Shell Alaska drilling faces another regulatory obstacle

shell OIL ALASKASEPTEMBER 20, 2012 — Shell Oil faces a further potential delay in getting the oil spill containment system it must have before drilling into potentially oil-bearing zones in Alaska's Beaufort or Chukchi Seas.

The Washington State Department of Ecology has determined that two companies building the system need to apply for stormwater permits.

Since November 2011, Greenberry Industrial has been fabricating and assembling the system on land, and Superior Energy Services has been installing the system on the barge Arctic Challenger on the Bellingham, Wash., waterfront at the Port of Bellingham shipping terminal on Cornwall Avenue.

According to the department, the companies have been discharging stormwater from their projects without permits. The department says that Greenberry's work on the Arctic Challenger meets the definition of industrial activity that requires coverage under an industrial stormwater permit, and Superior's work meets the definition of shipyard activity that requires coverage under a shipyard stormwater permit, according to state and federal water quality laws.

The department inspected the site on May 30, 2012, and determined that permit coverage should have been obtained for the type of work being performed. But, the agency used its discretion and did not require the companies to apply for permits because the project was expected to wrap up by July 31, before the two months it generally takes to obtain a permit.

Since then, Greenberry has informed the department that the company intends to pursue contracts for additional industrial projects at the shipping terminal. Superior has a long-term agreement with the port to return the Arctic Challenger to the shipping terminal for maintenance, repair and upgrades.

In addition to operating without a stormwater permit, Superior had four small petroleum spills as a result of the work on the project, says the department. The department issued a notice of correction August 9, requiring Superior to take specific steps to improve protections for Bellingham Bay.

On September 17, the department issued orders to both companies for permit coverage.

Greenberry must stop releasing industrial stormwater or demonstrate how it is in compliance with the terms of the industrial stormwater permit until it obtains permit coverage.

Superior must stop releasing industrial shipyard stormwater until the department has confirmed what type of permit Superior needs, based on information the company committed to provide during an August 30, 2012 meeting, bur has not yet submitted In the meantime, the company can continue working at a permitted shipyard.

Both companies have until September 28 to apply for permit coverage.

Meantime Bureau of Safety and Environmental Enforcement (BSEE) Director James A. Watson today announced that Shell will be allowed to move forward with certain limited preparatory activities in the Beaufort Sea offshore Alaska. Today's action builds upon BSEE's authorization on August 30 for Shell to conduct similar preparatory activities in the Chukchi Sea, in preparation for potential development activities in the future.

"BSEE has set the bar high for exploration activities in the Arctic, and any approved operations must meet those standards," said Mr. Jim Watson. "BSEE continues to closely monitor Shell's ongoing approved preparatory drilling activities in the Chukchi Sea, and today's approval of limited work in the Beaufort Sea must also meet the same rigorous safety, environmental protection and emergency response standards."

Under the permit approved today, Shell will be allowed to begin certain preparatory activities in the Beaufort Sea that will increase the overall safety of any future exploratory drilling. These activities include the creation of a mudline cellar, a safety feature that ensures that the blowout preventer is adequately protected below the level of the seafloor. Shell is also authorized to drill and set the first two strings of casing into shallow non-oil-bearing zones. These operations would support, but are not the same as, oil production activities, and no operations may begin in the Beaufort Sea until the subsistence whaling season has ended and Shell has received approval from the Bureau of Ocean Energy Management (BOEM).

Shell recently notified BSEE that the company does not plan to drill into potentially oil-bearing zones in either the Beaufort or Chukchi Seas this year. Under conditions and requirements set forth in Shell's Chukchi and Beaufort Sea Exploration Plans and Oil Spill Response Plans, which were approved by BOEM and BSEE respectively, Shell is required to have its containment system - designed to capture flowing liquid hydrocarbons in the unlikely event of a loss of well control - fully tested by BSEE, certified by the U.S. Coast Guard, and in the Arctic before any drilling into oil-bearing zones can occur.

BSEE inspectors are maintaining their full-time presence on the Noble Discoverer drill ship in the Chukchi, and will also be onboard the Kulluk drilling vessel full-time during its operations in the Beaufort Sea, to provide continuous oversight and monitoring of all approved activities.

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