WASHINGTON -- The Obama administration will decide soon whether to sign off on Shell's request for extra time to hunt for oil in Arctic waters, Interior Secretary Sally Jewell said Wednesday.
Without action, Shell's oil and gas leases in the Beaufort Sea will begin expiring in 2017, followed by its drilling rights in the neighboring Chukchi Sea two years later.
The same fate awaits Chukchi Sea leases sold in 2008 to Statoil and ConocoPhillips, which have made similar appeals for more time, citing regulatory uncertainty, legal challenges and other obstacles.
"We are actively working with Shell and other leaseholders up there on their request for suspensions," Jewell said during a Senate Appropriations subcommittee hearing. "We will be resolving that relatively soon."
The companies' bids for "suspensions of operation" would effectively stop the clock ticking on their 10-year leases. The Bureau of Safety and Environmental Enforcement is considering requests from Shell and Statoil filed in July 2014; it previously rejected ConocoPhillips' November 2013 bid for at least three more years. ConocoPhillips appealed the decision to an Interior Department appeals board, and settlement talks are under way.
Neither Statoil nor ConocoPhillips is actively pursuing drilling in U.S. Arctic waters, but Shell is preparing to resume exploration in the Chukchi Sea this summer, three years after its last try in 2012 resulted in two half-completed wells.
"This is good news for us, particularly at a time when the price of oil is causing many companies to really scrutinize their investment decisions on very large-scale projects," said Sen. Lisa Murkowski, R-Alaska. "It makes it all the more important that Shell have the certainty it needs before it proceeds to spend even yet more billions of dollars. It needs to retain its existing lease portfolio to warrant this enormous investment."
She cited the limited 75-day window for drilling in the Arctic, when waters are free of ice, unlike year-round activity allowed in the Gulf of Mexico.
"There really are not enough drilling seasons (left) for Shell to complete more than a handful of exploration wells before the Chukchi Sea lease portfolio expires," Murkowski said.
Legal uncertainties surrounding the government's 2008 auction of Chukchi Sea oil leases have blocked work in the area, though the Interior Department has already granted Shell, Statoil and ConocoPhillips additional time to compensate for some of those delays.
Most recently, the Bureau of Ocean Energy Management completed a new environmental analysis of that seven-year-old sale in a bid to satisfy a 2014 federal court ruling that the first version was inadequate. The decision to affirm, change or vacate that sale rests with Jewell, who could issue a "record of decision" on the auction as soon as March 25.
In the meantime, the Chukchi Sea leases are under a suspension of operation tied to the ruling.
Jewell stressed that Interior Department regulators are dedicated to completing that essential environmental analysis. "We took our resources and focused them — as we were requested to do — on helping Shell move forward with this drilling season," she said.
Jewell also made a nod to mishaps that marred Shell's 2012 Arctic operation, including the grounding of its Kulluk drilling rig and the company's difficulty readying an emergency oil spill containment system to safeguard drilling. Shell halted its planned 2013 drilling in response, as it repaired one rig and searched for another to replace the Kulluk.
"We understand the circumstances that companies have," Jewell told Murkowski. "We also understand the circumstances that Shell had in 2012."
"We get that it's complicated to do work up there," she added. "We want to make sure it's done safely and responsively, and we want to be responsive to the companies."
Conservationists argue that Shell and other oil companies knew what they were getting into when they bought Chukchi Sea leases in 2008. Any Interior Department decision to give the company more time would be unwarranted "special treatment" said Oceana Deputy Vice President Susan Murray.
"Operating in the Arctic Ocean is dangerous, controversial, and logistically challenging," Murray said. "Those facts, however, do not allow BSEE to bend its rules to grant Shell an unjustified extension of its leases."
In general, offshore leases expire unless operators are "conducting operations" on them, such as drilling, reworking wells or producing oil and gas.
"Suspension of operation" requests are relatively common in the Gulf of Mexico, where they often are filed shortly before leases are set to expire.
Safety bureau spokesman Nicholas Pardi said the agency "evaluates suspension requests on a case-by-case basis."