U.S. Department of Interior (DOI) Secretary Ken Salazar said Tuesday the finalized version of the five-year program for Outer Continental Shelf (OCS) leasing expected to be released within days will follow a "targeted" format. He also affirmed it was "highly likely" that Royal Dutch Shell plc will be granted the permits to drill exploratory wells in Alaska's Chukchi Sea this summer.

"The five-year program we will put forward will show that we can move confidently with comprehensive safety standards in place," Salazar said in a conference call Tuesday from an offshore drilling conference in Norway. "Our goal is to maximize the availability of oil and gas resources in those areas that we are making available to leasing, while minimizing potential conflicts with environmentally sensitive areas and Native Alaskan communities that rely on the ocean for subsistence.

"To achieve this, we are taking a different approach than the past. Specifically, we intend to gather information from industry, Native Alaskan communities, the scientific community and the public to identify specific high-resource, low-conflict areas that are best suited for exploration and development. You can call this 'targeted leasing.'" The new OCS lease plan for 2012-2017 was first announced last November (see Daily GPI, Nov. 9, 2011).

Bureau of Ocean Energy Management (BOEM) Director Tommy Beaudreau said, "what will be reflected in our five-year program is really fresh thinking about what is appropriate in terms of designing lease sales offshore."

Salazar said federal regulators were in the final stages of reviewing Shell's proposal to drill up to six wells in the Chukchi Sea this summer (see Daily GPI, Dec. 20, 2011).

"I anticipate that those permits will be drafted if Shell can meet the final conditions that are set forth by BSEE [Bureau of Safety and Environment Enforcement] and their requirements," Salazar said. "If Shell meets our standards and passes our inspections, exploration activities will be conducted under the closest oversight and the most rigorous safety standards ever implemented in the history of the United States."

According to federal estimates, the Arctic Ocean waters off Alaska's northern coast -- which include the Beaufort and Chukchi seas -- contain an estimated 27 billion bbl of oil and 132 Tcf of natural gas.

Salazar added that if Shell's plans proceed, a BSEE inspector would be onsite 24 hours a day.

"Shell will also be required to have a full suite of response capabilities in the area, including capping stack and a number of other containment programs and systems," Salazar said. "We want to be certain that any activity is well within the planning, safety and response capabilities that are deployed."

Shell has been waiting for years to explore the Chukchi, having purchased leases in 2008 and investing $2.1 billion in the project. In a legal move characterized as a preemptive strike, the company asked a federal court to review its oil spill response plan in early March (see Daily GPI, March 2). Later that month, the BSEE approved the plan (see Daily GPI, March 29).

"The permits have not yet been granted," Salazar said. "We are still in the process of doing the inspections and making sure the APDs [applications for permits to drill] meet the requirements. [But] I do anticipate, having seen the conditions that Shell has already met, that it is probable that they are going to get these permits. I think it is highly likely that the permits will be issued."

On the proposed five-year OCS leasing program, Salazar lauded the results of last week's auction in New Orleans (see Daily GPI, June 21), which offered leases in the central Gulf of Mexico (GOM). He said the lease sale, the first since the Macondo well blowout, made nearly 39 million acres available for leasing and brought in more than $1.7 billion in bonuses.

Salazar said the five-year plan includes scheduling lease sales in the Chukchi and Beaufort seas for 2016 and 2017, respectively.

There would be a 25-mile buffer zone along the coast of the Chukchi which would not be considered for oil and gas leasing. He also said that an area north of Barrow, AK, "that has not historically attracted industry interest [but] that has a very high subsistence value to Native Alaskan communities" would not be open for leasing either. "Overall this Arctic strategy represents a shift from a one-size-fits-all approach of the past."

Beaudreau said a third area in the Chukchi -- the Hanna Shoal -- would also remain off limits to leasing, for now.

"The Hanna Shoal is a critical environmental habitat," Beaudreau said. "We have an ongoing study with respect to a core area of the shoal and also a broader area to understand better how that shoal fits into the broader Chukchi ecosystem. We defined that very clearly as an area of ongoing scientific study. It's an area of concern for us that has to be closely analyzed and scrutinized before we develop the configuration of any potential lease sale in the Chukchi."

Asked if the DOI was prepared for a potential lawsuit by environmental groups or others wishing to block Arctic oil and gas development, Salazar replied, "We will probably be sued.

"The reality of it is that we get sued all the time. But I'm confident that the work that BOEM, BFEE and Interior have done in this regard means that ultimately we will prevail. We already have in other aspects of litigation relating to the Arctic."

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