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Appeals court rules 2008 Chukchi Sea lease sale fell short on considering oil impacts

Yereth RosenAlaska Dispatch News

A federal appeals court on Wednesday ruled that the U.S. Department of Interior failed to properly consider environmental risks of oil drilling in the Chukchi Sea, casting new doubt on the record offshore oil and gas lease sale that awarded exploration tracts to Shell and other resource giants in 2008.

The Bureau of Ocean Energy Management, when it considered potential spills and blowouts, improperly relied on an estimate of 1 billion barrels of recoverable oil from a hypothetical first Chukchi Sea production project, the 9th Circuit Court of Appeals said.

That estimate, which environmentalists and Alaska Native plaintiffs contended vastly understated potential production and impacts, was “arbitrary and capricious” and must be reconsidered.

Now it’s up to a federal court judge in Alaska to find a way to fix the lapses, said the 9th Circuit Court, which remanded the case to that lower court.

BOEM’s 1 billion barrel analysis was itself part of remedial environmental analysis that had been ordered in 2010 by U.S. District Court Judge Ralph Beistline. At that time, Beistline ordered BOEM to fix omissions and deficiencies in the pre-sale environmental studies done by the predecessor leasing agency, the Minerals Management Service.

Beistline also placed a hold on exploration activities on Chukchi Sea leases, meaning Shell was not allowed to do any actual on-site exploration drilling until BOEM addressed the environmental analysis problem. BOEM issued a supplemental environmental impact statement on Aug. 18, 2011, which won Beistline’s blessing, and ultimately Shell was allowed to start drilling attempts in 2012.

Wednesday’s ruling is the latest milestone in a long history of litigation over plans to drill in the Chukchi Sea, the shallow, remote, ice-clogged area off Northwest Alaska that is believed to hold large untapped deposits of oil but also important ecological resources that are already vulnerable to Arctic climate change.

The 2008 Chukchi lease sale drew $2.6 billion in high bids, a record for Alaska. Shell, the most aggressive of the companies, spent about $2 billion of that.

Environmental and Native groups have been contesting the lease sale, the environmental analysis that justified it and the exploration plans that resulted from it. The Interior Department and oil industry -- led by Shell -- have been defending the development ambitions, citing potential for huge discoveries. 

The most likely outcome of Wednesday’s ruling is a repeat of Beistline’s 2010 order halting exploration activities on the leases held by Shell and others until environmental analysis is reconsidered, said Michael LeVine, Pacific senior counsel for the environmental group Oceana, one of the plaintiffs in the case.

“I certainly think at a minimum this should result in no activities on the leases that were sold improperly,” LeVine said.  

But the plaintiffs contend that events since 2008 have shown that the entire sale was rushed and should be set aside, he said.

“This is the second time that this has been sent back to the government,” LeVine said. The government is obliged to do proper studies before selling leases and allowing exploration drilling, he said. “If the government can’t take that obligation seriously, then it should invalidate the leases and start over. That’s the argument we’ll take to the District Court.”

The most recent Department of Interior analysis estimates the Chukchi holds 15 billion barrels of recoverable oil.

Shell, which has submitted a revised plan to continue drilling in the Chukchi after its ill-fated 2012 season, issued a terse response to the ruling.

“We are reviewing the opinion,” company spokeswoman Megan Baldino said in an email.

Shell’s revised plan calls for the company to complete the well it began in 2012 and to drill another five at its Burger prospect, located about 70 miles offshore in the Chukchi.

BOEM spokesman John Callahan said the agency cannot comment on current litigation.​BOEM was not immediately available for comment.

Shell’s 2012 season was fraught with mishaps and logistical problems, capped by the New Year’s Eve grounding of its Kulluk drill ship, the vessel the company had mobilized for drilling at its Sivulliq prospect in the Beaufort Sea. The Kulluk grounded in the Gulf of Alaska while being transported out of state for off-season upgrades. The ship was so badly damaged that it will not be put back into service in Alaska, Shell announced in October.

The company’s 2014 plans omit the Beaufort entirely, dropping an earlier plan to drill simultaneously in both offshore Arctic regions.

Aside from Shell, the most active Chukchi leaseholders have been ConocoPhillips and Statoil. ConocoPhillips had proposed drilling at its Devils Paw prospect as early as 2014 and was seeking permits from federal agencies.

But the company last May asked BOEM to defer action on the plan it submitted in 2012. 

Statoil, which is a partner with ConocoPhillips on some leases, has conducted seismic surveys but has yet to submit a formal exploration program.

Environmentalists, in a joint statement, said the Obama administration should respond to the ruling by voiding the leases sold six years ago.

“There is no way to safely drill for oil in such severe Arctic conditions in the Chukchi Sea,” Kevin Harun, Arctic program director for Pacific Environment, said in a statement.  “This decision is a victory for our environment and the indigenous peoples who depend on pristine Arctic waters for their subsistence and food security.”

“We’ve known for years that the sale of these leases was premature and that neither the federal government nor the industry is ready to safely develop oil and gas resources in the Chukchi Sea,” Nicole Whittington-Evans, Alaska director for The Wilderness Society, said in another statement. “The Obama administration should take this opportunity to reconsider allowing oil and gas activities in the Arctic Ocean, particularly in light of the administration’s commitment to address climate change.”

Contact Yereth Rosen at yereth(at)alaskadispatch.com.