control systems can “stop the flow of oil in the matter of minutes, hours or days compared with weeks or even months,” said Ann Pickard, Shell’s executive vice president for Arctic. “They can provide a superior alternative to same-season relief wells and oil spill containment systems.”

Shell has already moved its Arctic drilling rigs to Washington state waters and plans to temporarily moor them at the port of Seattle as early as this week, bucking a Seattle Department of Planning and Development ruling that a new land-use permit is needed to support the activity.

Related story: Seattle ruling won’t derail Shell’s Arctic quest, executive vows

Although the firm renting space to Shell is appealing the city’s decision, Shell isn’t waiting for the legal dispute to be resolved.

The company now is preparing to move both of its rigs into Puget Sound, with the Noble Discoverer set to arrive at the Port of Everett in a matter of days and the Polar Pioneer scheduled to arrive at Seattle’s Terminal 5 later in the week.

“None of the parties involved, including Foss and the Port of Seattle, share the city’s interpretation of how T5 can be used,” Smith said. “Furthermore, we view our lease and the supporting contract Foss has with the port as valid.”

Seattle residents are planning a series of protests this weekend to highlight their opposition. Greenpeace activists already climbed aboard the Polar Pioneer and camped out there for days while it was being heaved across the Pacific Ocean.

Shell, bracing for more protests, has won a federal district court order barring Greenpeace protesters from encroaching on the company’s Arctic-bound ships and flying drones over its planned drilling targets.

Oil and gas companies view the Arctic as a kind of final frontier — with the potential for marking a monster discovery that could yield production decades from now and, in the short term, could mean a big boost to the balance sheet.

During the last generation of Arctic drilling, in the 1980s, Shell found oil and gas at wells in the Beaufort and Chukchi seas. But it abandoned the area in 1991 to pursue Gulf of Mexico opportunities, against sustained low oil prices, high development costs and limited capacity on the Trans-Alaska Pipeline System needed to ferry crude away from the region.

The company has added new equipment — including two new anchor handlers and an additional helicopter — to its Arctic fleet this year. It also has increased the number of employees that serve as liaisons with contractors working on the Arctic campaign.

And Shell has bolstered its maritime assurance program, largely in response to its decision to pull the Kulluk across the stormy Gulf of Alaska in December 2012 — a plan so ill conceived that a tug master at the time bluntly warned against it even before the fruitless five-day fight to save the rig that ultimately careened into a rocky Alaskan island.

Pickard highlighted Shell’s investment and planning in a presentation to the Offshore Technology Conference in Houston last week.

“The Arctic requires meticulous advance planning and financial commitments,” Pickard said, noting that Shell’s 2015 program is expected to cost more than $1 billion, and most of that is already spent and committed. “We have to know we can get our permits, and we have to know that the courts aren’t going to stop it.”

But environmentalists say the company still is falling short — and insist the newly approved exploration plan ups the risks for marine life in the region. The new exploration plan envisions its activity — including sound disturbances — will harass a dozen mammal species in the Chukchi Sea, including whales, seals and porpoises.

“This decision places big oil before people, putting the Arctic’s iconic wildlife and the health of our planet on the line,” said Erik Grafe, a staff attorney for Earthjustice. “The agency should not be approving such threatening plans based on a rushed and incomplete environmental and safety review.”

Critics also point to the failure of Noble Discover’s pollution-control system while in waters near Hawaii. The same type of equipment broke in 2012, too.

During the most recent incident, in April, Coast Guard officials briefly detained the Noble Discoverer in Honolulu while the system that strips oil from bilge water was repaired.

Shell’s Smith said the system was fixed within hours and swiftly re-inspected, putting the Discoverer on its way to Washington state without delay.

“The system in question was recently upgraded and passed inspection before departing for Hawaii,” Smith said. “We view this as a mechanical repair, which from time to time could be required on any piece of equipment.”