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Vol. 15, No. 11 Week of March 14, 2010
Providing coverage of Alaska and northern Canada's oil and gas industry

Facing tough issues

Salazar states his position on OCS leasing, NPR-A and oil development

Alan Bailey

Petroleum News

Besieged on one side by development proponents and on the other by the environmental lobby, it seems that nowadays the U.S. Department of the Interior has difficulty keeping anyone happy when it comes to the thorny questions of whether or how to open federal onshore and offshore lands for oil and gas development. So, on March 3 Interior Secretary Ken Salazar walked something of a tightrope across a quagmire of conflicting land use agendas when answering questions about Interior’s proposed 2010 budget before the U.S. Senate Energy and Natural Resources Committee.

“We are working on some tough issues,” Salazar said, reflecting on budget cuts that are driving the possible loss of DOI jobs equivalent to 1,300 full-time positions, in addition to the host of difficult land use issues that Interior faces.

And at the top of many agendas when it comes to Alaska oil and gas are long-awaited Interior statements and decisions relating to lease sales on the outer continental shelf.

“The outer continental shelf and how we move forward with the outer continental shelf has been one of the huge issues of work in the Department of the Interior for a very long time. We are hopeful that we will be able to make the announcement on where we are moving forward in the outer continental shelf yet this month, and are trying to move on that as quickly as we can,” Salazar said in response to questions on the various OCS lease sale issues from Sen. Lisa Murkowski, R-Alaska, ranking member of the committee.

Environmental review

The U.S. Minerals Management Service, the agency within DOI that administers the outer continental shelf, is reworking the Alaska-related environmental analysis for the 2007-12 outer continental shelf lease sale program, the sequence of lease sales that includes the February 2008 Chukchi Sea sale which raised $2.6 billion in bonus bids and in which Shell and ConocoPhillips picked up leases that they are now intent on exploring.

In April 2009 the United States Court of Appeals for the District of Columbia upheld an appeal against the lease sale program and required MMS to carry out the environmental analysis rework, meantime placing some legal uncertainty over the status of the Chukchi Sea leases issued in 2008. But, while MMS has yet to deliver its revised environmental analysis, Shell wants to drill in some of its Chukchi Sea leases in the summer of 2010; the company needs to move ahead with the expensive process of preparing its drilling fleet for deployment.

Salazar slammed what he characterized as the inadequate original environmental analysis for the 2007-12 lease sale program.

“The second highest court in the land essentially said that the Department of the Interior had simply not followed the law, the Department of the Interior had not done the environmental sensitivity analysis that was required before making decisions concerning the entire outer continental shelf,” he said.

Interior is close to a decision on that plan that “will hopefully not suffer from the inadequacies of the last plan and will be able to survive the challenges that are certain to come with respect to the final release of that plan and from people who do not like where we ultimately land on that plan,” Salazar said.

Meantime MMS has approved Shell’s exploration plans for both the Beaufort Sea and the Chukchi Sea, he said.

2010-15 program

Interior is also considering a 2010-15 OCS lease sale program proposed in early 2009, in the dying days of the Bush administration. That program, which would include lease sales in several OCS regions previously off limits to oil and gas development, would supersede the already disputed 2007-12 lease sale program. Interior, under the Obama administration, decided to extend the public comment period for the 2010-15 program — the public comment period ended in September but Interior has yet to publish its decision on the program.

Sen. Murkowski questioned Salazar about a February Wall Street Journal report of a leaked e-mail from the director of MMS, implying that Salazar might delay comment on an apparent two-to-one split favoring OCS development, in public comments on the proposed 2010-15 lease sale program.

“This five-year plan that we have been awaiting is incredibly important for the development of activities up north and to read of this spin, if you will, or an effort to delay causes some concerns,” Murkowski said.

Interior received about 500,000 comments on the new five-year plan and has been determining the various factors to be considered in making its decision on the plan, Salazar said.

“We are now marching through each of those factors and getting very close … to announcing where we are going to go,” Salazar said. “So, I expect that in the month ahead we will be getting to a decision that can be announced. Perhaps this may happen even earlier, so we can get all of the documentation together.”

CD-5 permit denial

Murkowski also quizzed Salazar on the Army Corps of Engineers’ Feb. 5 denial of ConocoPhillips’ permit to construct a bridge over a branch of the Colville River for road access to the company’s planned CD-5 development in the National Petroleum Reserve-Alaska. The CD-5 project, if it proceeds, would be the first oil and gas development in NPR-A.

But the permit denial, based on the findings of the Department of the Interior’s Fish and Wildlife Service and of the U.S. Environmental Protection Agency, would require ConocoPhillips to fly all the required heavy equipment to the CD-5 site and to construct a pipeline under the river, Sen. Murkowski said.

“If the producers can’t get across the Colville River, NPR-A’s resources are effectively off limits,” she said.

Sen. Murkowski said that the Corps decision referenced the designation of the Colville River Delta as “an aquatic resource of national importance,” but there was no information or related public comment on what that designation means.

Committed to NPR-A

Salazar responded that Interior is fully committed to a continuing program of oil and gas lease sales in NPR-A, and he said the agency recognizes the rights of leaseholders to develop their leases. Interior has no control over the Army Corps of Engineers. However, after Murkowski made him aware of Fish and Wildlife’s input to the permitting decision, he had asked the chief of staff to the Assistant Secretary for Fish, Wildlife and Parks to investigate exactly what happened in the permitting decision and to try to find a workable solution to the problem, Salazar said.

And in response to a question from Sen. John Barrasso, R-Wyo., about an apparent “war against American oil and natural gas production,” with increased regulation of the oil and gas industry coupled with proposed increases in fees and royalties, Salazar said that the Obama administration’s approach to oil and gas leasing on public lands reflects a desire to do things “in the right way,” in the context of a comprehensive energy plan for the United States.

“We believe that we need to explore and develop in the right places and with the right information,” Salazar said.

The rush to oil and gas leasing by the Bush administration had led to a situation where almost 50 percent of issued leases had ended up in endless litigation, he said.

“That was because there was a failure in thoughtful planning with respect to where oil and gas production should in fact be taking place in the public domain,” Salazar said.

The Department of the Interior has moved forward on renewable energy and climate change initiatives, but it also strongly supports oil and gas development, he said.

It is also necessary to review the applicability of the federal oil royalty rate of 12.5 percent, a rate that dates back to 1920 and which was originally derived from what was termed “the king’s share” in English common law, Salazar said. That rate may no longer be applicable nowadays and Texas, for example, charges a royalty rate of 22.5 percent, he said.

“We are supportive of oil and gas developments,” Salazar said. “… We also are very adamant about making sure that at the end of the day the taxpayer gets a fair return for this property.”

Land withdrawals

Salazar also responded to a number of questions regarding Interior’s intentions when it comes to the possibility of future withdrawals of federal land from access for resource development. Some questions related to a leaked Department of the Interior memo describing some possible new national monument designations under the Antiquities Act — for Alaska, that memo mentioned Bristol Bay and the Teshekpuk Lake area of the North Slope as potential national monuments.

“There’s no hidden agenda on the part of my department,” Salazar said. Nor has the White House directed any requirement relating to a future land conservation program, he said.

The Department of the Interior would only develop new land conservation initiatives on the basis of discussions at the state and local level, Salazar said. Salazar cited the example of the 2009 Omnibus Public Lands Bill, a bill that had involved listening to the views of people from each state and that had resulted in the designation of 2 million acres of new wilderness and 1,200 acres of wild and scenic rivers.

Other senators’ conservation questions related to a new Department of the Interior budget item titled “treasured landscapes.” What is the definition of the treasured landscapes program, and is this a new initiative, or is this some renamed program, asked Murkowski.

Salazar said that he had thought up the name “treasured landscapes” as an appropriate placeholder in the DOI budget for several specific conservation projects.

On the other hand, with 2 million acres lost to development every year in the United States, there is a need for Interior to work in partnership with states and local government to indentify target areas for land conservation. And, in the light of the U.S. population growth, a coherent and coordinated approach to conservation in the 21st century seems appropriate as an “important conversation and an important national dialogue that we ought to have,” Salazar said.

Perhaps then a definition for “treasured landscapes” would be “something that we’ll all find together as we move forward,” he said.

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