Court ruling’s impact on existing Alaska OCS leases uncertain

A federal appeals court ruled a portion of the environmental impact statements prepared prior to federal oil and gas leasing off Alaska’s Arctic coast was improperly prepared, and sent the matter back to the district court that heard the lawsuit for further action.

But it was not immediately clear what impact, if any, the Ninth US Circuit Court of Appeals’ Jan. 22 decision would have on Chukchi Sea leases awarded to Shell Gulf of Mexico Inc., ConocoPhillips Co., and Statoil USA E&P Inc. in OCS Lease Sale No. 193 on Feb. 6, 2008.

In the opinion written by Judge William A. Fletcher, a three-judge panel ruled that the final and supplemental EISs prepared by what was then the US Minerals Management Service properly took account of incomplete or unavailable information.

It added, however, that Lease Sale 193’s final EIS’s reliance on an estimate of 1 billion bbl of total economically recoverable crude from beneath the Chukchi Sea was arbitrary and capricious, and sent the matter back to the lower court.

Some early estimates in 2005 of recoverable Chukchi Sea crude, when work began on the EIS, were as high as 12 billion bbl, according to the opinion. It said MMS’s successor agency, the US Bureau of Ocean Energy Management, said 1 billion bbl was used to reflect conservative crude oil price projections and unknown costs from operating in an Arctic offshore environment.

Partial dissent

In a partial dissent, Judge Johnnie B. Rawlinson concurred with most of the opinion but questioned whether the agency’s decision to use the 1 billion bbl estimate was arbitrary. Selection of that amount was the product of agency expertise based on indications that substantial development obstacles made it unlikely future Chukchi Sea production would ever reach its full economic potential, she wrote.

BOEM is aware of the Ninth Circuit’s decision, but does not comment on ongoing litigation, a spokesman told OGJ on Jan. 23. The National Ocean Industries Association also did not comment immediately.

Environmental organizations, which originally sued to vacate the sale in 2010, applauded the Ninth Circuit’s decision. “This decision confirms that it made no sense at all for the Bush administration to lease the Chukchi Sea to the oil industry when we know next to nothing about how that activity will impact those waters and its marine life, as well as the people who have relied on the Chukchi Sea for thousands of years as their ‘garden,’” Cindy Shogan, executive director of the Alaska Wilderness League, said on Jan. 22.

“Rather than risking a Deepwater Horizon-like disaster in the Arctic by Shell Oil or other leaseholders, the Obama administration should recognize the unique challenges of drilling in the Arctic, including the risks associated with climate change, the lack of scientific data and knowledge about the Arctic, as well as the lack of technology and means to clean up a spill in its often harsh and chaotic conditions,” Shogan said.

Contact Nick Snow at nicks@pennwell.com

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