FAIRBANKS - Phillips Alaska Inc. is dropping its plans to drill an exploratory well in the Beaufort Sea.
Conditions set by the Alaska Department of Environmental Conservation for a state permit forced the company to back off from the McCovey Prospect, Phillips said in a letter to the state.
"In our opinion, the proposed stipulations go far beyond any interpretation to date of what could be viewed as 'reasonable terms and conditions' that ADEC may attach to plans it approves (under statute)," the company complained in the letter.
But DEC spill prevention manager Susan Harvey said the state requirements were nothing unusual, and that Phillips executives told her the project was snagged by its own questionable economics.
Phillips spokeswoman Dawn Patience would not elaborate on the decision to halt the project.
"We've spent a lot of time and effort on the McCovey Prospect," Patience said. "It seems as though we were not really moving forward."
The company intends to re-evaluate the project later, she said.
The project drew strong opposition from the North Slope Borough government and was the subject of lawsuits filed by environmentalists and a group of area Inupiat. The North Slope Borough said Phillips underestimated the ice forces of the area and that existing spill response methods would be ineffective.
Offshore oil development in the Arctic is a subject of intense controversy. Many North Slope residents think a spill could threaten the whales, fish and seals they use for food.
The McCovey Prospect is a dozen miles off the coast. Phillips, with partners Chevron and Alberta Energy, planned to drill an exploratory well from an ice island connected to Prudhoe Bay by an ice road.
The plan got federal approval, but also required a state review.
Phillips wanted to do the work this past winter, but postponed it a year due to the delay in getting a state permit.
Then, on April 30, Phillips withdrew its permit request entirely.
DEC and other state agencies had several concerns about the McCovey exploration plan, which Harvey said was unique.
DEC's worries included the stability of the proposed ice island and the type of drilling rig to be used. The agency wanted to ensure there was adequate ice monitoring and a spill prevention and response plan, she said.
"We don't think these are unusual or onerous requirements," Harvey said. "Other operators are working in that context."
But Ken Boyd, former director of the state's oil and gas division, thinks Phillips was blocked by a DEC mandate that drilling be shut down by April 1.
"If everything's the same as it was before, then why was the project stopped?" he said. "This was a big project." Companies were on the ice into May on earlier projects, he said.
Boyd, a geologist, is now a consultant for a group lobbying to open the Arctic National Wildlife Refuge to oil development.
DEC's Harvey said the agency was following regulations dating from the early 1980s, with no recent changes. In order to operate later in the year, the company would have to demonstrate it could clean up a spill in broken ice, she said.
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