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Interior's Draft Arctic Drilling Rules Begin Interagency Review

The Interior Department on Friday officially launched an interagency review process that may impose the first minimum standards for oil and natural gas activity in U.S. Arctic waters.

A draft of the Arctic regulations was sent to the Office of Management and Budget (OMB) on Friday. Currently there are no specific mandates governing Arctic energy development. Federal agencies regulate drilling in the Arctic as they would for other offshore areas, but the 2010 Macondo well blowout in the Gulf of Mexico led to more stringent reviews of offshore drilling.

The proposed rules, drafted by the Interior's Bureau of Safety and Environmental Enforcement, have been deemed "economically significant," which means they may carry an annual impact on the economy of $100 million or more. OMB noted that the draft rules are designed "to promote safe, responsible, and effective drilling activities," and ensure Alaska's coastal communities and the marine environment is protected.

The notice of proposed rulemaking is scheduled to be published in September, according to OMB.

Following several incidents during and after its drilling campaign in the Beaufort and Chukchi seas offshore Alaska in 2012, for which it was roundly criticized, a unit of Royal Dutch Shell plc dropped its plans to explore in the region until at least 2015 (see Daily GPIMay 20Sept. 18, 2012). Shell had voluntarily built specialized equipment ahead of its 2011 campaign, including adding a containment system to be deployed near the Arctic operations.

Some conservation groups have called for an outright ban on drilling in Alaska's icy waters, while others have called for more rigorous oversight. Independent nonprofit The Pew Charitable Trusts last year urged more rigorous rules for Arctic drilling (see Daily GPISept. 24, 2013). Pew researchers pointed to the need for specialized equipment in the harsh environment that is ice-covered for up to nine months a year and subject to high seas, wind, freezing temperatures, dense fog and floating ice hazards.

Other than Shell, no operators have launched drilling operations in recent years offshore Alaska. Shell now holds the rights for most of the available leaseholds in the Chukchi and Beaufort seas, with ConocoPhillips, BP plc and Statoil ASA also contenders. BP scuttled its Arctic plans in 2011, and Shell and ConocoPhillips subsequently canceled plans to drill offshore Alaska in 2013 and again this year.

Interior has not outlined how the new rules concerning Arctic drilling could impact potential operations, but the rules are expected to mandate that oil spill equipment and personnel be at the ready for deployment following an incident, including a well blowout. Other requirements may include the need for redundant emergency equipment in close proximity that could allow back-up drilling rigs to bore relief wells. Offshore operators could be required to harden their vessels, ensuring they are Polar Class ships capable of working in Arctic waters. Not expected to be included are rules on building infrastructure.

In July, Interior called for information and nominations from industry and stakeholders for the final Outer Continental Shelf sale scheduled for 2017, Lease Sale 242, which would encompass part of the Beaufort Sea Planning Area offshore Alaska (see Daily GPIJuly 28). The call for information over a 45-day period is designed to gather information about specific areas within the Beaufort Sea that have the "most promising oil and gas resource potential," and to increase understanding about environmentally sensitive habitats and important social and cultural uses -- including vital Alaska Native subsistence activities -- that exist within the area.

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