WASHINGTON — Shell is asking the Obama administration for an extra five years to hunt for oil in Arctic waters near Alaska, saying legal disputes, seasonal drilling restrictions and other challenges justify the additional time.
Without the extension, Shell’s oil and gas leases in the Chukchi and Beaufort seas will begin expiring in 2017.
“Prudent exploration is now severely challenged prior to the current lease expiration dates . . . due to the repeated erected barriers to exploratory activities, the already severe disruption to Shell’s exploratory efforts, limited rig availability, brief operating windows and the unusually long lead times required to mobilize activities in Alaska,” Shell executive Peter Slaiby said in a letter requesting the extension.
“Despite Shell’s best efforts and demonstrated diligence, circumstances beyond Shell’s control have prevented — and are continuing to prevent — Shell from completing even the first exploration well,” added Slaiby, vice president of Shell Alaska.
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Initially sent in July, the letter was just released in response to a Freedom of Information Act request by the conservation group Oceana.
The move comes as Shell prepares to resume exploratory drilling in the Chukchi Sea next summer; its last attempt, in 2012, was marred by mishaps, including the grounding of its non-propelled Kulluk drilling unit during an ill-fated tow across the Gulf of Alaska.
The company has invested some $6 billion in the quest, including its purchase of significant Arctic leases in 2005, 2007 and 2008.
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In the Gulf of Mexico, the Bureau of Safety and Environmental Enforcement regularly approves “suspension of operation” requests, which effectively pause that 10-year deadline for developing a lease and moving toward actual oil and gas production — not just initial exploration. But companies must prove they are making significant progress toward development.
The Interior Department also gave a one-year extension to more than 1,400 offshore leases in 2011 to compensate for a five-month moratorium on deep-water exploration after the Gulf oil spill; that timeout also halted work in shallow Arctic waters.
Safety bureau spokesman Nicholas Pardi said the agency was considering Shell’s request. “BSEE evaluates suspension requests on a case-by-case basis and seeks to use its authority to ensure safe, diligent and environmentally responsible exploration, development and production of offshore resources.” he added.
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Oceana’s deputy vice president for the Pacific, Susan Murray, said regulators should deny Shell’s request.
“Shell spent billions of dollars fully aware of the risks to that investment, and the government should not bend the rules to allow the company to continue business as usual,” Murray said. “Shell deserves no special treatment, and, to the contrary, has a track record of irresponsible choices that warrants close scrutiny and the highest standards.”
Murray called Shell’s rationale for an extension “incomplete and, at best, disingenuous.”
Shell cited a number of challenges that have curtailed its drilling time, including court delays tied to environmentalists’ challenge of the 2008 sale of leases in the Chukchi Sea. The Bureau of Ocean Energy Management is redoing the environmental analysis that underpinned that sale now, in response to a court order invalidating it.
The Interior Department granted some suspensions in response to the legal delays, including a federal court ruling in August 2007 that halted drilling.
Even without a legal cloud, Shell’s Slaiby noted that exploratory drilling in the Arctic is limited to just a few ice-free months each year, giving it a small window to act. Environmentalists have urged the Obama administration to include seasonal restrictions in new Arctic oil and gas standards set to be proposed later this year.
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Problems getting air permits for drilling rigs and support vessels was another complication.
Shell also said a limited number of Arctic-viable drilling rigs and support vessels have been a constraint, noting that “multi-year lead times are required to both modify existing non-Arctic assets where possible or to construct new assets,” for which the costs may not be recouped.
Although Slaiby noted the logistical challenges of searching for oil in the remote Arctic, he made no specific mention of the 2012 mistakes, including Shell’s delays in getting a one-of-a-kind, purpose-built emergency containment system certified and then transport it near planned wells. Although that equipment was ultimately deemed acceptable, it was damaged during testing and was not able to make it to the Arctic in time.
Finally, the company cites the uncertainty posed by forthcoming Arctic drilling standards as another limitation. Both Shell and ConocoPhillips have lobbied the Obama administration for flexibility.
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Other companies with Arctic drilling leases are in a similar predicament — facing deadlines for development — including ConocoPhillips and Statoil. Both firms have paused their own Arctic exploration, giving them a chance to see how drilling standards evolve and watch how Shell navigates new and existing regulatory requirements.
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