Resource Development Council

Feds to honor existing leases in Chukchi and Beaufort

The U.S. Interior Department’s new strategy for Outer Continental Shelf (OCS) oil and gas leasing will honor all existing Arctic leases, but will call for a new environmental impact statement to inform Interior Secretary Ken Salazar on whether to include any new acreage in the state’s offshore areas within the next leasing program spanning the years 2012-2017.

The decision to honor existing leases is welcomed news for Shell, ConocoPhillips and Statoil, which acquired leases in the Chukchi and Beaufort seas in 2008.

“In the Arctic, which is a frontier area where leases have been issued but there is limited development, we will proceed with utmost caution,” Salazar said. “The challenges of operating in the Arctic are different than the Gulf of Mexico. In the Arctic, oil and gas resources are under shallow waters, not deep waters, but there are issues we must address about spill response capabilities, environmental sensitivities and operations in often very harsh conditions.”

The Bureau of Ocean Energy Management, Regulation and Enforcement (BOEMRE) confirmed it is processing Shell’s drilling application for a single exploratory well in the Beaufort Sea. The agency said it will conduct a careful and complete review of Shell’s application to determine if the project meets all existing and new safety standards, has robust oil spill response capabilities in place and can move forward under strong oversight and inspection.

BOEMRE is preparing an additional environmental analysis of the area where Shell plans to drill. BOEMRE has declined to commit to a specific time frame for processing a permit, but Shell has said it needs a decision soon to mobilize its drilling fleet in time for 2011.

Shell scaled back its original 2011 plans, which called for drilling several wells in the Chukchi. Those plans were sidelined when BOEMRE was forced to prepare a Supplemental Environmental Impact Statement (SEIS) addressing concerns raised by the U.S. District Court for Alaska in a decision regarding Chukchi Sea Lease Sale 193. The SEIS will provide Salazar with sufficient information and analysis to make an informed decision on Shell’s program in the Chukchi. When the process is completed, the Secretary will affirm or revise the previous lease sale decision.

In 2008, Shell spent $2.1 billion on federal leases in the Chukchi and Beaufort Seas. Those Arctic waters could contain up to 29 billion barrels of oil. The Chukchi is considered the nation’s most promising unexplored offshore oil and gas province. Offshore production has the potential to refill the Trans-Alaska Pipeline System, now operating at one-third its 1988 peak.

Governor Sean Parnell said Salazar’s announcement represents a positive way for Shell to move forward. However, he expressed concern the Interior Department did not provide a decision or timeline to assure a 2011 drilling season. “I am pleased that the department will honor existing leases in the Beaufort and Chukchi seas, but I remain concerned about how future requests to explore or develop will be treated,” Parnell said.

Saying offshore development in Alaska’s Arctic could lead to a revival in the state’s oil and gas industry, Senator Mark Begich praised the decision to honor existing leases. “This decision to clear the way for responsible oil and gas in Alaska’s resource-rich offshore waters is great news for our state and the nation,” Begich said. “It’s unfortunate the development was side-lined by this spring’s oil spill in the Gulf of Mexico, but I’m pleased the Obama administration took a hard look and made the right decision.”

Begich noted that Shell has gone to great lengths to accommodate local concerns, such as imposing a timeout on development during the fall subsistence whale hunt, signing a Conflict Avoidance Agreement with the Eskimo Whalers Commission, staging numerous resources to prevent a spill or deal with one in the remote chance that it occurs and providing funds for additional research. The senator commended tough negotiating by North Slope Borough Mayor Edward Itta for ensuring that subsistence resources are protected with any oil and gas development.

Itta said Salazar’s decision makes sense. “The plan that’s on the table is closer to something we can live with,” he said, noting Shell should be entitled to some certainty on their plan for 2011. Itta, however, is still concerned about how effective the oil industry would be in responding to a spill, in the highly unlikely event one occurs.

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