Business/Economy

Shell wins conditional OK for Arctic drilling

A Royal Dutch Shell subsidiary received federal approval Friday for drilling exploratory wells in the Chukchi Sea off Alaska's northwest coast but with conditions that raised concerns in the state's congressional delegation.

Approval by the federal Bureau of Ocean Energy Management came with the catch that Shell must lop 38 days off the short summer open-water drilling season to make sure it has time to cope with a spill or a wellhead blowout before sea ice moves in.

"While today's news that BOEM has issued conditional approval for Shell's Chukchi leases might seem welcoming at first glance, the devil is in the details," Alaska's lone U.S. representative, Don Young, said in a statement.

Both Alaskans and petroleum companies that have invested billions are looking for certainty and progress, he said.

"Unfortunately this 'conditional' approval won't bring much of either," Young said.

Shell Alaska spokesman Curtis Smith said the company is evaluating conditions outlined in the approval.

"We are concerned this unwarranted restriction could severely impact our ability to deliver a complete Chukchi program," Smith said in written comments.

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The restriction would end drilling into hydrocarbon zones by Sept. 24.

"So, drilling could conceivably continue to a certain depth, and then pick up again the following year," he said, but cutting the drilling season into hydrocarbon zones by a third is a concern.

"We're still considering how these conditions would impact our Chukchi plan for 2012," he said.

Shell Gulf of Mexico Inc. proposes a multiyear exploration drilling program in the Chukchi beginning in July. The plan proposes drilling up to six wells in the Burger Prospect about 70 miles off the coast in water about 140 feet deep. Shell contends it can conduct safe operations in the relatively shallow water.

Exploratory drilling is strongly opposed by environmental groups and some Alaska Native groups that want to keep large-scale industrial development out of the Arctic Ocean because of risks to whales, polar bears, walrus and other marine species, and to protect the subsistence lifestyle of Native Alaskans who depend on the ocean for subsistence hunting and harvesting.

A spokesman for one of the environmental groups, Oceana, said the approval was made despite gaps in basic scientific knowledge of the region.

"We don't have any demonstrated capacity to respond to a spill in Arctic conditions," said Mike LeVine in Juneau.

Rosemary Ahtuantaruak, originally from the Alaska North Slope village of Nuiqsut and now a tribal liaison with the Alaska Wilderness League, said drilling is a threat to coastal villagers' health.

"They didn't learn from the Exxon Valdez," she said. "They didn't learn from the Gulf of Mexico."

The Chukchi is part of vast Arctic Ocean outer continental shelf reserves that the federal government estimates at 26.6 billion barrels of recoverable oil and 130 trillion cubic feet of natural gas. The state of Alaska, with an eye on diminishing volumes of crude moving through the trans-Alaska pipeline, has pushed strongly for companies to develop offshore reserves.

The drilling season in the Chukchi lasts only about 3 1/2 months. Five years of weather patterns indicate the earliest date for ice would be Nov. 1, according to BOEM.

Ending drilling into hydrocarbon zones on Sept. 24 would mean Shell would have time to perform cap and containment operations and clean up crude before ice forms if a blowout occurred on or before that date, according to the agency. Shell also would have a window to drill a relief well if one was required to control a blowout, the agency said.

U.S. Sen. Mark Begich, D-Alaska, said in a release he was not happy with the decision to shorten the drilling season. Alaska has done offshore exploration safely in the past and the technology is better than ever, he said. "I am concerned that today's short-sighted decision is influenced by election year politics instead of the long-term energy and jobs needs of our country," he said. "I am disappointed that the administration has diverted from months of positive progress and thrown this last-minute monkey wrench into Arctic development."

Among other conditions, Shell will have to confirm the availability of its response equipment, which includes a capping and containment system. The system is in the design stage.

The company also will have to conduct a field exercise to "demonstrate their ability to deploy the system," said David W. Johnston, regional supervisor for leasing and plans, in a letter to the company.

Shell faces other regulatory or legal hurdles before drilling may begin.

The federal Bureau of Safety and Environmental Enforcement reviews and must approve Shell's oil spill response plans for the Chukchi.

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An air permit issued by the Environmental Protection Agency has been challenged and is undergoing review by the agency's appeals board.

Environmental groups challenged the 2008 lease sale conducted by the Minerals Management Service, claiming the agency ignored environmental law requirements. The Interior Department conducted supplemental environmental work and claims flaws have been corrected. A federal court judge could decide the supplemental work was not sufficient.

Shell also needs permits from the National Marine Fisheries Service and the U.S. Fish and Wildlife Service for authorization to operate under the Marine Mammal Protection and the Endangered Species Act.

By DAN JOLING

Associated Press

Dan Joling, Associated Press

Dan Joling is a reporter for the Associated Press based in Anchorage.

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