Government launches review of Shell Arctic drill program

The Interior Department said on Tuesday it will review Royal Dutch Shell's 2012 Arctic oil drilling program to assess the challenges the company faced and to help guide future permitting in the region.

The announcement follows the grounding of one of Shell's rigs off the coast of Alaska last week, the latest in a series of mishaps the company has encountered as it undertakes its ambitious Arctic oil exploration plans.

"Exploration allows us to better comprehend the true scope of our resources in the Arctic ... but we also recognize that the unique challenges posed by the Arctic environment demand an even higher level of scrutiny," Interior Secretary Ken Salazar said in a statement.

Any changes in permitting requirements or delays due to the review could threaten Shell's drilling plans for 2013. The company faces a limited window during the summer when weather conditions and regulators will allow drilling.

Interior said it hopes to complete its "high-level" assessment within 60 days.

Shell has spent $4.5 billion since 2005 to develop the Arctic's vast oil reserves, but the company has faced intense opposition from environmentalists and native groups as well as regulatory and technical hurdles.

The oil giant made some strides last year, actually beginning preparatory drilling in the Chukchi and Beaufort seas. But the work was far short of completing up to three wells in the Chukchi and up to two in the Beaufort as the company had planned.

Instead, Shell's 2012 drilling season was beset by delays due to lingering ice in Arctic waters and problems with getting its mandatory oil spill containment vessel certified by the Coast Guard.

Shell said it welcomed the department's review, conceding that it had experienced some challenges.

"We have already been in dialogue with the DOI on lessons learned from this season, and a high level review will help strengthen our Alaska exploration program going forward," Shell spokeswoman Kelly op de Weegh said in a statement.

Interior said it would examine the issues with Shell's containment vessel, as well as issues with Shell's two drilling rigs, the Noble Discoverer and the Kulluk.

It was the Kulluk rig that broke away from tow boats last week and ran aground on New Year's Eve in what were described as near hurricane conditions.

Separately, U.S. Senator Mark Begich, an Alaska Democrat and strong supporter of offshore Arctic oil drilling, said Tuesday he wants to have an Alaska hearing to examine the grounding and Shell's transportation problems.

"While this incident notably involves marine transportation and not oil exploration or drilling, we must quickly answer the many questions surrounding the Kulluk grounding and improve any regulatory or operational standards as needed to ensure this type of maritime accident does not occur again," Begich said in a letter to Coast Guard Commandant Admiral Robert Papp and to Shell.

Environmental groups said the Kulluk accident was new evidence that oil companies were not prepared to operate in the Arctic, calling on the government to put all permitting in the area on hold.

One of the groups calling for a pause in permitting, Oceana, said Interior's review is step in the right direction, but the administration must make sure it is "more than a paper exercise."

"The Department of the Interior, after all, is complicit in Shell's failures because it granted the approvals that allowed Shell to operate," said Michael LeVine, Pacific senior counsel at the ocean conservation group.

(Additional reporting by Yereth Rosen; Editing by Ros Krasny, Gary Hill and Jim Marshall)