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Do-Over Readied on Chukchi's Reserves Potential, Environmental Risks

The Department of Interior may have an updated environmental assessment for the oil and natural gas potential of Alaska's Chukchi Sea ready by early 2015.

The U.S. Court of Appeals for the Ninth Circuit in January ruled that the U.S. Minerals Management Service (MMS), the predecessor agency to the Bureau of Ocean Energy Management (BOEM), may have used inadequate information regarding available reserves and environmental risks for Chukchi Sea Lease Sale 193 held in 2008, and it kicked the issue back to Alaska's district court (see Daily GPI, Jan. 23; Feb. 8, 2008). The circuit court ruling reinstated one against the government that favored several conservation groups and Alaska stakeholders.

The Chukchi had been estimated to hold around 1 million bbl of economically recoverable crude. However, the Ninth Circuit said the estimate was chosen arbitrarily. Following the circuit court ruling, the Obama administration and major Chukchi leaseholder Royal Dutch Shell plc asked the district court to allow federal revisions to be made through a supplemental environmental impact statement (SEIS) (see Daily GPI, April 10). Shell, the biggest leaseholder in Chukchi and the Beaufort seas, so far has invested close to $6 billion in Alaska's offshore with little to show for its effort.

The Department of Justice (DOJ), which is overseeing the court challenge, said BOEM has begun to take steps to revise the original estimates. It became apparent that production volume estimates would require certain changes and updates throughout the original environmental assessment, DOJ noted in a report last week.

A draft SEIS now is set for publication in October followed by a public comment period. If it makes it through unscathed in the public comment period, the final SEIS could be issued in February.

Shell, which garnered the bulk of its Chukchi portfolio in the 2008 lease sale, scuttled plans to explore in Alaska's offshore this summer (see Daily GPI, Feb. 28). CEO Ben van Beurden earlier this month said Shell was reviewing its options (see Daily GPI, May 20). Other operators vying for exploration permits include ConocoPhillips and BP plc.

Alaska's Republican Sen. Lisa Murkowski, the ranking member of the Energy and Natural Resources Committee, said she welcomed the environmental review.

"The timeline filed...by the Interior Department is a positive step. 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.

"I am still waiting for the administration to make a genuine commitment to Arctic development -- and to provide much needed regulatory and permitting predictability. Companies willing to invest billions of dollars to develop our resources must have confidence that the federal agencies responsible for overseeing their efforts will meet their deadlines in a way that will withstand judicial scrutiny."

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