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Vol. 19, No. 4 Week of January 26, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

It’s still flawed

9th Circuit sends 2008 Chukchi lease sale appeal back to district court

Alan Bailey

Petroleum News

The U.S. Court of Appeals for the 9th Circuit has found that the environmental impact statement, or EIS, for the 2008 federal oil and gas lease sale for the Chukchi Sea outer continental shelf is flawed. In a court order dated Jan. 22 the court remanded the document back to the federal District Court for Alaska for further action. The absence of a legally valid EIS renders the lease sale itself invalid unless, presumably, the deficiency in the environmental document is corrected.

In a majority opinion, a panel of three 9th Circuit judges ruled that the Department of the Interior had inappropriately used an estimate of 1 billion barrels of economically recoverable oil in assessing the potential environmental impacts of the lease sale. This estimate of recoverable oil was “arbitrary and capricious” the judges said.

One judge dissented, saying that he defers to the expertise of the Bureau of Ocean Energy Management, or BOEM, the federal agency responsible for outer continental shelf leasing, in making the 1 billion barrel determination.

Exploration started

Shell, ConocoPhillips, Statoil and other companies bought leases in the sale and Interior received $2.6 billion in bonus bids. Shell has started exploration drilling in its leases and hopes to continue with that drilling, perhaps as soon as the summer of 2014.

A finding that the lease sale was invalid presumably raises question marks over the legal status of the leases.

Shell has issued a statement saying that it is “reviewing the situation,” while BOEM has declined to comment while the matter is subject to litigation.

In a Jan. 22 statement, environmental activist organization Greenpeace characterized the court’s decision as a “victory for the Arctic.”

“We applaud the hard work and dedication of the many groups who have pushed this case through the courts, and congratulate them on today’s vindication,” said Greenpeace Arctic Campaign Leader Gustavo Ampugnani. “This decision should give President Obama pause to reconsider the dangerous path he’s heading down by opening up the precious Arctic to rapacious oil giants.”

Sen. Mark Begich expressed optimism about continued Chukchi Sea exploration.

“The Arctic has already been and will continue to be subjected to unprecedented safety standards and today's announcement does not delay the important progress we have made,” Begich said. “Alaskans know how to develop our resources and that is why I continue to be optimistic that we will see safe, responsible development in the Arctic this summer.”

Began in 2008

The Native Village of Point Hope, the Inupiat Community of the Arctic Slope and 12 environmental organizations launched the appeal against the EIS in the federal District Court for Alaska in 2008.

In July 2010 District Court Judge Ralph Beistline issued an order upholding claims that, in preparing the EIS, Interior had failed to adequately consider the environmental impacts of potential natural gas development in the Chukchi and had not adequately considered the significance of missing Chukchi Sea environmental information.

Interior proceeded to make major revisions to the EIS and published a new version of the document in October 2011. And in February 2012 Beistline formally dismissed the appeal, saying that the deficiencies in the EIS had been corrected.

Shell subsequently proceeded to start its Chukchi Sea drilling program in the summer of 2012.

Meantime, in April 2012 the appellees elevated the appeal case to the 9th Circuit.

Oil volume estimate

The 9th Circuit has accepted Beistline’s decision that the questions relating to missing environmental data have been resolved. However, the two judges that formulated the majority opinion homed in on a different question, the question of whether Interior had adequately considered how much oil might economically be produced from Chukchi Sea oil fields. This estimated oil volume would presumably impact estimates of how much development activity might take place and hence how much environmental impact the development might have. The oil volume estimate may also impact assessments of oil spill risks.

Using as evidence a series of internal BOEM emails, in which BOEM staff discussed the oil volume estimate to use in the EIS, the two 9th Circuit judges who formulated the majority decision concluded that BOEM had not adequately evaluated the oil volume figure, with the 1 billion barrel assumption being an arbitrary number.

More fields?

This figure apparently represented the possible production from an initial Chukchi Sea development, based on assumptions that a field smaller than this would not be viable and that the probability of finding a field larger than this would be relatively low. But the EIS does not explain why production would be expected to stop with that first field, nor does it take into account variations in oil prices that might impact production economics, the judges wrote.

“Previous evaluations of the Chukchi Sea oil development had assumed that multiple oil fields would develop once commercial development was viable,” the judges wrote. “On the record before us, it remains unclear why BOEM chose to analyze the lowest amount of oil that could be produced in the Chukchi Sea from the smallest number of oil fields that could be developed.”

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