A regulatory shellacking: BOEM finalizes rules for Arctic OCS operators.

• Author: Hurst, R. Isaak
• Position: SPECIAAL SECTION: Arctic Oil & Gas

The definition of shellacking is "to beat someone up repeatedly." With that idea in mind, it is no exaggeration to say that Royal Dutch Shell took a regulatory and legal shellacking between 2010 and 2015. And it wasn't just a beating from Uncle Sam either; indeed, Native communities, states, NGOs, and even kayaktivists stepped into the ring with Shell to do battle over its right to drill in the Arctic. As we are all aware, Shell won many (if not most) of the legal and regulatory battles it was dragged into. Ultimately, however, Shell lost the war.

Shell memorialized its surrender of the Arctic OCS on September 28, 2015, when it announced in a statement that it would cease further exploration activity in offshore Alaska for the near future. One of principal reasons cited by Shell for pulling out of the Arctic was because of "the challenging and unpredictable federal regulatory environment in offshore Alaska." Challenging indeed. Over the span of five years, Shell was involved in a myriad of high-profile regulatory and legal battles. Interestingly, however, and nearly one year after Shell conceded its Arctic claims, the regulatory fight for the Arctic is still waging in Washington, DC's congressional halls.

On July 15, 2016, the Department of the Interior (DOI), acting through the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE), finalized the regulatory requirements for exploratory drilling on the Outer Continental Shelf (OCS) and published the Final Rule in the Federal Register. This Final Rule focuses solely on the OCS within the Beaufort Sea and Chukchi Sea Planning Areas (herein the "Arctic OCS") and, according to DOI, "is designed to help ensure the safe, effective, and responsible exploration of Arctic OCS oil and gas resources, while protecting the marine, coastal, and human environments and Alaska Natives' cultural traditions and access to subsistence resources." Many commentators, however, claim these new regulations are duplicative, cost prohibitive, and will likely prevent any further investment in offshore oil and gas exploration in the Arctic OCS in the immediate future.

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Below is a brief review of the more controversial aspects of the rule; however, before getting into those details it is worth reviewing some of the more historic events that have led to an increase in the legal and regulatory affairs of the Arctic OCS.

Background--Shell's Legal and Regulatory Adventures in the Arctic

* The April 2010 Deepwater Horizon Oil Spill: The April 2010 Deepwater Horizon oil spill in the Gulf of Mexico shifted the offshore regulatory landscape in a number of ways. First, BOEM, a branch of the DOI, assumed control over the approval of exploration plans, and another DOI branch, BSEE, assumed responsibility for approving Oil Spill Response Plans (OSRPs). Second, following a moratorium on all oil and gas drilling, the DOI issued new rules regarding the content and analysis that operators should provide with its OSRPs. In response, Shell was required to update it OSRPs for the Chukchi and Beaufort seas in May 2011, again in early 2012, and again in August 2014, The DOI eventually approved of Shell's OSRP, but the costs for regulatory compliance were significant. With that, Shell did not exaggerate when it stated that the regulatory environment of the Arctic OCS was 'unpredictable.'

* The Noble Discoverer, the Kulluk, and the Fennica: Although Macondo kicked off enhanced regulatory oversight from the US government, the July 14,2012, storm that caused the Noble Discoverer to drag Its anchor while being moored outside Dutch Harbor furthered the argument that these operations needed more regulatory oversight. Images of the Noble Discoverer, which appeared to show the rig grounded on the rocky beaches of Unataska, started showing up...