Washington (Platts)--30Aug2012/617 pm EDT/2217 GMT

The US Interior Department said Thursday that Shell can drill "top holes" into non-oil-bearing zones and make other preparations for an exploratory well in Alaska's Chukchi Sea.

But Interior Secretary Ken Salazar said the company must meet several requirements before the agency would consider granting permits for the closely watched Arctic drilling program.

"At this point, we don't know what exactly is going to happen with Shell and whether they're going to be able to complete a well in the Arctic this year," Salazar told reporters during a conference call to announce the decision. "The situation remains dynamic."

The Bureau of Safety and Environmental Enforcement's approval of "certain limited preparatory activities" allows Shell to create a mudline cellar, which will protect the blowout preventer below the seafloor, and drill and set the first two strings of casing into shallow non-oil-bearing zones.

A major hurdle for Shell has been securing certification for the Arctic Challenger, an oil-spill response vessel that remains in Bellingham, Washington, weeks after the company had hoped to send it toward Alaska's North Slope. BSEE will perform a final examination of its containment system after the Bureau of Shipping and the Coast Guard sign off on the vessel's safety.

Salazar said Shell indicated the Arctic Challenger might get that clearance within four or five days.

"If and when Shell is able to meet these conditions, which have been in place for many months, BSEE will then be in a position to issue a final permit for Shell to drill into oil-containing formations," Salazar said, repeating the statement that any approved Arctic drilling would be held to the highest safety, environmental-protection and emergency-response standards. "That is a non-negotiable item."

If Shell secures an exploration permit for the Chukchi, current regulations require it to cease all drilling activities into potential hydrocarbon-bearing zones by September 24 to leave time to clean up a potential oil spill before sea ice moves into the area.

SHELL SEEKS TWO-WEEK DEADLINE DELAY

Shell asked regulators this month to push back that deadline by two weeks to give it time to complete a well. It cited evidence that ice might start encroaching later than usual this year.

Salazar declined to address that extension request.

"It is absolutely premature to even address the issue today because until the Arctic Challenger gets the necessary certifications, we don't even know whether there's going to be exploration down to the oil-bearing formations," he said. "So we'll address that issue when it is appropriate to address it."

Shell spokesman Curtis Smith said Thursday's approval reflects the national importance of Alaska's offshore energy resources.

"Shell is now only days away from responsibly beginning this critical exploration project and, once again, making energy history offshore Alaska," Smith said. "When the Noble Discoverer reaches its respective drill site, it will connect with anchors that have been pre-staged in the Chukchi Sea and drilling will commence."

Smith said Shell has dedicated more than six years to gaining the confidence and trust of regulators to start the project.

"We appreciate the effort the Department of Interior has made to understand and promote this project of national significance," he said. ""In the weeks ahead we look forward to operating safely and responsibly, putting Americans to work and finding out even more about the oil and gas reserves that are believed to be hidden under Alaska's Chukchi Sea."

Alaska's two US senators praised the approval, however limited.

Senator Lisa Murkowski, a Republican, called the decision a positive step that will allow Shell to get started while maintaining the highest environmental standards to ensure the protection of the Arctic.

"While we would all like to see a discovery this summer, the most important thing is for Shell to continue to make progress and demonstrate once again that Arctic drilling can be done safely," she said in a statement.

Senator Mark Begich, a Democrat, said the decision shows flexibility without sacrificing safety.

"This allows us to get one step closer to understanding and moving forward on the energy potential of the Arctic," he said.

--Meghan Gordon, meghan_gordon@platts.com
--Tim Bradner, stringer@platts.com
--Edited by Robert DiNardo, robert_dinardo@platts.com

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