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Alaska Offshore Drilling Again in Doubt Following Ninth Circuit Ruling

Exploring Alaskan waters for oil and natural gas again is up in the air after the U.S. Court of Appeals for the Ninth Circuit on Wednesday ruled that a federal lease sale held in 2008 may have used inadequate information regarding available reserves and on environmental risks.

The ruling basically reinstates a 2008 ruling against the government by several conservation groups and Alaska stakeholders.

The Chukchi Sea Lease Sale 193, a controversial undertaking from the start, was the first by the Department of Interior’s U.S. Minerals Management Service (MMS) in 17 years (see Daily GPI, Feb. 8, 2008). MMS since has become the Bureau of Ocean Energy Management (BOEM).

The agency offered 487 leases covering 2.8 million acres that it said held an estimated 1 billion boe, all in a remote area off the northwestern coast of Alaska.

While opponents have never stopped their court challenges to that sale or potential exploration, the federal government and potential explorers successfully have fought back. The latest ruling confirms that the fight isn’t over.

Plaintiffs have argued since before the 2008 lease sale that federal officials violated the National Environmental Policy Act, and they have claimed the MMS underestimated the amount of recoverable oil in the Chukchi.

Justices threw the case back to Alaska's district court, again questioning the environmental impact reviews and the reserves estimates.

"Plaintiffs contend that the 1 billion bbl estimate was chosen arbitrarily," said justices. "We agree." The justices said federal officials "did not provide adequate explanation for its selection." Interior "based its decision in inadequate information..."

Of the estimated $2.7 billion received in high bids for the 2008 sale, Royal Dutch Shell plc submitted close to $2 billion. ConocoPhillips' high bids totaled $1.1 billion; offers also were made by Repsol E&P USA Inc., Eni Petroleum U.S. Inc. and Statoil USA E&P Inc.

Shell conducted a short-lived summer exploration program in the Chukchi and Beaufort seas two years ago. It has been readying a revamped plan to return to the Chukchi only as soon as this summer. ConocoPhillips and Statoil also have been working together on federal approvals.

The most likely outcome from the latest ruling may be a repeat of a 2010 court order that halted exploration activities, said lawyer Michael LeVine, counsel for conservation group and plaintiff Oceana.

BOEM was ordered in 2010 by a district court to conduct a remedial environmental analysis to correct omissions and deficiencies in the pre-sale environmental studies. The supplemental environmental impact statement in 2011 was approved by the court and affirmed by the Obama administration (see Daily GPI, Oct. 5, 2011).

However, "at a minimum" the latest ruling "should result in no activities on the leases that were sold improperly," said LeVine. "This is the second time that this has been sent back to the government," which again may be required to prepare more studies.

"If the government can't take that obligation seriously, then it should invalidate the leases and start over. That's the argument we'll take to the district court" in Alaska, he said.

Shell counsel is reviewing the opinion, a spokesman said.

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