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Listening sessions start process for Alaska-focused Arctic drilling rules

Alex DeMarban
Federal drilling regulators begin a process to tame the nation's last oil and gas frontier, sans oil spill tests in icy waters. Royal Dutch Shell photo

Looking for lessons in Shell's disastrous campaign to drill offshore in the Arctic, the Interior Department on Thursday launched an effort to create special rules for oil and gas activity in federal waters off Alaska's coasts.

Leading the hearing was a former Alaskan who's risen into the top echelons of the department. Tommy Beaudreau, an assistant secretary at Interior who oversees energy development in the U.S. offshore, said his years in Alaska have left him mindful of the promise of resource development and the dangers it presents.

Beaudreau attended Service High School but left the state after oil prices slumped in the 1980s and his father lost a job working for a North Slope oil company. Beaudreau, who traveled to Cross Island last summer to visit with Nuiqsut whalers, was also personally shaped by the tragedy of the Exxon Valdez oil spill in 1989.

"I understand the disruption and harm that can be caused when oil and gas activity goes wrong," he said. It's something he takes to the office every day in Washington, D.C.

Walking down the aisle

Beaudreau was speaking to Alaskans from both sides of the aisle -- tree-huggers and industry boosters -- in an informal listening session in Anchorage kicking off the process of developing special rules for the nation's last oil-and-gas frontier.

Central to the effort is the experience of Royal Dutch Shell, which raised the bar on drilling standards in U.S. Arctic waters as it became the first company to explore the region in two decades. It then failed to meet some of those key standards in a series of high-profile blunders.

Shell, for example, proposed having a second drill rig available to drill relief wells to stop a spill, and having at the ready a huge containment dome to vacuum up spewing oil from under the water.

Federal managers took Shell up on its offers -- deciding to enforce them -- but the Dutch oil giant endured a season of failures that included a containment dome that was "crushed like a beer can" during a test in Puget Sound, and perhaps the biggest marine screw-up by the oil industry in Alaska since the Exxon Valdez, the grounding of the drill rig Kulluk off Alaska's coast on New Year's Eve. Shell is sitting out this summer's drilling season as that drill rig and another, the Noble Discoverer, undergo upgrades and repairs.

The Exxon Valdez led to a host of new industry-wide rules to prevent future spills. Now, the federal government is at it again in this new effort to create Alaska-specific rules for the industry. Some of those higher standards proposed by Shell could make the list, as well as new ones.

What's key?

Key factors the department will look for include ensuring that operators can quickly control and capture spewing oil, have the means to drill relief wells, and that operators look to share resources to reduce risk, said Beaudreau.

The rule-making process will include the publication of draft rules, hopefully by the end of the year, and a formal review and comment period, Beaudreau said. (In this initial stage, comments can be made until June 21 at the federal rulemaking site at www.regulations.gov, at docket number BOEM-2013-0035.)

Whatever comes of the effort could be critical for Alaska, where the oil production that pays for state government is reaching unnervingly low levels.

This spring, ConocoPhillips cited uncertainty in the regulatory environment and said it was backing off plans to drill in the Chukchi Sea off Alaska's northwestern coast next summer. Norwegian oil giant StatOil has also put its Chukchi plans on ice, raising questions about whether the region will ever be developed. But Beaudreau said industry continues to have strong interest in the Arctic, and pointed out the region's vast potential. The U.S. offshore Arctic is believed to hold 27 billion barrels of technically recoverable oil and vast quantities of untapped gas.

Addressing concerns from both sides that the informal listening sessions are nothing but a show, Beaudreau said officials will take every comment to heart.

The meeting lived up to its "informal" billing. When a speaker from a conservation group reminded the audience of Shell's beer-can incident, Beaudreau chuckled and looked teasingly at the bureaucrat sitting beside him. That was Mark Fesmire, head of the Alaska office of the Bureau of Safety and Environmental Enforcement, who made the infamous comment in an email to colleagues last year.

Officials at the meeting also used the word "informal" to explain why the listening session had seemingly been sprung on the public -- with only days of public notice -- irking some in the relatively small lunchtime crowd at the Loussac Library's Assembly Chambers.

Barrow listening sessions Friday

Beaudreau and his entourage are planning listening sessions in only one other Alaska community, Barrow on the North Slope, on Friday. Those will be held from noon to 2 p.m. and from 5 to 7:30 p.m. at the city's Assembly Chambers.

The limited tour angered a pair of speakers from the Northwest Arctic Borough, who said their region should also be visited during the listening-session process, too. The seals, walrus and whales they hunt could be hurt by an oil spill hundreds of miles away because the animals migrate across vast distances.

And a fundamental point raised by Fairbanks activist Daniel Lum went unanswered: Whether the new rules would require oil-spill response tests in ice-choked Arctic waters, something that hasn't been required of industry. "Shell, could you prove to us your spill response-capability (in icy waters)," said Lum, pointing to an expressionless Shell official in the audience. "You can't because there is none."

That Shell official, Lucas Frances, dodged the same question from a reporter after the meeting, referring questions to Shell public relations spokespeople.

Surrounded by reporters after the meeting, Beaudreau also steered clear of that question, saying the department created standards to prevent ice and oil from ever interacting, including limiting drilling seasons so Shell was forced to leave the Arctic long before freeze-up began.

Why federal officials haven't better addressed that worst-case but very possible scenario of cleaning a spill in icy waters remains unknown.

Lease sale questioned

Lois Epstein, program director for The Wilderness Society, called for a host of changes at the listening session, including more government transparency of spill-response tests and other reviews, increased liability for operators, and Arctic-specific training to prepare workers for the region's regularly dark and brutally frigid conditions.

Epstein said there shouldn’t be another federal lease sale for Arctic's Beaufort and Chukchi seas until requirements are beefed up. "We are not prepared to operate in the Arctic," she said.

Those leases are proposed for 2016 and 2017 but have not been confirmed, said Beaudreau. A public process on whether those should be held will begin soon, he said.

As for industry officials, they called for timeliness, flexibility and long-term certainty in the rules. Mike Faust, ConocoPhillips Chukchi program manager, said "regular clarity and certainty will be very important to ConocoPhillips as we asses our future plans in the Chukchi Sea."

He cautioned that new regulations should not include a requirement that industry contract its equipment before drilling plans are approved.

Cost of uncertainty

Such a requirement would create enormous costs for operators engaged in an already costly operation. Shell, for example, has said it has spent more than $4.5 billion in its Arctic effort, yet still hasn't received approval to drill into oil-bearing zones. Concerns over such requirements -- such as renting drill rigs years in advance despite not knowing whether drilling would be allowed -- was a factor in Conoco's decision to suspend its drilling plans. Pro-drilling speakers also said the lease sales should go forward in 2016 and 2017, and that the new rules should not consist of restrictive guidelines that shackle industry's ability to innovate.

Mary Ann Pease, a board member of Alaska chapter of the pro-development Consumer Energy Alliance, said the new rules should neither stall development nor lead to excess costs that prohibit oil and gas activity.

"Our focus should be on these improvements and not on drilling curtailment as some anti-development agencies would like to achieve," said Pease.

Contact Alex DeMarban at alex(at)alaskadispatch.com