Interior chief Salazar voices doubt on Arctic drilling

ANCHORAGE, Alaska (Reuters) - Interior Secretary Ken Salazar said on Friday he cannot predict whether Royal Dutch Shell, which has invested $3.5 billion in an offshore Arctic oil-development program, will be allowed to drill the five wells it plans next year in Alaska’s Chukchi and Beaufort Seas.

“We will be making that decision in the several months ahead,” he said at an Anchorage news conference, citing pending reports on offshore drilling safety and the results of an investigation into the Deepwater Horizon disaster.

As to whether a decision will arrive in time for Shell to prepare a drilling program for the brief 2011 open-water season, “I don’t know today whether I can give you the answer to that,” he said.

Salazar held the news conference at the end of a brief visit to Alaska, including the North Slope, where the mostly Inupiat Eskimo residents are staunchly opposed to offshore oil development.

Arctic Alaska was not formally included in the moratorium slapped on deepwater drilling in the aftermath of the Gulf oil spill disaster, but a related decision by Salazar delayed exploratory drilling in the region that Shell had expected to conduct this summer and fall.

Officials are not yet confident about drilling safety and oil-spill prevention and response capabilities in the Arctic, Salazar said. “Until we have answered several questions, no drilling will be allowed in the area,” he said at the news conference.

Previous analysis by the Minerals Management Service, now renamed and reorganized, estimated that the Beaufort Sea off northern Alaska holds about 8 billion barrels of recoverable oil and the Chukchi Sea off the state’s northwestern coast holds about 15 billion recoverable barrels.

But pack ice, extreme remoteness and other forbidding conditions make offshore Arctic drilling “a very different kind of challenge” than anything in the Gulf of Mexico, Salazar said.

“If you look at the Chukchi, nothing or very little is known about the reservoir pressure that would be encountered,” he said. “If you look at the Chukchi, it would be very difficult to mount the kind of spill response that was mounted in the Gulf.”

Salazar struck a more optimistic note about potential onshore oil development on federal land.

He said he hopes to strike a compromise that will allow ConocoPhillips to move forward with oil-field development in the National Petroleum Reserve-Alaska that has been stalled by permitting problems.

ConocoPhillips’ had planned to start production as early as 2012 at a relatively small field called CD-5, with oil feeding into facilities at the large Alpine field on state land to the east. CD-5 is envisioned as the site of first commercial production in the vast petroleum reserve, and the gateway to additional development.

But the U.S. Army Corps of Engineers, heeding advice from the Environmental Protection Agency and U.S. Fish and Wildlife Service, late last year denied a permit that would have allowed ConocoPhillips to build a road and bridge to the project over the ecologically sensitive Colville River. The Corps said ConocoPhillips should avoid the bridge and road entirely by establishing a pipeline system beneath the river floor, an option the company considers impractical.

Salazar said he hopes to break the stalemate.

“I want to see whether there is a way that we can address the issues that have been raised by the EPA and the Fish and Wildlife Service. I don’t know that we will be able to do that,” he said.

The history of the petroleum reserve and its mandate to generate oil and gas production “makes it worthwhile to spend some of my own personal time to see if I can bridge some of the differences,” he said.

The Indiana-sized petroleum reserve, located on the western North Slope, was established in 1923 as a potential source of energy for the nation’s military forces. However, there has never been any commercial oil or gas production in the reserve because the big oil discoveries and resulting development were on state land in the central North Slope.

Editing by Bill Rigby and David Gregorio