The move puts Woodside and Shell on a fresh collision course with environmental groups, which say exploring for oil and gas so close to the coral atolls is fraught with danger because of the risks of an oil spill and the threat posed to marine life during seismic surveys.
Divers and green groups say the Rowley Shoals, 300km off the coast, rival the Great Barrier Reef for their spectacular coral and marine life but few Australians are aware of them because of their remote location.
The offshore drilling campaign comes as the federal government prepares to release another three exploration permits that are even closer to the Rowley Shoals Marine Park.
The Department of Resources, Energy and Tourism last year invited the petroleum industry to bid for the new permits in federal waters. It said the Rowley sub-basin, which has waters up to 5000m deep, was "under-explored" and potentially prospective for oil and gas.
The rapid increase in exploration activity in the area comes after Shell last year overcame opposition from green groups to start drilling for oil and gas about 50km from the edge of Western Australia's World Heritage listed Ningaloo Reef.Bids for the three latest exploration blocks close tomorrow.
Woodside is also engaged in a battle with environmentalists who are opposed to its plans to build a $35 billion gas plant at James Price Point on the Kimberley coast.
There is heightened sensitivity about safety in the the oil and gas industry after the disastrous Montara oil spill off Western Australia's coast in 2009 and BP's Deepwater Horizon spill in the Gulf of Mexico in 2010.
WWF's director in WA, Paul Gamblin, said he was extremely concerned that the Gillard government was releasing acreage in environmentally sensitive areas at an accelerated pace.
"The Rowley Shoals is a very clear example of what should be a no-go area for the oil and gas industry," Mr Gamblin said.
"Instead of that, we are seeing the government use the acreage release program, which has no public comment opportunity and no environmental assessment, to roll out the opportunity for industry to undertake exploration activity and production. It starts a process that is pretty much unstoppable."
Federal Environment Minister Tony Burke said last night that his department had provided advice to the Department of Resources, Energy and Tourism, "highlighting the matters of national environmental significance that occur within or in the vicinity of the proposed releases".
"This included identification of key ecological features such as the Rowley Shoals," Mr Burke said.
"Whilst acreages have been released by DRET, under the EPBC Act any person (or company) proposing to take an action that is likely to have a significant impact on a matter of national environmental significance must refer their proposal to the department to establish whether further assessment and approval is required before it can proceed.
"All proposals referred to the department are assessed on a case-by-case basis, and are subject to a rigorous and transparent assessment process, including an opportunity for public comment."
The federal government said last year that Woodside and Shell would spend about $350 million searching for oil and gas in three exploration areas known as W10-3, W10-4 and W10-5. Each permit is about 3590sq km.
The companies are operating in a joint venture, with Woodside holding 55 per cent.
It is understood the Woodside-Shell venture plans to start exploring in the permit areas this month.
A spokeswoman for Woodside declined to comment on whether the company would bid for the three additional blocks being offered near the Rowley Shoals.
But she said Woodside had a long history of successfully conducting offshore drilling in Western Australia. "All our drilling activities are undertaken in accordance with legislative requirements and meet the requirements of good industry practice," she said. "Each well we drill is subject to rigorous environmental risk assessments and planning to develop an environmental plan which is approved by the regulator before drilling commences.
"A two-barrier standard applies to all Woodside-operated drilling operations, which ensures there are at least two tested barriers in place at any time to prevent reservoir fluids flowing to the external environment."
Experienced diver and underwater cinematographer Richard Todd said the Rowley Shoals rivalled the Great Barrier Reef and Ningaloo Reef for the diversity of coral, abundance of fish and water visibility. "It's a world-class diving destination," he said.
Mr Todd, who has worked around the world for the past 15 years, said he was opposed to any oil exploration near the shoals. "It's ludicrous -- it's bordering on insanity, really," he said.
The Rowley Shoals Marine Park, which encompasses the two southernmost atolls, is managed by the West Australian Department of Environment and Conservation. The northernmost Mermaid Reef is administered by the federal government and is part of a marine nature reserve.
None of the drilling will take place in these areas, but will come within about 10km of the 4km exclusion zone surrounding the atolls. The DEC says 233 species of coral and 688 species of fish inhabit the shoals.
"Today the shoals rank among the most remote and pristine marine areas in the world," the department says on its website.
"Lying on the very edge of Australia's continental shelf, they are regarded as the most perfect examples of shelf atolls in Australian waters."
The DEC declined to comment yesterday.