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US to Release Arctic-Specific Drilling Rules Before Year End

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WASHINGTON - When Royal Dutch Shell plc sought permission from the U.S. government to drill for oil in the icy waters of the Arctic Ocean, it agreed to follow a special set of standards to control oil spills in a challenging environment.

Interior Department officials now say they will ask other oil companies to follow similar protocols if they want to operate off Alaska's north coast. Interior Deputy Secretary David Hayes said Tuesday the agency is working on Arctic-specific rules that should be proposed before the end of the year.

"We do believe it's appropriate to put [the Arctic standards] in regulations," Mr. Hayes told a Senate committee Tuesday.

Depending on the requirements, the rules could encourage future exploration in the Arctic or discourage oil companies from operating in the area because of associated costs.

Sen. Lisa Murkowski (R., Alaska) urged Mr. Hayes to make the rules flexible, reflecting the fact that different oil companies employ different technologies and drilling techniques.

In order to receive approval for its exploratory drilling, Shell agreed to construct an Arctic containment system capable of responding to potential blowouts. The company also agreed to have a back-up drilling rig on hand in order to drill a relief well.

It's unclear whether the Interior Department will impose the same requirements on all companies that plan to operate in the region.

Interior Department officials say there are about 26.6 billion barrels of technically recoverable oil in the Alaska outer continental shelf. That's nearly four times as much oil as the U.S. consumed in 2011, according to the Energy Information Administration.

The timeline for future Arctic drilling is uncertain. Shell announced in February it was abandoning plans to drill in 2013 after confronting a series of challenges and mishaps in during the 2012 season. A drilling ship owned by Shell, known as the Kulluk, broke free from ships taking it to Seattle and ran aground on an uninhabited island during a storm.

In April, ConocoPhillips said it was suspending plans to drill off Alaska's north coast in 2014, citing uncertainty in the federal regulations.

Copyright (c) 2012 Dow Jones & Company, Inc.


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