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Court Ruling on OCS Lease Plan Puts Producers in Limbo

All eyes remained on the Department of Interior last week to see how it would interpret a recent appellate court decision, which threw out the five-year Outer Continental Shelf (OCS) leasing plan for 2007-2012, but the agency was silent on the issue. The decision threatens to upset the current offshore leasing schedule and raises questions about sales that already have been completed under the plan (see NGI, April 20).

"While it is not immediately clear just how extensive the impacts of the ruling will be on the remaining lease sales planned through 2012, any potential loss of future leases, resources and revenue is problematic," said the National Ocean Industries Association, which represents the offshore industries. "We are eager to see how the Department of Interior responds to the ruling."

The American Petroleum Institute also was anxiously awaiting word from Interior, said spokeswoman Cathy Landry. "It would be a disservice to all Americans -- and a devastating blow to the economy -- if this decision were to delay further the development of vital oil and natural gas resources," the producer group said.

Dan Naatz, vice president of federal resources for the Independent Petroleum Association of America, said he believes the decision will primarily halt action offshore Alaska. The ruling gives the "Interior secretary the ability to revisit the lease sales that [went] forward in Alaska," but subsequent action by the courts barred exploration of the leases.

Naatz, however, said he didn't know whether the court decision would hold up lease sales in the Gulf of Mexico (GOM) and in other OCS areas.

The court ruling has left producers hanging in limbo, says Red Cavaney, senior vice president of government and public affairs for ConocoPhillips. It "certainly would raise the uncertainty [in the industry] because you don't know what's going to happen next and at what pace it's going to happen."

In the energy industry "we're all about investment and investment made over the long term. Particularly among independents and others, these investments represent huge amounts of risk on their part. Uncertainty is very difficult to deal with and the more things that make the future uncertain, I think the more you hurt ultimately the production when finally the economy starts to come back," Cavaney said.

The ruling is being closely reviewed by Interior and the Department of Justice, said Interior spokesman Frank Quimby immediately following the release of the court decision on April 17. He noted that Interior was trying to figure out the impact of the court ruling on future lease sales under the 2007-2012 plan and on the lease sales that have already been held. "This has a lot of potential implications," Quimby said.

Three groups -- Center for Biological Diversity, Alaska Wilderness League and Pacific Environment -- and the Native Village of Point Hope challenged Interior's 2007-2012 OCS leasing program, focusing on lease sales planned for offshore Alaska. The petitioners claimed that Interior violated the Outer Continental Shelf Lands Act (OCSLA), National Environmental Policy Act and the Endangered Species Act when drafting the leasing plan.

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit ruled that most of the issues were "not yet ripe for review," but it found one claim to have merit: that the leasing program violated the OCSLA because it relied on an "insufficient" study by the National Oceanographic and Atmospheric Administration (NOAA) in assessing the environmental impact of drilling on the OCS planning areas.

The OCSLA "states clearly that an agency must assess the environmental sensitivity of 'different areas of the Outer Continental Shelf' in order to make its determination of when and where to explore and develop additional areas for oil...Interior's use of the NOAA study runs afoul of this provision because it assesses only the effects of oil spills on shores," the court said.

"Interior provides no explanation for how the environmental sensitivity of coastal shoreline areas can serve as a substitute for the environmental sensitivity of OCS areas, when the coastline and proposed leasing areas are so distant from each other. This interpretation runs directly counter to the statutory language."

The five-year OCS leasing plan for 2007-2012 initially called for 21 lease sales in the GOM, offshore Alaska and off the coast of Virginia. So far seven sales have been held -- mostly in the GOM and one in Alaska's Chukchi Sea. There are 13 remaining leases sales scheduled through 2012, with the next one slated for Aug. 19 in the western GOM. A lease sale planned for the Cook Inlet in Alaska this year has been nixed due to lack of interest by oil and gas producers.

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