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Shell Arctic Drilling Plan Gets Court Approval

DAN JOLING   05/13/10 08:02 PM ET   AP

Shell Beaufort Sea

ANCHORAGE, Alaska — A federal appeals court Thursday removed a legal challenge standing in the way of Shell Oil's plans to drill wells off Alaska's shore this summer.

A three-judge panel of the 9th U.S. Circuit Court of Appeals rejected a case that challenged federal approval of Shell's exploratory drilling plans in the Chukchi and Beaufort seas.

The expedited ruling followed oral arguments last week in Portland, Ore.

The court determined that the federal Minerals Management Service met its obligations to consider the potential threat to wildlife and the risk for disaster before it approved Shell's Arctic Ocean project.

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.

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 case merged three lawsuits brought by environmentalists and Native Alaskan groups challenging the Minerals Management Service's environmental review of Shell's exploratory drilling plan.

The concerns included drilling's effect on endangered bowhead whales, such as a possible interruption of feeding patterns, and whether Shell had made adequate plans to deal with an emergency, such as a major spill.

Kathleen Sullivan, an attorney for Shell, argued last week that the company had spent at least $3.5 billion on Alaska operations and had waited years to recover its investment.

Shell's Chukchi exploration plan concluded that a large oil spill, such as a release from a blowout, would be rare. MMS agreed and said the probability of a large spill during exploration was "insignificant."

Chief Judge Alex Kozinski and Circuit Judges Carlos Bea and Sandra Segal Ikuta said in a two-paragraph decision that they had carefully reviewed thousands of pages of record. They concluded that in both exploration plans, MMS had met its obligations under the National Environmental Policy Act and the Outer Continental Shelf Lands Act.

Krenz said the court did not have the BP incident in front of it for consideration.

"The decision is somewhat out of context with that the reality is," he said.

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