Shell's plan for summer Arctic offshore drilling clears major hurdle

WASHINGTON — The Obama administration on Thursday took a major step toward validating the government's 2008 sale of Arctic drilling rights to Shell and other companies.

The move by the Interior Department's Bureau of Ocean Energy Management responds to a federal court ruling against the environmental analysis underpinning that seven-year-old sale, and leaves open the possibility that Shell Oil Co. will resume drilling in the Chukchi Sea this summer.

For now nothing is certain, though the bureau's preferred alternative, outlined in a final environmental impact statement issued Thursday, would affirm the 2008 Chukchi Sea auction and all of the oil and gas leases sold during it.

The final verdict on whether to affirm, modify or vacate that sale rests with Interior Secretary Sally Jewell, who could issue a "record of decision" no sooner than March 25, following a public comment period.

In a statement, Jewell emphasized the Chukchi Sea's "substantial oil and gas potential" as well as its "sensitive marine and coastal resources."

"The updated analysis is a major step toward resolving the 2008 oil and gas leases that have been tied up in the courts for years," Jewell said. "We remain committed to taking a thoughtful and balanced approach to oil and gas leasing and exploration in this unique, sensitive and often challenging environment."

Energy analysts and Arctic drilling advocates have said a March decision on the lease sale — as well as swift government review of Shell's Chukchi Sea exploratory plan — would give the company sufficient time to move drilling rigs and support vessels to Washington state and Alaska in anticipation of drilling this summer.


The company can only launch the work if it wins the ocean energy bureau's approval of its broad exploratory plan for the Chukchi Sea and secures drilling permits from a separate Interior agency.

Shell spokesman Curtis Smith said the company was reviewing the environmental analysis.

"Our 2015 exploration plans for offshore Alaska remain dependent on a number of factors, including our own readiness and legal and regulatory certainty," Smith said.

The Interior Department was forced to redo its estimate of how much crude would be extracted from the Chukchi Sea leases up for sale in 2008 after the 9th Circuit Court of Appeals ruled last year that an initial calculation was arbitrary.

At the time, regulators said up to 1 billion barrels of oil were economically recoverable from the available leases.

In the final environmental impact statement — as well as a draft released in October — the bureau proposes a new estimate: 4.3 billion barrels of oil and 2.2 trillion cubic feet of natural gas.

The agency said its new, higher estimate is based on better information about where oil companies' interests lie and a deeper understanding about geologic structures in the region. In revising its estimate, the bureau partly relied on actual bidding data from the disputed 2008 auction, which brought in a record $2.6 billion in high bids.

The biggest bidder, by far, was Shell, which spent $2.1 billion buying Chukchi Sea acreage. Six other companies also nabbed territory in those Arctic waters north of Alaska.

Regulators also boosted their calculation on the risk of oil spills as a result of drilling and development in the region. The environmental assessment concludes there is at least a 75 percent chance of at least one large spill that releases more than 1,000 barrels of oil over a 77-year timeframe.

Abigail Ross Hopper, the ocean energy bureau's director, said in a statement that the environmental impact statement released Thursday reflects a careful analysis of more than 400,000 comments on the draft, as well as the "best available science and additional information."

Legal questions have surrounded the 2008 auction since even before it was held, and environmentalists have successfully challenged the auction on two occasions. The January 2014 ruling follows a separate decision in 2010 that the lease sale was held in violation of a federal environmental law that requires a full analysis of species that could be affected.

Environmentalists on Thursday questioned the wisdom of the new environmental impact statement, coming weeks after President Barack Obama moved to wall off part of the Chukchi Sea to oil drilling and other activities.

Michael LeVine, Pacific senior counsel for the conservation group Oceana, said the administration's policy in the Arctic Ocean amounts to "take one step forward and two steps back."

"It makes little sense to protect important habit in the Chukchi Sea by withdrawing it from leasing then almost immediately put it at risk by recommitting to a lease sale that has been found to be illegal twice," LeVine said.

John Deans, a Greenpeace Arctic campaign specialist, said the environmental analysis "contradicts the administration's own climate recommendations and ignores the best available science on the dangers of burning extreme fossil fuels."

"Global scientists are demanding government leaders leave carbon like Arctic oil in the ground to avoid catastrophic climate change," Deans said. "If President Obama lets Arctic drilling go forward, he'll be choosing the side of corporate greed over the people."