Alaska OCS exploration suffers another set back

By Tim Bradner, Alaska Journal of Commerce

Shell’s investment in its Arctic offshore exploration is approaching $6 billion after eight years. For all that, the company has two test wells partly drilled in 2012, one in the Chukchi Sea and one in the Beaufort Sea.

Shell’s latest setback is the U.S. 9th Circuit Court of Appeals ruling invalidating part of the environmental impact statement, or EIS, for the 2008 Chukchi Sea lease sale.

It will take time for the Interior Department to correct that defect, and the company has canceled its 2014 exploration in the Arctic.

The decision not to proceed in 2014 was a tough one for Shell, the company’s Alaska president, Pete Slaiby, said. One silver lining was that the ruling was on a narrow issue that can be remedied, Slaiby said.

Unfortunately, that can’t be done in time for Shell to drill this summer.

The issue is now back in Judge Ralph Beistline’s U.S. District Court in Alaska. Slaiby wouldn’t speculate on the options before Beistline, but he said the fault identified by the 9th Circuit was very specific.

The appeals court invalidated Beistline’s district court order that approved the EIS for the 2008 Outer Continental Shelf lease sale in the Chukchi Sea. Shell and other companies bid $2.6 billion on leases.

A coalition of environmental groups and two Alaska Native organizations sued the Interior Department, arguing the EIS was inadequate. The one area on which the threejudge panel of the appeals court agreed with the plaintiffs in a 2-1 split decision, was that the government assumption of a discovery in the lease sale area — one billion barrels of recoverable resources — was unrealistic, and too low.

All of the environmental analysis was based on that number, however. If a larger discovery was assumed, the environmental analysis would have to be broader.

“It was a very narrow issue the court identified,” Slaiby said. “The good news here is that the decision didn’t open up a wide range of areas for discussion. We believe this means all the other work accomplished in the EIS is adequate. We believe there will be a very focused amount of work to bolster the EIS.”

People familiar with federal procedures say it could require a Supplemental EIS, which could take up to 18 months or more.

There was an earlier Supplemental EIS on the 2008 sale which corrected certain defects found at the District Court level, and that took about 18 months.

As for the Jan. 30 announcement that the program would stand down, Slaiby said, “our decision was very clearly based on the ruling by the 9th Circuit court. We had the 9th Circuit taking issue with the EIS and this would leave our exploration plan very vulnerable to challenge. Because of that decision we could not even get permits. This has been hard for us because we’ve worked hard this year to get our assets in place. But looking at the results of the ruling, moving forward with any kind of certainty is impossible.”

Had exploration gone ahead this summer it would have employed about 2,000 people.

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