Map of Sale 193 leases, (c) Wall Street Journal.

Yesterday, the U.S. Department of the Interior upheld the sale of 487 leases to drill for oil in the Chukchi Sea. The leases were initially sold in February 2008 to companies like Shell and Statoil for billions of dollars, but a group of environmentalists and Alaska Native sued, claiming that Sale 193 violated the National Environmental Protection Act, as a proper environmental review was not carried out. The District Court in Alaska ordered the Department of the Interior to revisit their assessment. The Bureau of Ocean Energy Management, Regulation and Enforcement was required to:

  • Assess the impacts of natural gas drilling;
  • Determine whether information missing from the first environmental assessment was essential; and
  • Determine whether the cost of obtaining such information was prohibitive.

BOEMRE also analyzed the impact of a Very Large Oil Spill (VLOS), but concluded (ironically given the recent Deepwater Horizon disaster) that “there is a low probability that a VLOS event will occur as a result of this lease sale.”

The bureau completed its Supplemental Environmental Impact Statement in August. On Monday, the newly-formed Bureau of Ocean Energy Management issued a Record of Decision (ROD) that upholds the sale of the leases, provided that certain additional environmental regulations are respected. BOEM has also instituted a 52-mile buffer zone extending from the Alaska coastline in which no oil and gas drilling activities will be allowed to take place. Had BOEM decided to not affirm the leases, over $2.6 billion would have to be refunded to the oil companies – a difficult prospect to face. However, many supporters wanted BOEM to modify the sale by canceling some 12 leases worth $2.2 million lying in a particularly sensitive area, which the ROD stated “includes subsistence areas for hunting bowhead whales, beluga whales, and walruses; and critical habitat for the threatened Spectacled and Steller’s eiders.” In the end, it was decided to stick with the original sale. BOEM determined that canceling these leases would not change the overall state of environmental protection in the Sale 193 area, as the 12 leases constitute a small area altogether.

BOEM’s makes it clear that the ROD “does not grant approval to companies to begin operations in the Chukchi Sea.” The case will now be turned back over to the District Court. Groups will have until November to file briefs claiming that Sale 193 is still illegal. However, now BOEM may go ahead and review companies’ plans to drill for oil, as it had postponed doing this while the supplementary environmental assessment was taking place. Though BOEM has affirmed the sale of the leases, each company will still need to win approval for each of the wells they would like to drill. This necessitates the company conducting additional reviews and obtaining clean air permits for the ships that would provide supplies and drill in the area. Only Shell has so far submitted an exploratory plan for its leases in the Chukchi Sea, and it hopes to drill during the summers of 2012 and 2013. Yet Shell and the other oil companies face more battles ahead, as on Thursday, Alaska Native groups filed a lawsuit to stop drilling from going ahead in the Beaufort Sea.

Shell must decide by the end of this month whether it thinks it will be able to obtain the 35 permits necessary to begin drilling in the Beaufort and Chukchi Seas, as it will need to get 18 vessels and 1,200 employees in place. The petroleum giant has already spent close to $4 billion in the Arctic, and not a single drop of oil has come out of one of the areas it is leasing. For some environmentalists and Alaska Native groups, they hope it stays this way. Those who view oil as the lifeblood of Alaska – including the operators of the parched Trans-Alaska Pipeline – feel differently.

News Links

“Interior Department upholds Arctic oil lease sales,” Houston Chronicle

“Alaska to BP to Conoco count on Shell Arctic Bounty,” Business Week

“Arctic Ocean Drilling Approved,” Wall Street Journal

Categories: Oil & Gas USA/Alaska

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