Sunday, July 26, 2015

Approved to start; BSEE issues permits to Shell for top hole sections of Chukchi Sea wells

Alaska Contract Staffing
Alan Bailey
Petroleum News

On July 22 the federal Bureau of Safety and Environmental Enforcement issued permits allowing Shell to drill the top hole sections of two wells in the Burger prospect in the Chukchi Sea. Shell now has all of the permits that it needs to start drilling.

However, BSEE is prohibiting Shell from drilling into hydrocarbon bearing zones until the company has its capping stack staged, available for deployment within 24 hours if needed. The capping stack, a device that would be placed onto a well head to seal the well should the well’s blowout preventer fail during a well loss-of-control incident, is positioned on the icebreaker M/V Fennica.

The Fennica has had to divert to Portland, Oregon, for a repair to a gash in its hull after hitting an uncharted underwater obstruction near Dutch Harbor. Shell has said that it anticipates the vessel being repaired and transitioned to the Chukchi Sea with the capping stack before drilling operations reach the depths where hydrocarbons may be found.

“Without question, activities conducted offshore Alaska must be held to the highest safety, environmental protection, and emergency response standards,” said BSEE Director Brian Salerno. “Without the required well control system in place, Shell will not be allowed to drill into oil-bearing zones. As Shell conducts exploratory activities, we will be monitoring their work around the clock to ensure the utmost safety and environmental stewardship.”

BSEE says that agency safety inspectors will be present on Shell’s drilling units Noble Discoverer and Polar Pioneer to provide continuous oversight of all approved activities.

No simultaneous drilling

The BSEE drilling permits prohibit simultaneous drilling operations at both of Shell’s planned drilling sites. This limitation arises from a stipulation within the U.S. Fish and Wildlife Service’s letter of authorization, allowing the minor, unintended disturbance of walruses and polar bears during Shell’s operations. The stipulation requires simultaneous exploration activities to be spaced at least 15 miles from each other - Shell’s well locations are less than 15 miles apart. If Shell opts to start drilling two wells the company must plug and abandon the top section of the first well before commencing the drilling of the second well, BSEE says.

Drilling vessels dispatched

Shell spokeswoman Megan Baldino has told Petroleum News that the two drilling vessels under contract for the Chukchi Sea drilling have departed Dutch Harbor in the Aleutian Islands for the Chukchi Sea. “The Noble Discoverer left last night around 6:30 and the Transocean Polar Pioneer followed at approximately 1:00 p.m. this afternoon,” Baldino said in a July 17 email.

The two drilling units, with assistance from support vessels, will connect to anchors that Shell has recently placed over the drilling prospect in the Chukchi Sea, Baldino said. The Burger prospect lies about 70 miles northwest of the Chukchi coastal village of Wainwright. The sea depth at Burger is about 140 feet according to BSEE.

Baldino told Petroleum News in a July 22 email that Shell plans to begin drilling at the Burger J prospect using the Polar Pioneer once the area is substantially clear of sea ice.

“The company will comply with all permits,” Baldino said.

BSEE inspection

Between July 7 and July 12, prior to the departure of the Noble Discoverer and the Polar Pioneer from Dutch Harbor, BSEE conducted inspections of the two drilling units, assessing the overall readiness of the units for the Chukchi Sea drilling and testing key safety devices, BSEE said July 16. The inspectors also verified oil lease stipulations, environmental mitigation measures, air quality equipment and permit requirements for the discharge of waste, BSEE said. BSEE Alaska Region Director Mark Fesmire and BSEE personnel re-inspected Shell’s capping stack on board the M/V Fennica, to verify that the capping stack had not been damaged during the incident in which the Fennica’s hull had been breached, BSEE said.

Reactions to the permitting

U.S. Sen. Lisa Murkowski, R-Alaska, expressed her satisfaction with the issue of the BSEE drilling permits.

“Today’s approval by the Department of Interior of the permits Shell needs to resume drilling in the Chukchi Sea is good news for Alaska and our country,” Murkowski said in a July 22 press release. “However, it is not the final regulatory hurdle Shell faces and it is important that the agencies continue to work in good faith and in a timely fashion to complete the remaining regulatory requirements.”

But environmental organizations continue to express their opposition to Shell’s plans.

“Neither Shell nor the oil industry as a whole has learned the lessons of 2010 or 2012,” said Andrew Sharpless, CEO of Oceana. “As its ongoing missteps show, Shell is not prepared to operate safely in the Arctic Ocean where bad weather, darkness and floating ice increase the risks of an accident, and there is no proven way to clean up spilled oil. The government’s approvals for Shell’s drilling fly in the face of common sense.”

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Federal judge rejects state effort to explore ANWR plain

Alaska Contract Staffing
Tim Bradner
Alaska Journal of Commerce

Alaska U.S. District Court Judge Sharon Gleason has dealt the State of Alaska another setback in efforts to conduct exploration of the Arctic National Wildlife Refuge’s coastal plain.

In a decision issued July 21, Gleason upheld Interior Secretary Sally Jewell’s interpretation that her authority to approve limited exploration of the 1.2-million-acre coastal plain expired in 1987.

State attorneys said they are still studying Gleason’s decision and have not yet decided on an appeal to the 9th Circuit Court.

“After we have had time to review it, we will evaluate our options,” said Corri Mills, spokeswoman for the Department of Law.

Under former Gov. Sean Parnell in 2013, the state had proposed a limited winter seismic program to gather more information on potential resources, arguing that Jewell’s authority had not expired and the 1980 Alaska National Interest Lands and Conservation Act, or ANILCA, required her to allow ongoing resource assessments and approve any third party proposal to do it, such as from the state.

After Interior agencies repeatedly rejected the state’s plan, the lawsuit was filed in federal court in 2014 and oral argument was held Jan. 20.

Exploration in the Arctic refuge has been a hotly-contested issue for years. The 18.9-million refuge was created in 1980 by Congress, as an expansion of an 8.9-million-acre wildlife range created in 1960. However, the coastal plain area was withheld from wilderness status by Congress and set aside for potential oil and gas exploration.

Under the 1980 law Congress must approve oil and gas development in the coastal plain but gave the Interior Secretary limited authority to conduct exploration to assess the resource potential.

Congress actually passed a bill approving ANWR exploration once, when both the U.S. House and Senate were under Republican leaderships, but then-President Bill Clinton vetoed the measure.

Former Alaska U.S. Sen. Ted Stevens tried a different tack, placing the question on a budget resolution, a procedure that is not subject to a Senate filibuster (which requires 60 votes to overcome) but the effort failed by one vote.

Bad luck and timing has played a part in foiling the state’s efforts in ANWR at times. Congress appeared close to approving exploration in 1988 and early 1989 but that ended when the tanker Exxon Valdez hit a reef in Prince William Sound in March, 1989, causing a major oil spill.

Meanwhile, ANILCA required Interior to do a resource assessment that included seismic exploration for the purpose of preparing a report to Congress by 1987. When the state submitted its proposal to continue exploration, Jewell ruled that her authority to allow it had expired.

State officials contended that the authority had not expired, and that under the language of the 1980 law the Secretary was actually required to approve an application from a third party.

Gleason disagreed, however, ruling that there was an ambiguity in the statutory language that required that deference be given to Interior’s interpretation that the authority had expired.

In her decision, Gleason wrote: “Congress authorized the Secretary to approve limited-duration exploratory activity on the coastal plain and ordered a report generated from these activities by 1987. Whether the statute authorizes or requires the Secretary to approve additional exploration after the submission of the 1987 report is ambiguous.

“The Secretary’s interpretation that her statutory authority and obligation to review and approve exploration plans ceased after 1987 report has been completed is based on a permissible and reasonable construction of the statute.”

The language in ANILCA is unambiguous as to the Secretary’s authority up until the deadline for the 1987 report but is silent, and therefore ambiguous, on any deadline after that, Gleason noted in the decision.

The state argued in the January trial that the lack of any explicit deadline for the authority meant that it continued in effect, while Interior argued that the lack of a deadline for continuing authority in the statute left 1987, when the report was required, as the only deadline.

The fact that Congress did not insert another, later date for any continuing authority after 1987 indicated that the body intended 1987 to be the final date, Interior officials argued in the trial.

Gleason noted that there could be alternative ways the language can be interpreted but that she was bound to defer to a reasonable construction of the statute by the agency.

“The Court need not find that the agency’s interpretation is the only permissible construction or that it is the Court’s preferred construction,” Gleason wrote, but noted that Interior had stuck with its interpretation since a legal opinion was written by the agency’s Solicitor in 2001. The consistency of the agency’s position was a factor in her decision, Gleason wrote.

The issue of exploring in the coastal plain has a long history. The area has high potential for significant oil and gas discoveries, federal agencies concluded in the 1987 review of resource potential.

Many geologists, government and industry, feel the coastal plain is the last remaining unexplored onshore region of Alaska with potential for very large oil discoveries, such as those made in the central North Slope region.

Inupiat leaders of the North Slope have largely favored ANWR exploration and development because it is onshore, where development can be done carefully, and not offshore, where there are threats to subsistence resources created by potential oil spills.

The Inupiats also have an economic stake in ANWR through a 91,000-acre inholding of surface and subsurface lands in the coastal plain where the surface lands are owned by Kaktovik Inupiat Corp. of Kaktovik and the mineral rights are held by Arctic Slope Regional Corp. of Barrow, the regional Alaska Native development corporation.

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Exploration permits up in air after court ruling

Alaska Contract Staffing
By Tim Bradner
Alaska Journal of Commerce

A May 29 Alaska Supreme Court decision will have wide-ranging impact on the state mining industry after a ruling that declared bore holes drilled and filled during exploration constitute a permanent disposal of state land requiring public notice and comment. State agencies are still interpreting the ruling to decide how to change the current system for issuing Miscellaneous Land Use Permits.

An exploration site at the Pebble prospect near Iliamna Lake is seen from the air in this 2010 photo. A May 29 Alaska Supreme Court decision will have wide-ranging impact on the state mining industry after a ruling that declared bore holes drilled and filled during exploration constitute a permanent disposal of state land requiring public notice and comment. State agencies are still interpreting the ruling to decide how to change the current system for issuing Miscellaneous Land Use Permits.

State attorneys and natural resources officials are wrestling with the implications of a May 29 state Supreme Court decision requiring expanded public notice and review procedures for certain Miscellaneous Land Use Permits issued by the Department of Natural Resources.

The decision, in a lawsuit brought by Nunamta Aulukestai, a Bristol Bay Tribal group, and three individuals, could have widespread effects in natural resource development if it opens opportunities for new litigation. At the least, it raises new uncertainties for projects, people familiar with the case say.

Nunamta Aulukestai was contesting Miscellaneous Land Use Permits, or MLUPs, and Temporary Water Use Permits, or TWUPs, issued for mining exploration at the large Pebble copper/gold project near Iliamna.

In addition to Numamta Aulukestai, four others were plaintiffs: Bristol Bay residents Ricky Delkittie Sr. and the late Violet Willson, state constitutional delegate Vic Fischer and former First Lady Bella Hammond.

The original case, filed in 2009, argued that the drilling of exploration drill holes, which are commonly done in mining exploration, was causing environmental damage through pollution, that the public hadn’t been given adequate public notice and that cumulative effects of the Pebble exploration program, which was extensive, weren’t considered.

The Superior Court initially sided with the state and with Pebble Partnership, the company doing the exploration, but the Supreme Court reversed the lower court decision on the public notice aspect.

The plaintiffs also challenged DNR’s issuing of TWUPs, but the Supreme Court found that those were indeed temporary and were functionally revocable, unlike the land permits.

The Supreme Court found the MLUPs to be functionally irrevocable based on the large investment made by Pebble in exploration that the state would be unlikely to halt, and that the well casings left behind after drilling constitute a permanent “disposal” of public land that requires notice and comment under the state Constitution.

“This decision means that all Alaskans, especially those whose rights and livelihoods are jeopardized by intensive exploration activities like those at Pebble, have the constitutional right to participate in those decisions affecting them,” said Trustees for Alaska Executive Director Vicki Clark in a formal statement after the decision. Trustees for Alaska represented the plaintiffs in the case. “The State has issued permits behind closed doors without even looking at the harm to public resources.”

The Supreme Court did not give the state resources agency much guidance in correcting the legal defects. The matter is now more or less left to the DNR to interpret what court said and devise new procedures, and then wait to be sued again to see if the interpretation is correct.

State attorneys and resource officials are not saying what steps they may take to correct the situation. In a statement, Cori Mills, spokeswoman for the state Department of Law, said, “DNR’s evaluation of the regulatory changes necessary to address the Nunamta decision is underway and will take a bit of time to establish and implement. Any rulemaking that is require to codify changes would be subject to public review and comment.”

The state Legislature may have to step in to clarify statutes, although those already distinguish permits that need public notice from those that are minor, and do not.

Mills said the case is now back to the Superior Court, which will soon issue a declaratory judgment to the DNR that recognizes the Supreme Court decision. A motion on attorneys’ fees has also been made, she said. The Supreme Court also reversed the Superior Court order to make the plaintiffs pay a portion of the state’s and Pebble’s legal fees.

The Supreme Court wrote in its decision it expected Nunamta to file a motion to collect legal fees from the state and Pebble after becoming the prevailing party.

The May 29 court decision didn’t invalidate the MLUPs at Pebble, which were all expired by then, but it has caused a big wrinkle over how certain MLUPs are to be issued in the future, and a variety of industries besides mining could be affected.

This has created a dilemma for state land managers.

“The court didn’t say we couldn’t issue the permits but dealt with what kind of public notice we should issue,” for certain permits, said Wyn Menefee, Chief of Operations for the state Division of Mining, Land and Water.

The division makes all MLUPs available to the public through the state’s on-line public notice system. The public can comment within 14 days but it must be in writing or e-mail, Menefee said, because the state’s on-line system is not set up for on-line comments.

The same notification goes to other state agencies, and the agencies often provide comments and sometime ask for more time to look at the permits, he said.

Essentially, the May 29 decision said that the on-line posting isn’t enough for certain types of land-use permits, those that can be considered “irrevocable,” or more permanent in nature, compared to “revocable” permits which are truly temporary and which the state DNR can rescind within the period of the permit, typically three to five years.

The state high court found that the specific exploration holes drilled at Pebble, some of which were drilled to 7,000 feet and involved placement of permanent steel casing, were irrevocable permits similar land easements issued by DNR and thus needed a broader public notice procedure.

While the decision doesn’t appear to be retroactive in affecting existing land permits there was also little guidance from the court as to how the agency can define the types of activities that can distinguish between irrevocable and revocable MLUPs going forward.

Most important, the court didn’t signal what type of public notice procedure would be acceptable other than it must be more than what is now done.

“We’re still evaluating the decision, but there wasn’t a lot of guidance,” Menefee said. “Almost everything we do is noticed, but is it enough?”

The department will certainly plan a more widespread public notice procedure once it sorts out how to distinguish between activities that are irrevocable (most likely major mining drilling programs of the sort done at Pebble) but whatever the department does will be challenged by environmental groups, said John Shively, chairman of Pebble Partnership and a former state Commissioner of Natural Resources.

“How can this be sorted out? It’s a guessing game. I suspect the environmental groups will keep bringing lawsuits,” Shively said. “Anything the NGOs (non-governmental organizations) can to do make life miserable for miners they will do,” he said.

Shively said the original Nunamta Aulukestai lawsuit “was aimed at shutting us down at Pebble. It didn’t work.”

“They (the plaintiffs) had theories that we were destroying the environment with our drilling, but the Superior Court said there was no evidence of that and the Supreme Court didn’t disagree,” he said.

Pebble has tried to do its exploration in as much a benign way as possible. Exploration there began in 1988 and as of 2010, when the Superior Court trial was held, 1,269 holes had been drilled, along with seismic surveys. When the mineral cores were extracted from the holes they were plugged with concrete and rigs and drill-pads were removed by helicopter.

The plaintiffs lost on that point but the decision has still opened up a Pandora’s Box of other issues for land developers.

What concerns people most, Shively said, is whether continued litigation on the public notice procedures will ultimately lead to a formal Best Interest Finding, or BIF, procedure for mining exploration, but also a lot of activities that require temporary state land permits.

Best Interest Findings, or BIFs, is a state equivalent to a federal Environmental Impact Statement that are done with significant actions on state lands, such as oil and gas lease sales, forest sales or other land actions, and even sales of state royalty oil to refining companies.

Like the federal EIS, the state BIF procedure has provisions for public appeals of agency decisions. They are expensive to do, and can set the stage for litigation, but state BIFs were adopted to formally document state agency decisions and the weighing of alternatives, similar to what an EIS does on the federal level.

Ironically, the procedure was adopted to minimize the disruption to the state oil and gas lease sales cause by environmental lawsuits by spelling out in detail the rationale for the state decisions and consideration of alternatives.

Since BIFs were adopted no state oil and gas lease sale has been held up by an environmental lawsuit.

Nunamta Aulukestai raised the Best Interest Finding issues in the Pebble lawsuit but while the Supreme Court discussed it in its decision the matter was left unsettled.

The state high court said the state Constitution does not require a best interest finding. However, the decision did connect the issue with a previous Supreme Court decision, known as REDOIL (brought by Resisting Environmental Destruction on Indigenous Lands), which dealt with cumulative effects of a state decision.

“They (the plaintiffs) were obviously playing into the REDOIL decision,” Shively said.

Under the REDOIL decision an agency is required to perform some form of “continuing assessment” of impacts from a permit authorizing future actions. This moves in the direction of a cumulative effects analysis by a state agency, long a goal of environmental groups.

“I’m sure there will be more lawsuits on all this,” Shively said.

Other attorneys who familiar with the case, and state land management procedures, felt the Supreme Court decision, in finding the Pebble TLUPs permanent, or irrevocable, was correct.

“I think the court was swayed by the length of time and controversy of the interminable Pebble exploration, which comprised $300 million of expense and explosives, portable rigs, structures, fuel storage and helicopters,” said Jim Barnett, a private attorney who is also a former deputy state resources commissioner.

The sheer scale and the duration of the Pebble exploration is what set it apart, Barnett said. The department should have conducted some form of expanded public notice, he said.

Barnett said he believes that complying with the Supreme Court decision will ultimately require DNR to conduct a review of cumulative impacts, as required by the REDOIL decision, on mining exploration.

Menefee said many activities on state lands that are non-intrusive and don’t require permits, such as small-scale mining or activities with what are essentially hand tools. More substantial uses, such as drilling core holes to certain depths, do require the temporary land-use permits, the TLUPs.

The interpretation will be in what is a temporary permit, and revocable, compared with a de facto permanent permit, in practice irrevocable. The Supreme Court decision cited Pebble’s major investment in exploration at the time the lawsuit was filed, $300 million, as a factor in decided those particularly permits were permanent, but did not give any guidance as to what investment threshold might drive the determination.

Menefee said the installation of metal casing around drill holes, although discussed in the decision, might not be a workable threshold in a determination because many mining bore holes are cased and it is impractical, and very costly, to require the casing be taken out.

“The casing is always cut off below ground and covered,” and typically poses no environmental threat, Menefee said. “We often allow piping, cable or concrete to be left behind as long as it is non-polluting and doesn’t create a safety problem,” he said.

Once mining exploration gets to the stage where a lease is required it does trigger the DNR’s public notice requirements and often a formal Best Interest Finding process, Menefee said.

If the Legislature had wanted land-use permits to be subject to Best Interest Findings it would have required it in statute. Instead, the permits are specifically excluded from the BIFs, he said.

Meanwhile, the DNR will have to come up with some way of dealing with the court decision. “For now, we don’t see this as a big problem. It is something we can manage. But we’re left trying to interpret what the court meant, and someone may still sue us,” Menefee said.

“We want to ensure that our (new) procedures will match what the court said, he said.

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