April 19, 2024

Shell Gets Tentative Approval to Drill in Arctic

The move confirms a willingness by President Obama to approve expanded domestic oil and gas exploration in response to high gasoline prices and continuing high levels of unemployment. It comes as the issuing of drilling permits in the gulf is quickening, including the granting on Thursday of a permit for a Shell floating drill rig for a 4,000-foot-deep well. That means that that all five of the company’s rigs will be back at to work after a long drilling halt.

The decision to tentatively approve Shell’s plan to drill four exploratory wells in the Beaufort Sea off the North Slope of Alaska represents a major step in the company’s efforts to exploit the vast oil and gas resources under the Arctic Ocean, although some hurdles remain. The company has spent nearly $4 billion and more than five years trying to win the right to drill in the frigid waters, against the opposition of many environmental advocates and of Alaska natives who depend on the sea for their livelihoods.

Opponents say the harsh conditions there heighten the dangers of drilling and make cleaning up any potential spill vastly more complicated than in the comparatively benign waters of the gulf.

Administration officials cautioned that the company must win a number of secondary permits before it can begin punching holes in the seabed. The plan approved on Thursday, considered the overarching one, contains detailed information on how the company would respond to any blowout and spill.

“We base our decisions regarding energy exploration and development in the Arctic on the best scientific information available,” said Michael R. Bromwich, director of the Bureau of Ocean Energy Management, Regulation and Enforcement, which oversees offshore drilling. “We will closely review and monitor Shell’s proposed activities to ensure that any activities that take place under this plan will be conducted in a safe and environmentally responsible manner.”

    Shell enthusiastically welcomed the decision. “We feel very good about it,” said Pete Slaiby, Shell’s vice president in Alaska. “It’s one of the road marks we wanted to see. It makes us very happy.”

But the announcement only partly smooths the rocky relations between the administration and the oil industry, with the president remaining committed to repealing $4 billion in annual oil company tax breaks. The administration has also been wary of encouraging the industry’s aggressive plans to drill in shale oil and gas fields across the country because of concerns about potential drinking water contamination.

“This strikes me as a shift back to the track that the administration was on prior to last year’s oil spill,” said Michael Levi, an energy and environment fellow at the Council on Foreign Relations. “It seems the lesson that the administration took is that offshore drilling needs to be regulated better and done better, not that it shouldn’t be done at all.”

The plan is almost certain to face legal challenges.

“No drill bits are going to hit the Arctic sea floor until at least one and probably several courts have reviewed this plan,” said Brendan Cummings, senior counsel at the Center for Biological Diversity, which is already suing to stop drilling in the Chukchi Sea west of Alaska. “From the perspective of ocean drilling and climate, it’s hard to see a difference between this administration and the last one.”

Shell still needs to win approval of its drilling plan for the Chukchi, which is west of the Beaufort Sea and more remote.

The company has proposed drilling four wells iat a depth of approximately 160 feet of water about 20 miles from shore in the Beaufort. The BP well that exploded in the gulf in April 2010 was at a depth of more than 5,000 feet and 40 miles from the Louisiana coast. The accident killed 11 workers and spilled nearly five million barrels of oil into the gulf.

Energy experts and industry executives said the move on Thursday reflected a partial warming of relations between the oil industry and Obama administration since the BP disaster.

“I don’t know if I would call them friends yet, but I look at this as a step in the right direction,” said Craig T. Castille, operations manager for deepwater projects at Stone Energy, who added that the permit process in the Gulf of Mexico remained slower than the industry would like.

Shell has spent years trying to convince federal regulators and several courts that it can drill safely in the Arctic, and every year one hurdle or another has stood in its way.

Shell has already invested nearly $4 billion on its 10-year offshore leases and preparations for exploration in the forbidding Chukchi and Beaufort seas,. Its current plan is to drill up to 10 exploratory wells in the two seas, potentially leading to production by the end of the decade.

 Shell has been obliged over the years to tighten its spill response plan, especially since the BP accident at the Macondo well in the gulf. It is proposing to use two drill ships in the Arctic, each capable of drilling a relief well for the other; put an extra set of shears on its blowout preventers; and keep emergency capping systems near drill sites to capture any leaks.

The Alaskan Arctic may hold 27 billion barrels of oil, enough to fuel 25 million cars for 35 years. But environmentalists warn that a spill in the Arctic would be more catastrophic than the Gulf of Mexico accident was because the Alaskan waters are dark and inaccessible, and because they are vital breeding grounds for many aquatic species that are endangered or at risk.

Marilyn Heiman, director of the Pew Environment Group’s Arctic program, said that the region was the harshest area in the world in which to drill for oil, as well as a sensitive habitat for a variety of sea mammals. The proposed well sites are subject to fierce winds and high seas in the fall and lie hundreds of miles from the nearest Coast Guard stations.

“Hard questions need to be asked about any oil company’s ability to mount a response to a major oil spill in hurricane-force winds, high seas, broken and shifting sea ice, subzero temperatures and months of fog and darkness,” Ms. Heiman said in an e-mail from Alaska.

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BP Seeks to Resume Drilling in the Gulf of Mexico

The petition comes less than 12 months after a rig BP had leased there exploded, causing a huge oil spill and killing 11 workers. The accident tarnished BP’s image and raised questions about its safety procedures.

Just last week, the Justice Department confirmed that it was considering a range of civil and criminal penalties against BP, including potential manslaughter charges for the deaths of the rig workers, as part of its ongoing investigation into the accident.

At the same time, President Obama, in a major statement on energy policy last week, said the administrations was seeking to reduce dependence on imported oil in part by increasing domestic production, both onshore and off. BP was one of the major producers in the gulf before the accident.

BP is seeking permission to continue drilling at 10 existing deepwater production and development wells in the region in July in exchange for adhering to stricter safety and supervisory rules, said one of the officials. An agreement could be reached within the next month but would not include new drilling, the official said.

The other official said, “We’re making progress but it’s not a yes yet.” Both people spoke on the condition of anonymity because talks on a possible agreement were continuing.

Drilling in the Gulf of Mexico was halted last summer as a result of the accident involving BP’s Macondo well, which spilled 4.9 million barrels of oil into the ocean. The ban was lifted in October.

Melissa Schwartz, a spokeswoman for the Bureau of Ocean Energy Management, Regulation and Enforcement, the federal agency that overseas the development of resources in the gulf, said on Sunday that there was no deal with BP. Toby Odone, a spokesman for BP, declined to comment.

The regulator had recently started to permit some deepwater drilling in the Gulf of Mexico. Royal Dutch Shell won approval on Wednesday to drill off the coast of Louisiana on the condition that rigorous new safety standards were met. Other companies that have been allowed to continue drilling in the region include Exxon Mobil, Chevron and BHP Billiton.

Federal officials have said any company that wants to resume drilling in the gulf would have to meet the new safety requirements.

But granting permission to BP would be more controversial because the British oil company is still paying for costs related to the oil spill, the cleanup and the continuing civil and criminal investigations into the accident. BP so far has set aside more than $40 billion to cover those costs.

The administration has pressed BP to ensure that victims of the spill are compensated, but the company has said publicly it needs to resume drilling in the gulf in order to have the financial resources to pay the claims submitted by federal and state officials, and individuals and businesses.

The Obama administration has spent 11 months dealing with the aftermath of the Macondo well blowout and writing new rules to try to prevent similar accidents.

Allowing BP to resume operations in the gulf would send a mixed message — that even as the administration was trying to increase the safety of offshore drilling and punish bad actors, it was responding to critics in Congress and the oil industry who say the administration is choking off production and driving up energy prices.

What seems clear is that the gulf will not return to full production until all the major players are allowed to resume drilling.

BP is eager for that to happen, and its chief executive, Robert Dudley, has repeatedly said the company remains committed to its operations in the United States. Mr. Dudley has pledged to make improving BP’s safety record his priority. He set up a new division last year to monitor safety and suspended some operations in Alaska and the North Sea after the projects failed to meet the new standards.

Gaining permission to resume drilling in the gulf would help Mr. Dudley to move BP beyond its painful and expensive recent history in the region, which has eroded shareholder trust. It would also give BP a boost of confidence.

The British oil company suffered a setback in its expansion strategy last month when a Swedish court blocked a $10 billion cooperation agreement with Rosneft of Russia, which was supposed to give the company access to the Arctic.

The drilling ban had cost oil companies tens of millions of dollars as they were required to keep rigs warm and ready to drill. The Obama administration lifted the drilling ban early but said that companies must meet the new safety standards before they could resume drilling.

They include new standards for well design, casing and cementing. Companies would also require verification from a third party that safety devices like blowout preventers, which failed during the BP spill, were properly designed and tested.

Some environmental groups had criticized the decision, saying it was too early to grant drilling permits again while details of the accident were still being investigated.

Julia Werdigier reported from London and John M. Broder from Washington, D.C. Clifford Krauss also contributed reporting.

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