Draft Arctic Specific Regulations

May 26, 2015

Secretary Sally Jewell, U.S. Department of Interior
Regulations & Standards Branch
45600 Woodland Road
Sterling, VA 20166

Re: Oil and Gas and Sulphur Operations in the Outer Continental Shelf—Requirements for Exploratory Drilling on the Arctic Continental Shelf (RIN 1082-AA00)

Dear Secretary Jewell:

The Resource Development Council for Alaska, Inc. (RDC) is writing to request the Department of Interior (DOI) withdraw the proposed draft regulations for exploratory drilling and related operations on the Outer Continental Shelf (OCS) of the Alaska Arctic. Given there are significant problems with the proposed regulations, RDC believes the most sensible approach going forward is for the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE) to engage in additional collaboration with stakeholders. Problems with the proposed regulations could then be addressed, revised and released for additional review and public comment.

RDC is a Alaskan, non-profit, membership-funded organization founded in 1975. The RDC membership is comprised of individuals and companies from Alaska’s oil and gas, mining, timber, tourism, and fisheries industries, as well as Alaska Native corporations, local communities, organized labor, and industry support firms. RDC’s purpose is to link these diverse interests together to encourage a strong, diversified private sector in Alaska and expand the state’s economic base through the responsible development of our natural resources.

As drafted, the proposed regulations will likely have a significant negative impact and frustrate efforts to explore and develop Arctic oil and gas deposits. The proposed regulations have the potential to cause unnecessary operational burdens, resulting in much higher operational costs and delays, potentially making it impractical to drill economically in the Arctic. We are concerned that the draft regulations will make exploration so costly and complicated that operators may choose to forego Arctic exploration altogether.

Before further addressing our concerns with the proposed regulations, RDC would like to highlight key aspects of the recently-released National Petroleum Council (NPC) study, “Arctic Potential: Realizing the Promise of U.S. Arctic Oil and Gas Resources.” The NPC study found that development of Alaska’s offshore Arctic resources has the potential to significantly enhance our nation’s energy security well into the future. The report urged the U.S. to move forward with oil and gas exploration and development in the Alaska Arctic or risk returning to a heavy reliance on imported oil. The NPC explained it would take 10 to 30 years of preparation and drilling to bring Arctic oil to market. Meanwhile, in the next decade and beyond, oil production in the Lower 48 is expected to decline sharply. The NPC said that in order for the U.S. to keep domestic production high and imports low, oil companies should start probing the Arctic now.

Moreover, the demand for energy in America are expected to increase by over ten percent in the next 25 years. Despite sharp increases in the use of alternative energy sources, oil and gas resources will satisfy the majority of this increased demand.

The comprehensive NPC report addressed a broad range of issues related to offshore development in the Arctic. Given the issues addressed in the report, as well as its relevant findings and recommendations, RDC encourages DOI to incorporate key aspects and guidance of the study into the proposed regulations. Specifically, RDC joins the Alaska Oil and Gas Association (AOGA) in highlighting the following recommendations of the NPC: (1) Industry, government, and regulators should perform the analysis, investigations, and any necessary demonstrations to validate technologies and capabilities to safely extend the drilling season; (2) the Department of Energy and DOI should assess the timelines necessary to progress an offshore exploration and development program, compared with current U.S. lease durations and practices in other jurisdictions; and (3) policies and regulations should encourage innovation and enable use of technology advances. We embrace these NPC recommendations, particularly as they relate to encouraging innovation and evolving technology to meet regulatory standards.

Arctic OCS potential and benefits to Alaska and the nation

The federal government estimates that there are 23.6 billion barrels of technically recoverable oil and about 104.4 trillion cubic feet of technically recoverable natural gas in the Chukchi and Beaufort sea planning areas. The Chukchi Sea itself is considered the most promising undeveloped energy basin in America with only several areas in the world that may offer higher potential. The Alaska Arctic OCS likely constitutes the eighth largest oil reserve in the world, putting it above Nigeria, Libya, Russia, and Norway. In addition, it is estimated that economic activity from the development of conventional energy reserves beneath the Chukchi and Beaufort seas would create an annual average of 54,700 jobs nationwide (35,000 in Alaska) with a cumulative payroll of $154 billion over the next 50 years. Moreover, government revenues generated from Alaska OCS production could reach nearly $200 billion.

The immediate prospect for offshore exploration comes at a time when Alaskans are facing a multi-billion deficit due to low oil prices and low production. Throughput in the Trans-Alaska Pipeline System (TAPS) peaked at 2.1 million barrels per day in 1988 and the pipeline is now running at three quarters empty. With its enormous resource potential, the Alaska OCS likely contains enough oil to potentially triple TAPS throughput, maintaining the integrity of the pipeline for decades and sustaining the state’s economy for generations.

TAPS has played a critical role in our nation's energy security, carrying more than 17 billion barrels of oil to West Coast markets. It is the economic lifeblood of Alaska’s economy and a critical link to the nation’s long-term energy security. One cannot overstate the importance of oil and gas to Alaska. Oil production and the spending of the state’s oil revenues account for up to one half of the economic activity in Alaska. Oil revenues provide and fund thousands of private and public sector jobs, as well as critical public services and infrastructure. It’s clear that Alaskans and our state’s economy would benefit significantly from increased oil production. In fact, the very concept of Alaska’s statehood is predicated on the development of natural resources.

More than five decades ago when Alaska statehood was debated, many politicians in Washington, D.C. doubted this northern territory could build an economy and contribute to the union. Alaskans joined together to convince Congress that development of Alaska’s vast resources could establish and sustain a strong private sector economy. Washington responded by adding a 49th star to the American flag. We remind federal policy makers that Alaska was allowed to join the union because of the expectation that the development of our natural resources would sustain the economy. Now, Alaska’s economic lifeline, TAPS, is starved for oil. It’s not because Alaska has depleted its natural resources. In fact, there is more oil in place onshore and offshore the North Slope than what has been developed since statehood. The challenge is achieving access to the resource.

As America looks toward harvesting its offshore energy resources in the Alaska Arctic, it is important to acknowledge that the oil and gas industry has successfully operated in the Chukchi and Beaufort seas for decades. The industry has drilled over 440 exploration wells in Arctic waters, including 35 in the Alaskan OCS. Exploration drilling was launched in the nearshore and shallow waters of the Beaufort and Chukchi seas in the late 1960s. Since then, advances in technology led to safe exploratory drilling in deeper waters. Since 1987, Shell has successfully drilled 11 wells in the Alaska Arctic OCS, not including the two top holes drilled in the Chukchi Sea nearly three years ago. Shell’s planned drilling activities in the Chukchi Sea will occur in shallow water, similar to Cook Inlet and near-shore Gulf of Mexico, where safe drilling practices have led to a long history of safe operations. As technology continues to evolve, RDC is confident Arctic exploration, development and production can occur responsibly and in a safe manner.

General issues and concerns of the proposed Arctic Specific Regulations

Given the strategic importance of the Arctic, the new regulations must be clear and well-reasoned. They should eliminate redundant standards, promote performance-based standards, and reflect the practicalities of drilling in the Arctic. Unfortunately, the draft Arctic regulations miss the mark.

The proposed rules do not consider alternatives to floating rigs. The proposed rules limit their consideration to a particular approach to drilling based on use of a floating rig, and the result is prescriptive rules that require particular equipment to the exclusion of other approaches that could be safely and effectively used. If the regulatory focus is on floating rigs, then the rules should be applicable only to floating rigs. Alternatively, the rules could adopt a broader, more flexible and performance-based approach such as found in rules applicable to other areas of the OCS, which do not prejudice the choice of drilling platforms.

From a cost-benefit analysis, the draft regulations are not justifiable. BOEM and BSEE have applied assumptions that understate the cost of certain requirements and overstate the benefits of the proposed regulations. For example, the benefits of the proposed regulations are calculated based on the assumption that a catastrophic oil spill will occur in the U.S. Arctic OCS in the next ten years, despite BOEM’s acknowledgment that a large spill will not occur during exploration. The costs of the regulations, estimated by BOEM and BSEE to be $1.1 to 1.2 billion spread out over ten years, are unanimously considered by industry to be far too low, by about an order of magnitude.

In addition, the draft regulations will significantly complicate the permitting environment for operators. The draft regulations contain requirements that overlap with existing regulations and intrude on the jurisdiction of other agencies. The regulations increase regulatory uncertainty for operators without providing clear benefits to the environment.

Same Season Relief Well requirement should be eliminated and replaced with performance-based approach

Given the logistics associated with Arctic operations and advances in technology, it is not necessary to include a Same Season Relief Well (SSRW) requirement in the proposed Arctic regulations. The requirement should be eliminated. Since DOI began keeping comprehensive incident records in 1971, none of the more than 41,000 wells drilled over more than 40 years has depended on a relief well to control a blowout. Relief wells have been deployed to perform the final plug and abandon wells. In the case of the Macondo incident, a capping stack was used to control the well and stop the flow. The relief well was later used to permanently plug and abandon the well.

In its proposed Arctic regulations, DOI should modify the SSRW requirement by adopting a performance-based approach. DOI should outline a defined process for the approval of new technology and the outcome to be achieved, rather than prescribe use of specific technology. The draft regulations do not define a workable process in which an operator can apply to use equivalent technology to a SSRW. The NPC report recommends that regulators engage collaboratively with stakeholders to synthesize current and evolving knowledge regarding technologies that could safely replace a SSRW. These technologies can be validated by the regulatory agencies through analysis, investigations, and any necessary demonstrations. Technologies include evolution in capping stacks and subsea isolation devices, which can dramatically reduce worst-case discharge volumes and are considered superior to a SSRW or spill containment systems. Unfortunately, the lack of a defined process in the draft package of regulations for the approval of equivalent technology will prevent operators from being able to adapt their programs to new technologies as they become available. This stifles innovation in a field that is uniquely equipped to engineer improved solutions to the challenges associated with Arctic exploration.

Given advances in technology, a SSRW approach no longer constitutes the Best Available and Safest Technology in response to a loss of well control. As noted, a SSRW is not necessarily the best approach to well control, given advances in well design, mud systems, blowout preventers, and capping stacks, which itself represents a more effective alternative to a SSRW. Capping stacks can be secured over a well, halt the flow, and remain in place until the well can be re-entered to perform a final plug. Moreover, blowout preventers and capping stacks are preferable to industry because they are effective and much more timely in controlling a problematic well than a SSRW, thus reducing the environmental impacts associated with a troubled well. A capping stack or subsea isolation device can be deployed to control a blown well over the winter with the operator returning during the following season to drill a relief well to permanently plug and abandon the well. As a result, such an approach would not require a SSRW during the same operating season, provided an operator uses an initial control technology that can be overwintered in place.

The Arctic regulations should enable an operator to demonstrate in its plans that it has assets that can effectively address a loss of well control. Likewise, the regulations should permit an operator to select technology that can address the source control event within the context of its own plan. The regulations should be flexible so that technology employed by one operator may differ from the technology applied by another operator. The objective is to employ the technology best suited to an operator’s plan.

Other concerns include redundancy in the Integrated Operations Plan (IOP) requirement set forth in the draft regulations with existing requirements for Exploration Plans (EP). Moreover, the requirement that an IOP be submitted 90 days in advance of EP submission appears to be a regulatory end-run around Outer Continental Shelf Lands Act time-frame requirements for EP approval. The IOP requirement should be removed.

Another concern is that the draft regulations mandate a Blowout Preventer pressure test every seven days. From a risk-based perspective, the frequency of the test is not justifiable as it unnecessarily increases the wear-and-tear on equipment. Current BSEE regulations require such tests every 14 days.

Given the draft regulations establish an early end of season date for drilling activities well in advance of the average onset of ice pack – cutting an already short operating season in the Arctic even shorter, this move to limit season length in the Arctic OCS should be offset through extension of the leases. The mandated shortened season extends what would normally be a one-season exploration mobilization into two seasons. This not only doubles the time required to fully drill a prospect, it also doubles the cost and any risks associated with such a large mobilization.

In conclusion, RDC urges the DOI to withdraw the draft regulations and engage in additional collaboration with relevant stakeholders. Following the withdrawal of the proposed rule and additional stakeholder meetings, BOEM and BSEE should engage in substantial revisions of the Arctic regulations, taking into account the NPC’s Arctic report. While some provisions in the draft regulations are aligned with the NPC study, others would benefit from the research and recommendations in the study. Moreover, the concerns and issues outlined in this letter, as well as those in AOGA’s May 27, 2015 comments, should be addressed in the final package of regulations. The final regulations should promote performance-based standards as opposed to overly prescriptive ones, be clear and reasonable, science-based, and justified on a realistic cost-benefit analysis. They should allow for technological innovation and eliminate redundant and conflicting requirements. RDC encourages DOI to craft the regulations in a way that protects the environment while enabling exploration to move forward in the Arctic.

Thank you for the opportunity to provide comments on the draft regulations.

Resource Development Council for Alaska, Inc.