Federal regulators on Monday approved Royal Dutch Shell's plan to resume oil exploration in the Arctic Ocean three years after a series of mishaps, mistakes and legal problems forced the company to temporarily shelve its drilling program.
The U.S. Bureau of Ocean Energy Management's approval for Shell's drilling plans in the Chukchi Sea off northwestern Alaska is conditioned on additional permits from government agencies and on adherence to special rules crafted for Arctic conditions, officials said.
"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," BOEM Director Abigail Ross Hopper said in a statement. "As we move forward, any offshore exploratory activities will continue to be subject to rigorous safety standards."
The agency approval means Shell has cleared a major hurdle in its quest to find oil in waters off Arctic Alaska. The company says it has already spent nearly $7 billion on the offshore Alaska program, though it has yet to complete a single well.
The newly approved exploration plan calls for the company to return this year to its Burger prospect about 70 miles offshore from the Inupiaq community of Wainwright. The company plans to complete the well begun in 2012 and also complete five additional wells there. That drilling program is expected to require multiple seasons, according to Shell's plans.
Shell plans to have two rigs drilling simultaneously in the Chukchi. In 2012, Shell used the Noble Discoverer in the Chukchi and the Kulluk in the Beaufort, but the Kulluk was damaged beyond repair in a Dec. 31, 2012 grounding in the Gulf of Alaska. The new plan substitutes Transocean's Polar Pioneer drill rig for the Kulluk. Shell has put its ambitions for Beaufort exploration on hold and is concentrating on the Chukchi, which is believed to hold more oil.
Shell's new exploration plan also calls for beefed-up support from aircraft and for more people stationed onshore than in 2012.
Approval comes with conditions
The 18 special conditions attached to BOEM's approval are largely similar to those imposed in 2012, and to those in new Arctic-specific standards the federal agency released in February.
Shell must be able to drill a relief well before winter ice returns, according to the conditions. That means that Shell will have to cease drilling into oil-bearing zones more than a month before freezeup.
The BOEM conditions require Shell to stop this year's drilling on Sept. 28 if the Polar Pioneer and the Noble Discoverer are in close proximity to each other. If one drill rig is in Dutch Harbor by that time of the year, drilling into oil-bearing zones must cease on Sept. 24, according to the conditions attached by BOEM.
Other conditions require Shell to stay 4.3 miles away from any hauled-out walruses, unless otherwise directed by the U.S. Fish and Wildlife Service; to cease operations in certain areas during Native subsistence hunts of whales, seals, walruses and polar bears; to secure approval of its oil-spill plan from BOEM's sister agency, the Bureau of Safety and Environmental Enforcement; and, within 60 days of the end of the drill season, submit reports on its fleet's fuel use and air emissions, a subject that previously bedeviled Shell, which in 2013 paid $1.1 million in Clean Air Act penalties.
For Shell, Monday's agency action is "important milestone and signals the confidence regulators have in our plan," company spokeswoman Megan Baldino said.
"However, before operations can begin this summer, it's imperative that the remainder of our permits be practical, and delivered in a timely manner," she said. "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 yet to be obtained include authorizations from the National Marine Fisheries Service to disturb whales and seals while Shell is drilling and, in the offseason, conducting ice-survey overflights; authorizations from the Fish and Wildlife Service to work around polar bears and walruses; and permits, which would come from BSEE, specific to each well that Shell wants to drill.
Gov. Bill Walker said he was pleased that the Interior Department was a step closer to approving Shell's oil exploration. But he pointed out that the oil Shell is targeting, if produced, would be in federal territory and would not generate royalty or tax income for the state.
"Given that the resources are offshore from Alaska, our state would not receive revenue directly from this project. So my administration will aggressively advance alternatives so Alaska can share revenue with the federal government," he said.
Environmentalists criticized BOEM's action.
"The Interior Department bent over backward to rush Shell's permit through the regulatory process so it could move its drillships into the Arctic this summer. Considering Shell ran its drillship aground in Alaska in 2012, it's hard to fathom how the federal government can rationalize rubber-stamping Shell's second try at Arctic drilling," Rebecca Noblin, Alaska director of the Center for Biological Diversity, said in a statement.
Bumps on road to drilling
Shell's operations this year have already hit some snags.
Plans for Shell contractor Foss Maritime to keep the Polar Pioneer and its tugs part-time at the Port of Seattle are being resisted by city officials and local environmentalists. Seattle city officials said last week that the lease granted to Foss Maritime covers only cargo ships, and a new permit is needed to authorize mooring of oil vessels.
Shell intends to bring the Polar Pioneer into the port nonetheless, Baldino said.
"As of today, our plan is to move both rigs into Puget Sound. The Noble Discoverer should arrive at the port of Everett in a matter of days; the Polar Pioneer is scheduled to arrive at Terminal 5 later this week," she said.
Shell, Foss and the port disagree with the city's view that a new permit is needed, Baldino said. "We view our contracts and the supporting lease that Foss has with the port as valid," she said.
Last month, Greenpeace activists staged a dramatic high-seas protest aboard the Polar Pioneer as it was being transported toward Puget Sound. Six protesters climbed aboard the vessel and camped out on the rig for six days.
That protest triggered a complaint by Shell in U.S. District Court and an April 11 temporary restraining order and, on Friday, a longer-lasting injunction against Greenpeace USA establishing no-entry buffer zones for Shell's entire fleet of vessels and other facilities it plans to use.
Also last month, a U.S. Coast Guard inspection in Hawaii found a problem with the oil-water separator aboard the Noble Discoverer. That incident came four months after Noble's U.S. unit, the ship's owner, pleaded guilty to eight felony counts, mostly concerning the dumping of oily waste into the ocean during Shell's 2012 season.
Baldino said the problem found in Hawaii was limited to "a small portion" of the oil-water separator. "It was fixed within hours and there was no delay to our schedule," she said.
There are legal uncertainties about Shell's oil-spill plan, which was approved by BSEE in 2012 and renewed last year. The 9th U.S. Circuit Court of Appeals is considering environmentalists' challenge to that approval, and it is possible that the court will order a rewrite of the plan, said Erik Grafe, an attorney with Earthjustice, an environmental law firm representing the plaintiffs.
Even without spills, critics say, the magnitude of Shell's drilling plan is worrisome. Having both rigs and support fleets in the Chukchi, supported by frequent helicopter flights, will be bad for marine mammals, Grafe said.
"Shell's essentially doubled down in the Chukchi," he said.
Meanwhile, the high oil prices that were once invoked as justification for Shell's big Arctic investment are gone. A new report from the Organization of Petroleum Exporting Countries predicts that oil prices will be well below $100 a barrel in the coming decade, hitting $76 a barrel in 2025.