Alaska News

Shell has major hurdles to clear before Chukchi drilling resumes

Now that the Department of the Interior has, for the second time, affirmed the record-breaking Chukchi Sea lease sale it held seven years ago, is it smooth sailing for Royal Dutch Shell and its plans to drill this year on leases purchased in the sale?

Not so fast.

Shell, which spent over $2 billion on Chukchi leases, has already spent about $6 billion in total on its Alaska program and has ambitions for transforming the remote and undeveloped waters off Northwest Alaska into a major oil-producing region, still must clear several hurdles before it is given permission to sink a drill bit into hydrocarbons lying beneath the seafloor.

The company has made a clear commitment to drill this year if it is allowed to do so.

"We're planning to drill in 2015, depending, of course, on getting all the permits and getting over legal obstacles," said Shell's Alaska spokeswoman, Megan Baldino.

In anticipation, Shell is moving its fleet north. Some ships are on their way to U.S. waters, some are already in the Pacific Northwest and much of the oil spill equipment is already undergoing tests in Alaska waters, Baldino said.

Still to do before Shell is allowed to use those ships to search for oil:


1) The Bureau of Ocean Energy Management, the Interior agency that oversees oil leasing and development in offshore federal territory, must approve the revised exploration plan that Shell submitted in August.

Interior Secretary Sally Jewell's March 31 record of decision affirming the 2008 lease sale, like a previous record of decision issued in 2011 by then-Interior Secretary Ken Salazar, freed BOEM to take official action on Shell's new exploration plan, which replaces the plan the company used in its 2012 program. Such after-the-fact Interior actions are not normal for federal oil leases; they became necessary only because courts ruled – twice – that presale environmental studies performed by BOEM's predecessor, the Minerals Management Service, were inadequate and needed rewrites. While those environmental study rewrites were being completed by BOEM, all actions on the Chukchi leases – including approvals of Shell's plan – were suspended.

Now, with the suspension lifted, BOEM is contemplating whether Shell's latest exploration plan shall be deemed "submitted," meaning complete. Once a "submitted" determination is made, BOEM launches a 30-day process that will result in approval or rejection of the exploration plan or requirements that the plan be modified. There are two public comment periods? within the 30 days. BOEM approval of the exploration plan requires an environmental assessment and a "finding of no significant impact," or FONSI. That process was carried out for the previous exploration plan, with an environmental assessment and FONSI issued in 2011. It would have to be repeated for Shell's revised plan, which proposes two rigs drilling simultaneously in the Chukchi rather than one in the Chukchi and one in the Beaufort.

2) To carry out its exploration plan, Shell needs a series of additional approvals and permits from federal and state agencies.

Those range from broad authorizations, like those issued in 2012 by the National Marine Fisheries Service and the U.S. Fish and Wildlife Service allowing Shell to operate around protected marine mammals, to much more localized permits from the state allowing Shell to moor vessels in Unalaska Bay and in Kotzebue Sound.

Permits that allow drilling of specific wells are issued by BOEM's sister agency, the Bureau of Safety and Environmental Enforcement, and usually follow all other authorizations. That was the case for the Application for Permits to Drill, or APD, issued by BSEE for the single Chukchi well that Shell started in 2012.

Some of the permit problems that troubled Shell that season no longer exist.

Shell's required oil spill barge, the Arctic Challenger, already passed inspection earlier this year by the U.S. Coast Guard and the American Bureau of Shipping, Baldino said. Approvals from those organizations were difficult to obtain in 2012. Then, the Coast Guard was dissatisfied with the vessel's seaworthiness and with operations of the ship's oil containment dome, which was crushed during sea trials in Puget Sound. Ultimately, upgrades and repairs were made and the Arctic Challenger passed inspections in 2012 and each year since, Baldino said.

Shell no longer has to worry, either, about getting air quality permits from the Environmental Protection Agency. Shell had trouble with in years past with its air permits. The first permit issued by EPA in 2010 for Chukchi drill operations was overturned on appeals. The revised permit issued by EPA was temporarily relaxed by the agency after Shell found that it could not comply with the terms. Shell wound up violating that permit and a separate permit covering the Beaufort fleet and paid $1.1 in Clean Air Act fines.

Now, thanks to a 2012 Clean Air Act amendment pushed by Sen. Lisa Murkowski, BOEM oversees oil industry air emissions in the Arctic outer continental shelf and no separate EPA permit is needed.

3) Shell and federal regulators must clarify whether the company is responsibile for an oil spill plan update.

Shell's 2012 oil spill plan won BSEE approval that year; the plan was renewed in 2014 as part of a mandatory biannual review. Now, with a revised exploration plan that differs significantly from the exploration plan in place three years ago, must Shell submit a new oil spill plan?

"Not necessarily," BSEE Director Brian Salerno said in a meeting last month with Alaska reporters. Federal law requires renewals every two years "or if something major changes," he said. "We'll look at it again this year to see if there's any major changes to it. But assuming nothing -- there's no material changes -- it may not need to be resubmitted."

There is a legal cloud over the existing oil spill plan, even though it was recently renewed. The 9th Circuit Court of Appeals is considering a challenge to BSEE's 2012 approval. U.S. District Court Judge Ralph Beistline upheld BSEE's decision, but the environmental plaintiffs appealed. The appeals court heard oral arguments last August in Anchorage.

The plaintiffs claim BSEE too readily accepted Shell's assurances that it could recover almost all of any spilled oil, glossed over the untested nature of spill response techniques described in the plan, skipped required Endangered Species Act protections and failed to probe deeply enough to determine whether Shell's plan ensures "the availability of private personnel and equipment necessary to remove to the maximum extent practicable a worst case discharge," as the Oil Pollution Act of 1990 requires.

The appeals court has yet to issue a ruling. "It could be any day. It could be tomorrow; it could be two months from now," said Michael LeVine, senior Pacific counsel for Oceana, one of the environmental groups in the case.

4) Even if it obtains all needed permits, Shell must move rigs and ships into place to do the drilling, a task that proved difficult in 2012.


For the ships to get into the Arctic drilling theater quickly, Shell must have cooperation from the ice pack and the region's weather. That did not happen in 2012. Although the Arctic ice pack hit a record low that year, there was still enough of it in the Chukchi Sea to slow the progress of Shell's ships. And one day after Shell started drilling its Chukchi well, it had to stop because drifting ice was threatening the drill ship. It was several days before drilling resumed.

This year, melt of the Arctic ice pack is off to an early start. The late-winter maximum was a record low, and it was reached on Feb. 25, one of the earliest dates since satellite records began in 1979.

Fickle Arctic conditions remain wild cards. "There could be weather delays," Baldino conceded.

Yereth Rosen

Yereth Rosen was a reporter for Alaska Dispatch News.