Last year at this time, Royal Dutch Shell had just managed to get the Kulluk, its conical drilling rig, pulled off a beach in the Gulf of Alaska after a stormy grounding. With the oil giant’s other Arctic drilling rig, the drillship Noble Discoverer, also out of commission, Shell’s plans for Arctic operations during the summer of 2013 quickly went down the toilet.
In the aftermath of a clumsy 2012 and an inactive 2013 season, Shell’s Arctic prospects for 2014 had been narrowed down to just one area, the Chukchi Sea. That's if all the puzzle pieces fit together.
But they don’t, at least according to the Ninth Circuit Court of Appeals. Last week, the San Francisco-based court ruled that Shell’s 2008 lease in the Chukchi underestimated the amount of recoverable oil and therefore invalidated plans to mitigate potential damages from its production. The court ruling stemmed from a lawsuit filed by several environmental organizations and Native Alaska groups. Shell, ConocoPhillips, Statoil and the state of Alaska defended the federal government’s leases.
The ruling, a 2-1 split by a panel of three judges, sends the matter back to a district judge in Alaska to determine what happens next. Presumably, the judge could revoke the entire lease or he could require that new environmental impact studies be performed based on a more accurate estimate of recoverable oil.
Shell’s response has been a terse, “We are reviewing the opinion.”
To date, Shell has spent over $5 billion attempting to drill exploratory wells in Arctic waters, including over $1 million in fines for air-quality violations from the Kulluk and Noble Discoverer.
U.S. Sen. Mark Begich, D-Alaska, released a statement in response to the ruling that he doesn’t think it will derail 2014 exploration. “Alaskans know how to develop our resources and that is why I continue to be optimistic that we will see safe, responsible development in the Arctic this summer,” he said.
Personally, I think any further exploration this summer in unlikely. The pressure against drilling has grown stronger with the court’s ruling and Shell’s ability to push back convincingly is diminished. The company didn’t bring its “A” game to the Arctic in 2012, and I don’t see much evidence of major improvements.
