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Vol. 19, No. 22 Week of June 01, 2014
Providing coverage of Alaska and northern Canada's oil and gas industry

A Chukchi schedule

BOEM tells court that it anticipates a new lease sale decision in March 2015

Alan Bailey

Petroleum News

The Bureau of Ocean Energy Management has told the federal District Court in Alaska that it anticipates issuing a new record of decision for the 2008 Chukchi Sea lease sale in March 2015, after the completion of a new supplementary environmental impact statement, or SEIS, for the sale.

In a status report filed with the court on May 23 the agency said that, despite having already started work on the SEIS and despite working as expeditiously as possible on the document, several months of effort will be required. At the core of the required work will be new estimates of the potential for oil spills resulting from Chukchi Sea exploration and development, and an evaluation of the potential impacts of those spills, BOEM says.

The agency says that it anticipates publishing a draft SEIS early in October 2014. Following a 45-day public comment period and consequent revisions to the document, the agency would publish a final SEIS in February 2015, with the record of decision for the lease sale following after a mandatory 30-day waiting period.

9th Circuit decision

The District Court ordered a rework of the environmental impact statement for the lease sale, following a January 2014 decision by the U.S. Court of Appeal for the 9th Circuit, upholding an appeal against the validity of the document. As a consequence of the 9th Circuit decision and the continuation of the case in District Court, BOEM has suspended the leases sold in the 2008 lease sale until the agency issues a new record of decision. Shell, ConocoPhillips, Statoil and other companies purchased leases in the sale.

In 2012 Shell drilled the top-hole section of its first well in the Burger prospect in one of its Chukchi Sea leases. But following a series of problems surrounding that 2012 exploration season, including the eventual grounding of the Kulluk floating drilling platform in the Gulf of Alaska, the company took a pause in its Chukchi Sea exploration program in 2013. In February 2014, citing the legal ramifications of the 9th Circuit Court decision, the company said that it would not resume drilling in 2014.

Drilling in 2015?

In early May Simon Henry, Shell’s chief financial officer, said that his company plans to recommence drilling in the Chukchi in the summer of 2015, but that question marks remain relating to the status of the lease sale appeal. Henry also commented on regulatory uncertainty relating to new Arctic offshore drilling safety rules that BOEM and the Bureau of Safety and Environmental Enforcement are developing but have not yet published - presumably Shell needs to see what impact the new rules will have on its drilling plans.

A restart of drilling in 2015 will obviously require that BOEM’s revised lease sale decision in March 2015 re-affirms the validity of the sale. And, regardless of the upshot of that decision, Shell will presumably have to start activating its drilling plans relatively early in 2015, to ensure that its drilling fleet can be deployed in time for the short Arctic drilling season.

Support from senators

In a May 23 press release Sen. Mark Begich, D-Alaska, said that he has been urging the Obama administration to enable Arctic oil and gas development to proceed.

“It was unfortunate yet another lawsuit last year threw a roadblock in Shell’s planned oil and gas exploration in the Chukchi Sea,” Begich said. “I’ve been aggressively pushing federal regulators to get this development back on track and am cautiously optimistic their new schedule will put drill bits back into these promising offshore reserves next summer.”

Sen. Lisa Murkowski, R-Alaska, also expressed her support for Arctic offshore development.

“The timeline filed today by the Interior Department is a positive step,” Murkowski said. “Under the terms proposed to the court, it appears possible that Interior will complete the court-ordered supplemental assessment in time for Shell to resume exploration next summer. However, this is only part of what the administration must do in the coming months to ensure an exploration season in the Chukchi Sea next summer.”

The Native Village of Point Hope, the Inupiat Community of the Arctic Slope and 12 environmental organizations originally launched the appeal against the environmental impact statement for the 2008 lease sale shortly before the sale. In 2010 the District Court upheld the appeal and required a major rework of the EIS. In 2012, after the court deemed the deficiencies in the EIS to have been corrected, the appellees elevated the case to the 9th Circuit.

The January 2014 ruling by the 9th Circuit court said that the Department of the Interior had arbitrarily used an estimate of 1 billion barrels of economically recoverable oil from the Chukchi in assessing the potential environmental impacts of the sale. The court found that the agency had, for example, assumed, without explanation, that oil development would only amount to a single oil field.

New analysis

BOEM says it is going to conduct economic simulations to derive new oil production estimates, a time-consuming exercise that includes an assessment of platform and pipeline requirements for production scenarios. New estimates for potential oil production would then drive new estimates of possible large oil spills. That entire analysis will likely take until August to complete, after which the agency will conduct an analysis of potential oil spill trajectories, and will calculate oil spill probabilities. That will lead to the publication of a draft SEIS in October, BOEM said.



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