Appeals court disallows Alaskan offshore oil leases

UPDATE, Jan. 31: "Royal Dutch Shell has delayed plans to drill in Alaska’s Arctic waters as it slashes capital spending and awaits the repercussions of a recent appellate court ruling challenging the validity of the lease sale in the Chukchi Sea," Steven Mufson reports for The Washington Post. "Shell, which issued earnings Thursday and said that it would be cutting global capital spending by about $9 billion, will not drill in Alaska during 2014, despite having made extensive preparations with upgraded rigs and support vessels. (Read more)

"A federal appeals court ruled Wednesday that the U.S. Interior Department wrongly awarded offshore oil leases in the Chukchi Sea near Alaska in 2008 without considering the full range of environmental risks posed by drilling in the Arctic," Steve Quinn reports for Reuters. "A three-judge panel of the 9th U.S. Circuit Court of Appeals sent the on-going dispute -- pitting environmental groups and Native Alaska tribes against the federal government and energy companies -- back to U.S. District in Anchorage." (Photo: Noble Discoverer prepares for initial Chukchi Sea drilling in 2012)

While it's not clear how the decision impacts Royal Dutch Shell, which planned to continue exploratory drilling this summer, or Shell, the major leaseholder, the plaintiffs' attorney Mike LeVine told Quinn "It's unlikely that the government could authorize drilling activities on leases the court says were improperly awarded." (Read more)

"The court challenge was based in part on an estimate by the Bureau of Ocean Energy Management, or BOEM, that 1 billion barrels of oil was 'economically recoverable' from the Chukchi Sea leases," Lisa Demer reports for the Anchorage Daily News. The appeals court said the estimate was too low. They wrote: "In the case before us, BOEM was fully aware from the very beginning that if one billion barrels could be economically produced, many more barrels could also be economically produced."

The judges said "BOEM based its estimate of 1 billion barrels on the amount of oil that could be produced from the first Chukchi field developed, not the whole lease area," Demer writes. "BOEM analyst Jim Craig developed the number 'off the top of (his) head' in an email exchange, the opinion says. There were doubts at BOEM that production would ever occur. But other BOEM employees and scientists in other federal agencies raised concerns about the estimate, the opinion says." BOEM officials disagreed, saying "If anything, the estimate was generous."

Republican Gov. Sean Parnell and Democratic Sen. Mark Begich are among state political leaders who support offshore oil drilling in the Arctic. Begich said in a written statement: "The Arctic has already been and will continue to be subjected to unprecedented safety standards and today's announcement does not delay the important progress we have made. Alaskans know how to develop our resources and that is why I continue to be optimistic that we will see safe, responsible development in the Arctic this summer." (Read more)