Permit problem could be hangup in Shell's Arctic drilling plans

WASHINGTON -- Shell's hopes of boring two wells in the Arctic Ocean this summer could be jeopardized by an obscure permitting requirement that effectively bars drilling operations close to each other in waters off Alaska.

The restriction could be a major stumbling block for the company, which has spent $7 billion and seven years pursuing oil in the region.

The provision is part of the government's rules for obtaining "letter of authorizations" allowing companies to disturb walruses and other animals in the region -- among the last permits Shell needs to launch activities in the Chukchi Sea next month. Under a 2013 Fish and Wildlife Service regulation, those authorizations are not allowed for drilling activities happening within 15 miles of each other.

The two wells Shell wants to drill this summer are about 9 miles apart.

A coalition of environmental groups insisted Tuesday the requirement should block Shell Oil Co.'s planned Arctic drilling and spur the Obama administration to rescind earlier approvals for the company's broad Chukchi Sea program.

Any letters of authorization issued to Shell "would violate an explicit condition" of the governing regulations, the organizations said in a letter to Interior Secretary Sally Jewell. They noted that Interior Department regulators only considered a two-well drilling program when they evaluated the environmental impacts of Shell's broad Chukchi Sea exploration plan before approving it earlier this year.

The groups, including the Natural Resources Defense Council, Oceana and the Sierra Club, also said if the Obama administration let Shell drill even one of its planned wells in the Chukchi Sea it would not be "lawful or "defensible," because that earlier analysis of the company's Chukchi Sea exploration plan was for two-well drilling campaign.

The letter, sent by San Francisco-based Earthjustice on behalf of 10 environmental organizations, is a warning shot, signaling any authorizations issued to Shell are likely to be battled in court. Environmentalists opposed to Arctic drilling have repeatedly challenged the government's handling of the issue.

Shell has asked federal regulators for permission to drill two exploratory oil wells into its Burger prospect about 70 miles off the coast of Alaska this summer, with more on tap for next year. It has lined up two drilling rigs for the job, including the Transocean Polar Pioneer now sailing toward Dutch Harbor, Alaska, and the Noble Discoverer, docked off Everett, Wash.

Shell needs four more government approvals: Two well-specific drilling permits from the Interior Department's Bureau of Safety and Environmental Enforcement and the approvals from the Interior Department's Fish and Wildlife Service.

Shell appeared to be aware of the Fish and Wildlife Service's prohibition on contemporaneous drilling activities as far back as February 2013, when it sent a letter to the agency objecting to the then-proposed rule. On Tuesday, Shell spokesman Curtis Smith said the company continues "to consult with regulators on the terms of a letter of authorization."

Interior Department spokeswoman Jessica Kershaw said the Fish and Wildlife Service "is reviewing Shell's program to ensure compliance with all applicable laws."

"Their review will ensure that measures are in place to minimize potential disturbances to walrus and other marine mammals," Kershaw said.

Letters of authorization are generally straightforward -- in contrast to more thorny permits involving specific drilling plans and anticipated air pollution.

Environmentalists implored the Obama administration to seize on the requirement as a way to block Shell's proposed drilling.

"Shell knew these rules (but) nonetheless chose to ignore them when it submitted its plan to drill for oil in the Arctic Ocean," said Holly Harris, a staff attorney with Earthjustice. "Interior cannot allow Shell to flout the government's own requirements for protecting Arctic wildlife. It is time to deny Shell's request to drill for oil in the fragile Arctic Ocean."

There are several possible outcomes.

Regulators could allow Shell to bore just one of its planned Burger wells - even though the government's analysis of Shell's now-approved exploration plan focused on a two-well program. If the company is allowed to drill only one well at a time, regulators would still insist a second rig must be nearby to bore a relief well in case of an emergency. And while Shell already has two rigs under contract, it is not clear whether the company would be willing to go forward with a single-well program.

Shell also could look to Capitol Hill for relief. Such congressional intervention has happened before. After air pollution permits issued by the Environmental Protection Agency, and successful legal challenges, thwarted Shell's previous drilling plans, Congress shifted that oversight responsibility to the Interior Department.

But any possible action on Capitol Hill is unlikely to happen swiftly.

Conservationists said both the restriction and any last-minute scramble to overcome it reveal a lapse in planning and oversight.

"The company submitted a plan that it knew — or certainly should have — does not comply with the rules," said Michael LeVine, Pacific senior counsel for Oceana. "This is not an isolated incident for Shell or for the federal regulators that approved the faulty (exploration) plan."