Shell faces final hurdles for 2010 Arctic drilling

By DAN JOLING Associated Press Writer

ANCHORAGE, Alaska (AP) - Shell Oil won a court victory in its quest to drill exploratory wells in Arctic waters this summer but still faces several regulatory hurdles, a company spokesman said.

Curtis Smith said Thursday the company awaits appeals of required federal air permits before it can send its drilling ship north to the Chukchi and Beaufort seas off Alaska's northwest and north coast. The company also needs a final Interior Department blessing and authorizations on several wildlife issues.

Shell Oil, a unit of Royal Dutch Shell PLC, hopes to drill three exploratory wells in the Chukchi and two in the Beaufort this summer with a 514-foot drilling ship, the Frontier Discoverer. Shell in 2008 spent $2.1 billion for leases in the Chukchi Sea.

Chris Krenz, Arctic project manager for Oceana, one of the plaintiffs, said the decision was disappointing in light of the ongoing BP crude oil spill in the Gulf of Mexico.

"Oil companies have tapped the easy oil off of our coasts," he said. "They are now pushing the limits and increasing the risk by heading to the deep water of the gulf and the remote and unforgiving Arctic."

He said BP was not ready to deal with an oil spill tragedy in the gulf, and "Shell will have far fewer resources to contain and address an accident in the Arctic."

Pete Slaiby, Shell Alaska vice president, said the decision again demonstrates that Shell has submitted robust, safe plans for exploration in the Beaufort and Chukchi seas. He said Shell faces several other hurdles before it can drill.

"In light of the recent spill in the Gulf of Mexico, we are working hard to identify additional measures that could be incorporated into the program to make it even stronger," he said in an e-mail. "That said, this decision is a very large step in the right direction for us."

The 9th U.S. Circuit Court of Appeals on Thursday rejected consolidated lawsuits that challenged Minerals Management Service approval of Shell's exploratory drilling plans. The expedited ruling followed oral arguments last week in Portland, Ore.

The court determined that the MMS met its obligations to consider the potential threat of exploratory drilling to wildlife and the risk for disaster before it approved Shell's Arctic Ocean projects.

The Environmental Protection Agency earlier this year approved clean air permits for Shell to operate its drilling ship in the Chukchi and Beaufort seas. Alaska Native and conservation groups filed challenges last week, claiming the permits allow the ship and support vessels to emit tons of pollutants, harming Inupiat people and wildlife and contributing to climate change.

Smith said drilling this year depends on quick resolution of the appeals by the EPA Environmental Appeals Board without any issues for remand.

Drilling also depends, he said in an e-mail response to questions, on Interior Secretary Ken Salazar giving final approval to a revised five-year lease sale plan under which Shell obtained its Chukchi leases.

Salazar also must sign off on the company's application for permit to drill. The application is on hold by for review in light of the Gulf of Mexico spill, Smith said.

Shell also needs marine mammal incidental harassment authorizations for whales, seals, polar bears and walrus.

Drilling critics on the losing end of the court case are pushing Salazar to halt drilling.

"If a blowout does occur in the Arctic, the industry does not have the knowledge or resources to respond effectively to an oil spill in icy conditions let alone to respond to the devastation that it would bring to Alaska Native communities," said Carole Holley, Pacific Environment's Alaska program co-director.