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Vol. 15, No. 30 Week of July 25, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Chukchi Sea on hold

Federal judge bars lease activity pending lease sale EIS partial rework

Alan Bailey

Petroleum News

A judge in the U.S. District Court for Alaska has put a hold on activities stemming from the 2008 U.S. Minerals Management Service Chukchi Sea lease sale in which oil companies paid out $2.6 billion in bonus bids. Shell and ConocoPhillips plan to drill in the Chukchi Sea in leases purchased in the sale.

The court order came on July 21 as a consequence of a January 2008 appeal against the lease sale by the Native Village of Point Hope, the Inupiat Community of the Arctic Slope and 12 environmental organizations. In the order Judge Ralph Beistline said that MMS had acted in an arbitrary manner in preparing the environmental impact statement for the lease sale by not considering the potential environmental impact of offshore natural gas development (as distinct from oil development), by not determining whether environmental information missing from the EIS was relevant or essential for consideration and by failing to present an assessment of the cost or difficulty of obtaining the missing information.

The judge now requires the Department of the Interior to address the issues that the court has highlighted, with the hold on lease sale related activities remaining in place until the issues have been reviewed and the lease sale re-affirmed under the terms of the National Environmental Policy Act.

“This does not necessarily require the agency to completely redo the permitting process, but merely to address the three concerns addressed above,” Beistline said, referring to the issues in which he said that MMS had acted arbitrarily. “In all other respects the court finds defendants have complied with NEPA.”

Shell evaluating

Shell, whose planned drilling in the Chukchi Sea has already been deferred from 2010 as a consequence of a Gulf of Mexico oil spill-triggered outer continental shelf drilling moratorium, told Petroleum News July 21 that it is evaluating the consequences of the district court decision. The company has been planning some environmental studies in the Chukchi Sea during the 2010 open water season.

“We are still analyzing the potential impact of the ruling and how it might impact our 2010 planned operations as well as our aspirations to drill in 2011,” Shell spokesman Curtis Smith told Petroleum News July 21.

“I’m disappointed by the court’s ruling and urge the (state) administration to appeal,” said Sen. Lisa Murkowski. “Shell has done everything in its power to adhere to the strictest environmental standards, including working with the local communities to protect their traditional subsistence activities. Alaska’s offshore resources are vital for the future of both the state’s economy and the energy security of the nation.”

“As one of the first environmental organizations to litigate oil and gas issues on the North Slope, Pacific Environment is elated by today’s decision to remand lease sale 193 (the Chukchi Sea sale) back to the Department for Interior for further environmental review,” said Carole Holley, Alaska program co-director for Pacific Environment, one of the plaintiffs in the appeal. “As we’ve known all along, the former MMS did slipshod work when evaluating the environmental impacts of offshore oil and gas development, putting at risk Alaska Native communities and threatened Arctic ecosystems”

NEPA requirements

NEPA requires a federal agency such as MMS to assess the environmental impacts of any action involving the agency. And MMS presumably prepared its environmental impact statement for the Chukchi Sea lease sale in recognition of the potentially significant environmental impacts of oil and gas development in the region.

If an agency’s environmental analysis under NEPA is challenged in the courts, a court will normally defer to the technical expertise of the agency’s staff, restricting the court’s review to an assessment of whether the agency’s actions complied with NEPA.

A court cannot substitute its judgment for that of a federal agency, Judge Beistline said. But a court can determine that a federal agency has failed to comply with NEPA if the court determines that the agency has acted in an arbitrary or capricious manner by not taking a “hard look” at the consequences of its proposed action, by relying on factors that NEPA was not intended to address or by explaining a decision through an implausible argument.

The plaintiffs in the appeal had argued that the lease sale EIS did not adequately analyze potential impacts of oil and gas development on the environment and on human communities; had failed to include some essential environmental information about the Chukchi Sea; had failed to analyze the impact of the lease sale in the context of a warming climate; had analyzed too limited a development scenario; had understated the risks of an oil spill; had failed to fully analyze the potential impact on the habitat of threatened eider ducks; and had provided a misleading analysis of the environmental impacts of seismic surveys, the court order said.

Tiered approach

MMS had argued that its standard of review was appropriate for the lease sale and that a more tightly focused environmental analysis would ensue if development progressed to more site-specific exploration and development activities.

And Beistline accepted this approach in his evaluation of the questions raised about the impacts of seismic surveying and the potential impacts on eider ducks, saying that the Court of Appeals for the 9th Circuit has in the past ruled in favor of the MMS tiered approach to environmental analysis.

The district court finds that the record reflects a “hard look” in these areas, while acknowledging that necessary mitigation measures can be implemented in later stages of the oil and gas development process, Beistline said.

On the other hand, Beistline took issue with the lack of analysis in the EIS of the potential environmental impacts of natural gas development.

“The court agrees with plaintiffs that the inclusion of incentives for natural gas exploration without addressing the impacts of natural gas exploration is arbitrary because it ‘entirely failed to consider an important aspect’ of the lease sale,” Beistline said.

Missing information

And, with regard to the issue of missing environmental information, the EIS contains numerous statements acknowledging a lack of information about wildlife, habitats and the effects of activities on the wildlife, Beistline said. NEPA regulations do not require environmental information to be complete, but the regulations do require a federal agency to determine whether the missing information is relevant or essential, and to determine whether the cost of obtaining the missing information is “exorbitant,” or whether the means of obtaining the information is unknown, he said.

The court finds that MMS’s failure to comply with the clear instructions of NEPA regulations “was an abuse of discretion,” Beistline said.

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OCS lease sale program still under appeal

A case in the U.S. Court of Appeals for the District of Columbia, appealing the entire MMS 2007-12 outer continental shelf lease sale program, including the 2008 Chukchi Sea lease sale, has yet to be resolved.

In an April 2009 ruling in that appeal, the D.C. court said that MMS had not done an adequate analysis of the potential environmental impacts of oil and gas leasing in the Alaska OCS. The court subsequently directed MMS to rework the environmental analysis for reconsideration, saying that the April decision only had the effect of withdrawing Alaska lease sales (including the Chukchi Sea sale) from the lease sale program.

In April of this year the U.S. Department of the Interior published its proposed revised environmental analysis and lease sale program, affirming the 2008 Chukchi Sea lease sale. The revised environmental analysis went through a 30-day public review. On June 18 the U.S. Department of Justice notified the D.C. court that the Department of the Interior was still in the process of revising its lease sale program document, having received more than 100,000 comments during the public review.

—Alan Bailey