Appeals court orders new assessment of arctic lease sale

Shell's Kulluk drill rig

Shell Oil’s Kulluk drill rig in Dutch Harbor last summer. Photo courtesy Shell Oil.

A federal appeals court has ruled that the environmental assessment behind a massive oil lease sale off Alaska’s northern coast is faulty.

The ruling from the Ninth Circuit Court of Appeals applies to a Chukchi Sea lease sale from 2008. But it’s cast a pall on the future of Arctic oil exploration.

Erik Grafe is an attorney for EarthJustice. He’s argued the case through several rounds of appeals on behalf of environmental groups, and the Alaska Native communities of Point Hope and the North Slope.

In this most recent appeal, Grafe set out to prove that the Bureau of Ocean Energy Management miscalculated how much oil would be produced in the Chukchi Sea.

At first, BOEM tried to peg potential development to the price of oil. But that was complicated. So the agency ended up choosing 1 billion barrels as the likely output.

BOEM studied the risk of oil spills based on that level of development. Grafe says it determined “the number of exploration wells that the agency said would result from the lease sale, the number of drilling rigs that would be in the ocean because of the lease sale.”

Grafe argued that the 1 billion barrel benchmark was an arbitrary choice. And the appeals court agreed. Now, they’re sending BOEM back to re-assess development in the Chukchi Sea.

The price of oil has gone up, so Grafe says BOEM’s new study will probably be based on a higher level of activity and production. And that could prompt a major reevaluation of Arctic drilling.

“The agency has to reconsider the lease sale — whether to hold the lease sale, whether it should open the Chukchi Sea to oil and gas drilling leases — in light of that new analysis that takes a proper look at the potential environmental impacts,” Grafe says.

The court stopped short of invalidating the 2008 lease sale. Shell Oil submitted a new exploration plan for its Chukchi Sea leases, but the company hadn’t announced whether they intended to return this year.

Now, it’s not clear if they can. Michael LeVine is with Oceana, one of the plaintiffs in the lawsuit.

“Allowing a company to drill exploration wells on leases that were improvidently awarded is not good governance,” LeVine says. “We hope that that will not be allowed.”

BOEM and the leaseholders named as defendants — Shell, ConocoPhillips and Statoil — have the option to request a re-hearing of the case in appeals court.

BOEM declined to comment. In a statement, Shell said only, “We are reviewing the opinion.”