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BOEM Quadruples Estimate of Recoverable Reserves from Chukchi Leases

The Bureau of Ocean Energy Management (BOEM) has quadrupled its estimate for the amount of oil and gas recoverable from a Chukchi Sea lease sale that was held in 2008.

Regulators had estimated that up to 1 billion boe was economically recoverable from oil and gas leases secured in Chukchi Sea Lease Sale 193. BOEM now puts the estimate at up 4.3 billion boe, according to a draft supplemental environmental impact statement (SEIS). The Interior Department agency said the higher estimate is based on best available science and better information about the areas where producers' interests are in the region. BOEM also relied on actual bidding data from the disputed 2008 sale, which brought in a record $2.7 billion in high bids (see Daily GPIFeb. 8, 2008).

The draft SEIS was completed in response to a ruling in January by the U.S. Court of Appeals for the Ninth Circuit, which said the 2008 lease sale may have used inadequate information regarding available reserves and environmental risks (see Daily GPI,  Jan. 23). In April, the Obama administration, joined by Royal Dutch Shell plc, asked the U.S. District Court for the District of Alaska to allow Interior to revise the original EIS used to support the 2008 lease sale (see Daily GPIApril 10). Shell had been awarded most of the leases in the sale; ConocoPhillips and Statoil SA, among others, also were awarded high bids.

"After a robust and thorough process, BOEM...prepared a draft supplemental EIS that addresses the issues identified by the court regarding the Chukchi Sea Lease Sale 193," said BOEM Acting Director Walter Cruickshank. BOEM "used a new exploration and development scenario to evaluate the potential environmental effects of oil and gas activities associated with Lease Sale 193."

The original EIS was published in 2007, one year before the sale. However, subsequent legal challenges and federal court decisions remanded the sale back to BOEM for further analysis, specifically related to the estimates of production levels from likely offshore oilfields that might be developed in the Chukchi Sea.

The new draft also boosted the perceived risk of a large oil spill as a result of drilling in the region. The original estimate put the risk of a "large" spill, that is, a spill releasing more than 1,000 bbl of oil, at 40%. The draft SEIS puts one or more large spills occurring at 75%.

BOEM has suspended all operations on the Chukchi leases that were issued in 2008 until the review is completed. The notice of availability for the draft SEIS is to be published in the Federal Register on Friday (Nov. 7), initiating a comment period through Dec. 22. Seven public hearings are to be held in Alaska, and public comments are to be accepted through regulations.gov. The draft SEIS is available at www.boem.gov/ak193/.

Shell last month asked federal officials to extend the company's Alaska leases, some of which will begin to expire in 2015, in part because of ongoing litigation issues. A decision by Interior on the extensions has not been made.

During a conference call to discuss third quarter earnings late last month, Shell CFO Simon Henry was asked whether the company planned to attempt a drilling program in the summer of 2015.

"We are planning and hoping to drilling next year, but we have not taken a decision to do so because it will depend on ongoing litigation," Henry said. It also will depend on whether Shell could obtain drilling permits. "We do not yet have clarity and we retain the ability and the right to not drill next year." He told analysts that drilling in Alaska's offshore is "not that difficult...Thirty years ago we went there and drilled several wells pretty quickly."

Shell officials said they welcomed the new analysis and are reviewing 1,000-page draft report.

Sen. Lisa Murkowski (R-AK) said she hoped the draft SEIS would "satisfy the court and allow responsible drilling to resume next summer." However, time is of the essence for officials to act.

"We're now getting down to the wire and it is vital that there be no further delay," Murkowski said. "The leaseholders are under a very tight schedule and have to receive final approval for their drilling plans by early spring in order for there to be drilling next summer."

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