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Interior Moves to Resolve Legal Claims Over 2008 Chukchi Lease Sale

The Department of the Interior on Thursday moved one step closer to resolving legal concerns regarding the 2008 oil and gas lease sale for the Chukchi Sea offshore Alaska after issuing a final supplemental environmental impact statement (FSEIS).

The FSEIS updates the Bureau of Ocean Energy Management's (BOEM) estimates of the full range of production levels from offshore oilfields that could be developed in the Chukchi Sea, and the related potential environmental effects of Chukchi Sea Lease Sale 193 held seven years ago. The draft SEIS published in 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 lease sale has been tied up in court for years, with the FSEIS an attempt to resolve at least one area of legal wrangling. Whether it resolves conservation group concerns is another matter.

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

"Alaska is a critical component of our nation's energy portfolio, and the Chukchi Sea has substantial oil and gas potential, as well as sensitive marine and coastal resources that Alaska Native communities depend on for subsistence," said Secretary of the Interior Sally Jewell. "The updated analysis is a major step toward resolving the 2008 oil and gas leases that have been tied up in the courts for years. We remain committed to taking a thoughtful and balanced approach to oil and gas leasing and exploration in this unique, sensitive and often challenging environment."

"The FSEIS is based on the best available data -- including actual leasing records and current geological information -- to estimate the highest amount of production that could reasonably result from lease sale 193," Interior said. "Based upon the findings in the Court of Appeal's decision, as well as a better understanding about existing geologic structures in the region and improved information about where industry operators are likely to focus their development activities, BOEM evaluated a higher exploration and production scenario than in its previous analyses."

BOEM received more than 400,000 comments in response to the draft. The final assessment followed public hearings in Anchorage and Fairbanks, and in the Chukchi Sea communities of Kotzebue, Point Hope, Wainwright and Barrow. The bureau also met with and consulted Alaska Native tribal governments in several of these communities.

"After carefully analyzing the comments, best available science and additional information, BOEM has developed a comprehensive analysis to address the court's concerns,” said BOEM Director Abigail Ross Hopper.

Once the FSEIS is published in the Federal Register, there is to be at least a 30-day waiting period before a final decision may be made on the lease sale. Early last year BOEM's sister agency the Bureau of Safety and Environmental Enforcement (BSEE) suspended all of the Chukchi leases issued in the 2008 auction, which are to remain in effect until a record of decision is issued. If the lease sale is affirmed, BOEM and BSEE would need to review a company's specific exploration plan, an application for permit to drill and other materials before any exploration activity could occur.

Last month, Shell CEO Ben van Beurden said the company could restart its offshore Alaska drilling program this summer -- if hurdles are overcome. Shell scuttled its 2014 summer drilling plans on the legal issues, and there was talk that the oil major might sell off the assets (see Daily GPI, May 20, 2014; Jan. 30, 2014). During a conference call, CFO Simon Henry said drilling was a possible this summer.

"If we drill, if we go ahead, it will be over $1 billion," Henry told analysts. "Even if we don't drill, it will be approaching $1 billion because of the commitment to keep the fleet of ships that we need...Remember, this is a logistics operation as much as drilling. Ensuring that the logistics are in place to support the drilling means that quite a lot of spend is already committed."

Van Beurden acknowledged, however, that oil prices "need to be significant for us to go ahead." In addition, there has to be a big discovery to make economic sense. So far, there's only been preliminary drilling over a two-year period with no commercial hydrocarbons to show for it.

"Let's first see how much oil is there," the CEO said.

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