Shell seeks 5-year extension on leases in Beaufort, Chukchi seas

Shell Offshore Co. has requested a 5-year extension of its federal offshore leases in the Beaufort and Chukchi seas offshore Alaska. “The request reflects the extent of the actual delays we have experienced as a result of court decisions and agency actions for the last several years,” a Shell spokesman in Alaska told OGJ.

The US Bureau of Safety and Environmental Enforcement (BSEE) is considering the request, a spokesman for the US Department of the Interior agency confirmed. “Extensions are granted through suspensions of operations or production on a case-by-case basis,” he noted. “Each application is unique and is given careful consideration.”

BSEE issued a suspension of operations order earlier this year for all Chukchi Sea leases issued in Outer Continental Shelf Lease Sale 193 in 2008, essentially preventing the lease term from running until the suspension is lifted, the BSEE spokesman said.

He said it will remain in effect until the US Bureau of Ocean Energy Management completes a fuller environmental review it started in June. The US District Court for Alaska ordered that review in April after the US Ninth Circuit Appeals Court’s January reversal of the lower court’s July 2010 order requiring a partial reevaluation.

The environmental organization Oceana released the July 10 letter to BSEE Alaska OCS Regional Director Mark Fesmire from Shell Alaska Vice-Pres. Peter E. Slaiby, which it obtained as part of a Freedom of Information Act request, on Oct. 27.

“We submitted the request in an effort to understand the process,” Michael LeVine, Oceana’s Pacific senior counsel told OGJ from Alaska on Oct. 28. “We were trying to figure out where the various Beaufort Sea leases fit with what’s happening there now. That’s how we learned that Shell had submitted its request.”

Outlines circumstances

In the letter, Slaiby said Shell committed more than $6 billion to secure and pursue federal leases it acquired in the Beaufort Sea in 2005 and 2007 sales and the Chukchi Sea in 2008. “Yet 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 in the area,” he said.

Constraints have included “multiple time-consuming federal court and administrative challenges, appeals, and remands,” BSEE’s “unexpected and unprecedented” determination to introduce a fixed operational time constraint on drilling into a prospective reservoir zone when it imposed a Sept. 24 cutoff in the approved Chukchi Sea exploration plan; accommodation of the Alaska Native whaling season in the Beaufort Sea; and limited Arctic-viable and regulatory-compliant drilling rigs, he told Fesmire.

“Even in the event that the legal and regulatory obstacles were resolved, prudent exploration is now severely challenged prior to the current expiration dates for Shell’s lease portfolio, particularly in the Beaufort Sea where all but two leases will expire no later than 2017,” Slaiby said.

“This is 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 to mobilize activities in Alaska,” he said.

Current expirations

The BSEE spokesman confirmed that Shell’s Chukchi Sea leases obtained in OCS Lease Sale 193 are due to expire in 2020, partly depending on when the current suspension is lifted. Its Beaufort Sea leases have expiration dates from 2017 to 2019, he told OGJ.

The company can’t feasibly catch up for time lost on the Alaska OCS by simply shifting resources to the earliest expiring leases, Slaiby said in his July letter. “Rather, the reality of its present situation has compelled Shell to fundamentally reconceive its plan for its overall Alaska OCS portfolio,” he said.

Susan Murray, Oceana’s deputy vice-president for the Pacific, was not sympathetic. “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,” she said on Oct. 27.

“Shell deserves no special treatment and, to the contrary, has a track record of irresponsible choices that warrants close scrutiny and the highest standards,” she maintained.

Contact Nick Snow at [email protected].