Shell cancels 2014 drilling off Alaska in court decision’s wake

Royal Dutch Shell PLC will not resume activity on federal leases it holds offshore Alaska in 2014 because a US appeals court’s Jan. 22 decision in a 2008 lawsuit against the US Department of the Interior has created significant uncertainties, company officials stated.

“We took a pause in 2013 to prepare for the next drilling season, we have added additional people and resources to the venture, we have updated our plans with what we had learned from 2012, and we have worked very closely with [Interior] and other government agencies in the US,” Shell Chief Executive Ben van Beurden said in a Jan. 30 conference call with investors.

“However, we are frustrated by the recent decision by the Ninth Circuit Court of Appeals in what is a 6-year-old lawsuit against the government,” he continued. “The obstacles that were introduced by that decision simply make it impossible to justify the commitments of cost, equipment, and people that are needed to drill safely in Alaska this year.

“We have to wait for the courts and the US administration to resolve this legal issue,” van Beurden said. “Given all of this, we will not drill in Alaska in 2014, and we are reviewing our options here.”

A three-judge panel in the Ninth US Circuit appeals court ruled a portion of the environmental impact statements prepared prior to federal oil and gas leasing off Alaska’s Arctic coast in 2008 was improperly prepared, and sent the matter back to the district court which heard the lawsuit for further action (OGJ Online, Jan. 24, 2014).

But it was not immediately clear what impact, if any, the court’s decision would have on Chukchi Sea leases awarded to Shell Gulf of Mexico Inc., ConocoPhillips Co., and Statoil USA E&P Inc. in OCS Lease Sale No. 193 on Feb. 6, 2008.

‘It’s frustrating’

“The lack of a clear path forward and an associated timeline makes it impossible to commit the resources needed to explore safely in 2014,” a Shell spokesman in Alaska told OGJ on Jan. 30. “It’s frustrating to be put in this position as we felt we were making solid progress toward a 2014 program.”

Shell already has endured multiple regulatory and legal delays, he noted. “Every year we are delayed from understanding the oil and gas resources under the Chukchi Sea only further delays the potential creation of tens-of-thousands of jobs, billions of dollars in tax revenue, and much-needed new oil for the Trans-Alaska Pipeline System,” he said.

Alaska’s congressional delegation quickly registered its dismay over Shell’s decision. US Sen. Lisa Murkowski (R-Alas.), the Energy and Natural Resources Committee’s ranking minority member, said she was disappointed but not surprised, “given the Ninth Circuit’s decision and the administration’s failure to provide regulatory and permitting certainty for oil development in the Arctic.”

Murkowski said, “We can’t expect Shell to continue to spend billions of dollars on this project when the rules keep changing,” adding that she expects the Obama administration to quickly address deficiencies the court identified in its analysis of OCS Lease Sale No. 193.

‘Simply unacceptable’

“It is simply unacceptable that judicial overreach is getting in the way of letting Alaskans develop our own natural resources,” said Mark Begich (D), Alaska’s other US senator. “I’ll be talking with [US] Interior Sec. Sally Jewell today and expect her agency to move quickly to address the court's questions and concerns and do everything possible to get this process back on track.”

US Rep. Don Young (R), the state’s only US House member, said President Barack Obama and his administration give lip service to offshore oil and gas development, but haven’t devised a clear production plan which they would be willing to defend, “including moving quickly to address all issues with the environmental assessment left in question by the courts.”

Young said, “If they are not committed to development in the Arctic, they need to be honest with their leaseholders who have already invested billions of dollars seeking the opportunity to drill. Right now, they’re looking to have it both ways.”

One environmental organization was not surprised by Shell’s decision following the court’s Jan. 22 decision. “Given these recent events, [Interior] should reevaluate its Arctic drilling efforts, including reconsidering Chukchi Lease Sale 193 through a full new Environmental Impact Statement,” Alaska Wilderness League Executive Director Cindy Shogan said.

Contact Nick Snow at nicks@pennwell.com.

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