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Vol. 13, No. 48 Week of November 30, 2008
Providing coverage of Alaska and northern Canada's oil and gas industry

No to drilling

9th Circuit Court says that MMS assessment of Shell’s plan was inadequate

Alan Bailey

Petroleum News

Nearly a year after it heard oral arguments in the appeals against the U.S. Minerals Management Service approval of Shell’s Beaufort Sea exploration plan, the U.S. Court of Appeals for the 9th Circuit has finally issued its decision in the case. On Nov. 20 the court issued a 57-page opinion in which a majority of a panel of three judges from the court upheld the appeals, saying that MMS had not conducted an adequate environmental evaluation of Shell’s plan. One judge dissented from the opinion.

The 9th Circuit lawsuit merged three different appeals involving the North Slope Borough, the Alaska Eskimo Whaling Commission and several environmental organizations.

The court requires that MMS prepare a revised environmental assessment for Shell’s exploration plan and, if necessary, prepare an environmental impact statement before the plan can be approved. The court also denied a request by Shell to lift the injunction that the court has placed on the company’s planned Beaufort Sea drilling since August 2007. Shell wants to drill some exploration wells in its Sivulliq prospect on the western side of Camden Bay offshore the eastern North Slope.

However, the court did uphold the MMS analysis of the potential impact of oil spills that might result from Shell’s drilling.

“Despite any other insufficiencies, MMS’s environmental analysis does adequately examine the impacts of a potential crude oil spill,” said Judge Dorothy Nelson in the court’s majority opinion. “…The agency’s assessment makes the proper inquiry into the risk of an oil spill, and no further analysis is required in relationship to this exploration plan.”

MMS disappointed

MMS has expressed its disappointment at the court’s decision. The agency said that it had completed an extensive environmental assessment of Shell’s exploration proposals, supported by a 1,596-page environmental impact assessment.

“Over the past 30 years MMS has funded nearly $300 million for environmental studies concerning Alaska waters,” MMS said. “… Alaska and its adjacent offshore areas have great potential for increasing our energy security.”

On the other hand, Mayor Edward Itta of the North Slope Borough welcomed the court ruling.

“The court has confirmed the legitimacy of our argument,” Itta said. “It agreed that MMS did a woefully inadequate job in its assessment of the potential impacts to the bowhead whale and other marine life, as well as to our traditional bowhead subsistence harvest. I don’t think MMS took their job seriously enough. Maybe now they will.”

Shell spokeswoman Darci Sinclair expressed her company’s disappointment.

“We believe the MMS did a thorough job and that Shell has met or exceeded requirements for responsible Arctic exploration,” Sinclair said. “Shell is committed to operating safely and responsibly and will continue to comply with all regulatory requirements.”

The court decision will extend the time that it takes to bring much-needed U.S. oil production on line, she said.

“While we assess our options, it’s important to remember that we hope to make Alaska a long-term commitment for Shell,” Sinclair said. “We believe developing offshore Alaska is the right decision for the citizens of Alaska and the state’s economy and will help provide a secure energy future for the United States.”

Another EIS?

At the core of the appeals against approval of Shell’s exploration plan lay the question of whether the EIS that MMS conducted for its Beaufort Sea lease sale program analyzed in sufficient detail the types of activity that Shell proposed in its plan, or whether the exploration plan should have triggered a new EIS.

Under the terms of the National Environmental Policy Act, MMS uses a tiered approach to environmental permitting, in which a broad EIS prior to the start of an offshore lease sale program determines whether lease sales should proceed. Further EISs may be done subsequently, targeting specific exploration or development activities that might have a significant environmental impact not fully considered in the earlier, broader EIS. A proposal to develop an offshore oil field, for example, would almost certainly trigger the need for a new EIS specific to that development.

The development of an EIS is a complex process that typically takes several years to complete.

MMS had published a comprehensive multi-sale EIS for its Beaufort Sea oil and gas leasing program. Then, when Shell submitted its Beaufort Sea exploration plan, MMS conducted an environmental assessment that concluded that the company’s planned operations came within the scope of the multi-sale EIS and could proceed.

But during oral arguments in the 9th Circuit case the appellants vehemently disagreed with the MMS position.

“Here you have a cursory EA (environmental assessment) that fails to assess the actual drilling proposals’ effects on whales and completely refuses to analyze the potential for a crude oil spill and its effects on that environment,” Dierdre McDonnell, the attorney representing the Alaska Wilderness League and environmental organization REDOIL, told the judges.

“The Minerals Management Service simply does not know enough about the potential impact on the Arctic environment to approve a three-year exploration plan and environmental assessment,” said Christopher Winter, attorney for the North Slope Borough and Alaska Eskimo Whaling Commission. The noise from drill ships and icebreakers would deflect bowhead whales from their normal migration routes, thus creating a major safety risk to whaling captains and crews and threatening a key source of food for North Slope communities, Winter said.

MMS for its part said that it had adequately taken account of the potential impacts of Shell’s planned Beaufort Sea drilling activities.

MMS has imposed very specific mitigation measures through the terms of its leases, said David Shilton, attorney for MMS. One of those measures is the requirement for a conflict avoidance agreement with the subsistence hunters, he said.

“Shell must sit down with the subsistence whalers and hammer out an agreement to protect their subsistence hunting, and that is something that has been done over the years successfully,” Shilton said. “… This year there was a conflict avoidance agreement which would have had Shell pull all of their assets off of the drilling for the time that whale hunters were out there.”

Court agreed

The majority of the judges on the 9th Circuit panel agreed with the petitioners’ concerns about the potential impact on wildlife of noise originating from specific Beaufort Sea drilling activities.

“MMS has not provided a convincing statement of reasons explaining why Shell’s exploratory drilling plans at these specific sites would have an insignificant impact on bowhead whales and Inupiat subsistence activities,” Nelson said. “As a result, we are unpersuaded that MMS took the requisite ‘hard look’ at the environmental impact of this project. There remain substantial questions as to whether Shell’s plan may cause significant harm to the people and wildlife of the Beaufort Sea region.”

The court accepted the MMS tiered approach to environmental permitting under the National Environmental Policy Act, and said that the agency could conclude that a new environmental impact statement would not be needed for Shell’s exploration plan if the agency could make a finding of no significant impact, or FONSI, for Shell’s exploration activities.

But the judges quoted case law that says “An EIS must be prepared if ‘substantial questions are raised as to whether a project ... may cause significant degradation of some human environmental factor.’ … If an agency finds an EIS is not required and issues a FONSI, it must provide a ‘convincing statement of reasons’ to explain its decision.” And the judges said that the MMS environmental assessment of Shell’s Beaufort Sea exploration plan had failed to adequately consider several potential impacts of Shell’s drilling activities.

Impact of noise

In particular, there is insufficient analysis of the impact of drilling-associated noise on bowhead whales’ migration routes — Shell’s exploration plan envisages the use of two drilling vessels and two associated icebreakers for the Beaufort Sea drilling, Nelson said.

“The multi-sale EIS discusses, in a general sense, the impact of noise on bowhead whales, citing a number of studies that have been conducted on the topic,” Nelson said. “However, that document contains no studies that analyze the effects of noise from a project with two drillships and two icebreakers. … Moreover, studies cited in the multisale EIS use varying methodologies and come to inconclusive results.”

The environmental assessment for Shell’s exploration plan “gives only a brief description of the level of noise the individual drillships in Shell’s proposal could make, but does not examine the combined effect of all vessels operating simultaneously,” Nelson said. And there is no evidence that a National Marine Fisheries Services biological opinion cited by MMS “relies on studies involving two drillships and two icebreakers,” she said.

The court majority opinion also says that MMS has recognized that even a single operating drillship can deflect migrating bowhead whales.

And the judges discounted the use of a whale monitoring program as a means of mitigating the impacts of drilling noise. The monitoring program proposed to accompany the Shell drilling “could detect impacts after they occur” rather than providing a buffer against the impacts, Nelson said.

“In sum, MMS abrogated its NEPA duties because neither the environmental assessment nor the documents it tiers to consider the specific parameters and potential dangers of Shell’s project,” Nelson said. “There is substantial uncertainty about how various levels of noise would affect whales and their migratory patterns.”

Subsistence hunting

MMS has also failed to take a “hard look” at the impact of Shell’s project on subsistence hunting, Nelson said. And relying on annual conflict agreements between Shell and the whale hunters does not meet the required legal standard, she said.

“The conflict avoidance agreement process is too vague and uncertain as a mitigation measure to justify the agency’s decision not to engage in further analysis,” Nelson said. “Conflict avoidance agreements come about through a voluntary process and are renegotiated every year. The agency is not party to the process, and any agreement made is not legally binding.”

And neither the EIS for the lease sale nor the environmental assessment for Shell’s exploration plan adequately considered potential impacts on the subsistence hunting of mammals other than bowhead whales, or on subsistence fishing, Nelson said.

“The EA ultimately concludes that Inupiat communities may suffer cultural consequences from drilling activities, but does not state whether these effects will be ‘significant,’” Nelson said. “Instead the EA relies on mitigation measures in the hopes that they would ameliorate any harm done. … These mitigation measures do not go far enough to rectify the potential that Shell’s project will cause substantial harm to Inupiat communities on Alaska’s northern shore.”

The court also said that, by approving Shell’s exploration plan without the company specifying exactly which wells it would drill in each year of the plan, MMS had violated the Outer Continental Shelf Lands Act.

Dissenting opinion

Judge Carlos Bea dissented from the majority decision, saying that the court could not overturn the MMS exploration plan approval on the grounds that the approval was arbitrary or capricious.

For its Beaufort Sea lease sale program MMS had prepared a 1,500-page multi-sale environmental impact statement that “discussed potential environmental effects from the development of each of Shell’s lease-sale sites,” Bea said. And, for Shell’s exploration plan, the agency had prepared an additional 100-page environmental assessment “that supplemented the multi-sale EIS for two of Shell’s lease plots about which MMS decided additional information was needed,” he said.

The petitioners and the majority on the panel of judges do not want MMS to “use its extensive prior work to inform its decisions on individual leases,” but instead they want the agency to prepare a new EIS for each lease, Bea said.

“This is worse than re-inventing the wheel: this is re-inventing the wheel for each wheel of the car,” he said.

The process will be expensive, time-consuming and largely duplicative, thus defeating the purpose of National Environmental Policy Act regulations that encourage tiering of NEPA documents, he said.

MMS Expertise

And Bea said that it was not appropriate for the court to overrule the MMS expertise regarding the interpretation of research results relating to the impacts of exploration activities on bowhead whales. Instead, the court’s role is to verify that the agency has taken the appropriate factors into consideration, considered all important aspects of the problem and offered a plausible explanation for its decision, he said.

“MMS gave a ‘hard look,’ by any stretch of the term, to whether Shell’s plans would disrupt the bowhead whale’s migratory habits,” Bea said. “The expert agency (MMS) to which Congress delegated its authority concluded Shell’s plan would not disrupt the bowhead whales to an extent necessary to require an additional costly EIS (or ‘revised’ EA).”

Bea said that the multi-sale EIS had also taken into consideration the cumulative impacts of multiple operations that might result from Beaufort Sea lease sales.

And Beau dismissed the majority argument that Shell should have precisely specified the location of each well to be drilled in each year of the exploration plan. The Outer Continental Shelf Lands Act allows MMS some discretion in the amount of detail that an exploration plan need contain, while the type of well location information that Shell had provided was sufficient to satisfy MMS regulations, he said.

“The majority’s demand (that) Shell provide exact locations of wells before approval of its exploration plan, when those exact locations depend on what happens with the earlier wells which must be explored pursuant to the exploration plan, is a catch-22,” Bea said.

Bea also said that the appeals should be dismissed because three of the petitioners had filed their appeals more than 60 days after MMS approval of Shell’s exploration plan, thus exceeding the time allowed under the applicable statute of limitations. The petitioners did file appeals with Interior Board of Land Appeals within the required 60 days. However, under federal law, administrative appeals relating to Beaufort Sea outer continental shelf exploration have to be filed with the 9th Circuit court — the appeals were eventually filed in the court 96 days after the MMS decision.

The majority of the 9th Circuit panel of judges took an alternative view that during the period that the appeals were being considered by the Interior Board of Land Appeals the appeals were in effect “tolled,” or placed on hold. As a consequence, the statutory 60-day period for appeal of the MMS decision was not exceeded, the majority said.

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Responsible development

The U.S. Minerals Management Service has estimated major oil and gas resources in the Arctic offshore and the United States needs these resources to reduce its dependence on foreign oil and gas, Pete Slaiby, Shell’s Alaska general manager, told the Resource Development Council’s annual conference on Nov. 19, the day before the U.S. Court of Appeals for the 9th Circuit remanded the MMS approval of Shell’s Beaufort Sea exploration plan. Slaiby was talking about Shell’s current and planned activities in the Beaufort and Chukchi Seas.

“The choices are clear,” Slaiby said. “We can continue to import more oil and gas. … Or we can develop our own domestic resources. Producing more oil and gas in our own country is no losing proposition. It provides real economic and social and security benefits.”

And Slaiby described his company’s frustration at not having started any Beaufort Sea drilling, as a consequence of litigation and permitting delays.

“We believe we have what is arguably the most environmentally sensitive and thoroughly responsible exploration program in history,” Slaiby said. “But with permit slippage and litigation delay it’s very difficult to say what 2009 will look like. … For every day we aren’t drilling we only serve to increase the timeline when we won’t be delivering crucial oil for both Alaska and the nation.”

There hasn’t been a platform blowout in the United States for more than 30 years and there has never been a blowout in the Arctic, Slaiby said.

“Shell has the best technology in the world for protecting against a spill,” Slaiby said. “… But if there were a spill Shell has put in place unprecedented, on-site, 24-7 oil spill response plans. That includes Arctic rated skimmers, booms, tankers, helicopters and ice breakers. In the extremely unlikely event that a discharge were to occur, our assets would be on site in minutes.”

De facto moratorium

Slaiby said that it was nearly a year since the 9th Circuit court had heard oral arguments in the appeal against approval of Shell’s Beaufort Sea exploration plan. The delay in the court decision amounted to a de facto drilling moratorium “and one that the country cannot afford,” he said.

Slaiby also commented on the fact that Shell still does not have an Environmental Protection Agency air quality permit for its Beaufort Sea drilling vessel because of appeals against that permit.

“The EPA issued an air permit for one drilling rig that has yet to see the light of day because of the number of appeals it has been through,” Slaiby said. “… The impact this rig has is miniscule when one looks at the total magnitude of discharge. It would be the equivalent of one ocean-going vessel traversing the seas for two months. … We’ve spent $11 million chasing after this permit. I don’t know how much the government has spent of our money continuing to go after this permit as well.

“… It’s time to dialogue responsible energy and exploration policies … in city halls and assembly chambers, and outside of the courts. The alternative to this in the courtroom, I believe, is not benefiting anybody.”

Staffing shortages in regulatory agencies are also slowing the regulatory process, Slaiby said.

Jobs and careers

Slaiby said that Shell wants to provide good paying jobs and careers for Alaskans. He cited the case of a young man who had been born in Kotzebue and had grown up in Barrow on the North Slope, and who had obtained a job with Shell on an oil spill response vessel. After also working as a marine mammal observer on a Shell supply vessel, the man is now working on a Gulf of Mexico platform and in Shell’s Anchorage office. He is also in the process of obtaining a degree from the University of Alaska.

“He’s a hard worker … and we’re very pleased that he’s decided to make a career with Shell,” Slaiby said.

Shell is also proud to be working with Mayor Edward Itta’s staff in the North Slope Borough’s wildlife department on the collection of environmental data, Slaiby said.

“Since 2006 and really just ending before we started this last open water season we had spent close to $40 million and we have more work planned on scientific data acquisition,” Slaiby said. “Shell is proud of this science work.”

During the 2008 open water season Shell operated acoustic recorders, aerial overflights, vessel observations and tagging programs. Those operations formed part of a continuing program to acquire “first-of-a-kind” data from both the Chukchi and Beaufort seas on topics such as marine mammal migration patterns, feeding habits and seismic noise deflection, Slaiby said.

Shell also conducted 3-D seismic surveys in the Beaufort and Chukchi seas during the open water season. And despite a great deal of offshore activity, the company experienced a safe and productive year.

“It appears by all accounts that the subsistence hunting was once again safe and successful,” Slaiby added.

Slaiby stressed the importance that his company attaches to having a positive impact on the local communities and said that the company’s search-and-rescue helicopter had saved several lives over the past couple of years. The company has established communications centers in North Slope communities.

“Shell helped expand the communications centers on the North Slope and these centers were used by everyone in the open water season during last summer, including Shell,” Slaiby said. “It’s really helping us share a very precious commodity which is the open water time on the Arctic Ocean.”

Slaiby also said that Shell strongly supports revenue sharing of outer continental shelf federal oil and gas revenues with the state and local communities. The company is doing whatever it can to see that revenue sharing comes to Alaska, he said.

—Alan Bailey

Not so fast

Edward Itta, mayor of the North Slope Borough, told the Resource Development Council’s annual conference on Nov. 19 that he was always glad to share discussions about the challenges of offshore development with Shell and with the U.S. Minerals Management Service.

“While we are often on opposite sides of offshore development issues … I sincerely believe that we all have authentic desires to work together in pursuit of the elusive middle ground that benefits everyone who has an interest in the Arctic Ocean,” Itta said.

Itta said that the North Slope Borough has been involved in the appeal in the U.S. Court of Appeals for the 9th Circuit against approval of Shell’s Beaufort Sea exploration plan and in the appeal against the Environmental Protection Agency air quality permit for Shell’s Beaufort Sea drilling vessel.

These lawsuits reflect the borough’s fundamental concerns about Arctic offshore oil and gas exploration and development, he said.

“These concerns and the failure of federal agencies to address them have landed us in court a couple of times in recent years,” Itta said. “… Very reluctantly I felt I had no more options other than to get to court to hear our concerns get addressed. It’s unfortunate because I do not believe in litigation as the answer to development of resources on the North Slope.”

Supports industry

And, although North Slope residents have “more than a little heartburn” over offshore leasing and development, the borough is supportive of the oil and gas industry, Itta said.

“The North Slope Borough has worked with the oil industry for … very close to 40 years now,” Itta said. “We’ve worked with them to make sure that onshore projects are successful in extracting oil while they protect the landscape and the wildlife that we depend on so much. … We’ve issued permits on hundreds and hundreds of projects. And we’ve almost never ended up in court over the maze of development that has occurred across the North Slope in pursuit of oil and gas.”

And, as a project that the borough supports, Itta particularly cited BP’s Liberty oil field development, where the company plans to directionally drill into the offshore field from an existing Endicott drilling island.

“We’re excited about that,” Itta said.

But at the core of the borough’s concerns about offshore development lies the subsistence culture of the Inupiat and the importance of the bowhead whale migration along the Arctic coast.

“Our traditional Inupiat way of life cannot survive without this resource,” Itta said. “Clearly the risks associated with development offshore are much greater than of developing on land and they pose a significant threat to marine life that is out there.”

Questions asked

Itta said that he was sure there had been “a little bit of grumbling, over lunch maybe at the Petroleum Club,” because of the borough lawsuits challenging Shell’s planned exploration.

“Rightfully so, and I understand,” Itta said. “Questions have probably come up. Questions like ‘why are those people so ungrateful, when oil has paid for so much of their services, and their jobs and the quality of life in the North Slope communities?’”

Itta proceeded to tell a story which, he said, illustrated the fact that the people of the North Slope support responsible oil and gas development.

Once upon a time a resource company wanted to come to Alaska to make a big investment in a big project, he said. The company hired a popular local leader to promote its project. The company spared no expense, explained its project to the people and clearly wanted to be a good corporate citizen. The people appreciated the company’s efforts and understood the benefits that could come from the project.

But the people became increasingly concerned about the risks and disruption that might ensue from the project, and about the speed with which the company was moving. The people decided that they couldn’t support the project and gave a vote of no confidence to the local leader who had promoted the project.

“I suppose some of you have heard this story before. I’m obviously talking about recent events on the North Slope with Shell,” Itta said. “Actually no. … I’m talking about the story of Evergreen Resources and Sen. Scott Ogan … in a dispute over a coalbed methane development project proposal in the Mat-Su Valley a few years ago.”

Folks in Wasilla were worried about what would happen to their neighborhoods, their water supplies and their hunting and recreational areas, Itta said. And although the coalbed methane project likely had merit, the process for implementing the project was flawed and ultimately sank the project, he said.

No different

“We on the North Slope are no different from the people in the Mat-Su Borough who said no to Evergreen Resources,” Itta said. “We found ourselves in the same situation with Shell’s massive exploration plan for the Beaufort Sea, known as the Sivulliq project, which coincidentally happens to be right on the path of the bowhead migration.”

Itta said that the North Slope Borough has asked for three things:

• Adequate baseline environmental data to ensure that environmental change can be measured over time;

• Reasonable mitigation and monitoring measures that can respond to any substantial risk; and

• A program of response to impacts, especially cumulative impacts, given the likelihood of multiple companies operating in the offshore.

“It takes time to create a level of trust between parties with different cultural perspectives but I believe, with that investment (in pre-project analysis), agencies and companies can send a message that they’re not just in it for the oil, but they also understand the quality of life concerns that we have,” Itta said. “… If you can struggle with us in trying to answer some of the tough questions that keep us up late at night, then we’ve got something to talk about. … Whatever happens with oil and gas — don’t ever forget we, the Inupiat, were there before oil, and whatever happens we must ensure th