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Disputed 2008 Chukchi Auction Upheld by Interior in Big Win For Shell

A disputed federal oil and natural gas auction held in 2008 for the Chukchi Sea in Alaska was upheld on Tuesday by the Obama administration, moving the biggest leaseholder Royal Dutch Shell plc closer to developing its leasehold.

"The Arctic is an important component of the administration's national energy strategy, and we remain committed to taking a thoughtful and balanced approach to oil and gas leasing and exploration offshore Alaska," said Interior Secretary Sally Jewell.

Approval had been expected after Interior in February issued a final supplemental environmental impact statement (FSEIS), which updated Bureau of Ocean Energy Management (BOEM) estimates for production levels from leases that could be developed in the frigid waters (see Daily GPI,Feb. 13). Once published, federal officials had about 30 days to act on the FSEIS. The draft assessment published last November quadrupled the original estimate of recoverable oil and gas in Chukchi to 4.3 billion boe from 1 billion boe (see Daily GPI, Nov. 3, 2014).

The original environmental impact statement (EIS) had been finalized in 2007, one year before the auction, which drew more than $2.66 billion in high bids, a record for Alaska. Shell's bids totaled $2.1 billion. Environmental groups and affected stakeholders, including many who make their living in the region, challenged the results, which prevented any exploration and development efforts from moving forward. Since the lease sale was held, federal officials have updated safety standards and improved resource assessment methods.

In early 2014, the U.S. Court of Appeals for the Ninth Circuit ruled that the auction may have used inadequate information about not only available reserves but also about environmental risks (see Daily GPI, Jan. 23, 2014; Feb. 8, 2008). The Obama administration, joined by Shell, which had captured most of the 2008 leases, then asked an Alaska district court to allow Interior to revise the original EIS, published in 2007 (see Daily GPI, April 10, 2014).

BOEM Director Abigail Ross Hopper was optimistic that the new environmental analysis would satisfy concerns. "The Alaska office did an incredible job of finalizing the supplemental environmental impact statement."

The next step is for BOEM to review Shell's exploration plan, which is expected to take about one month. Court challenges still may be ahead, but the lead plaintiff in the lawsuit, the Native Village of Point Hope, a tribal government, earlier in March withdrew its opposition. The decision to withdraw a challenge followed new federal safeguards specific to Arctic exploration, which allow "for safer Outer Continental Shelf (OCS) exploration...," the council said in a resolution that was approved 6-0.

"We will not be giving up our protection of our subsistence rights as Inupiaq people of Point Hope but need to redirect our efforts in order to be a part of the oversight of all OCS exploratory drilling in the Chukchi Sea," wrote Jack Schaefer, president of the Native Village of Point Hope. The decision also was based on the village's desire to gain economic benefits, he said.

"After careful consideration, we realized this litigation was preventing us from having meaningful discussions inside our region regarding responsible resource development. We will continue to closely monitor Outer Continental Shelf drilling activities while we pursue title and ownership of our ocean as an aboriginal claim to maintain control of our area -- which includes revenue sharing of our oil."

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