Cindy Hurt

October 7, 2011

The Obama administration announced its decision to honor the Bush administration's Arctic Ocean lease sale. In 2008, the Bush administration issued approximately 500 leases for oil development in the Chukchi Sea. The 2008 lease bids reached $2.7 billion. The combined area is approximately 2.8 million acres in Chukchi Sea. The area is speculated to contain 25 billion barrels of oil assessed at $2.4 trillion.

All oil exploration in the Chukchi Sea is paused until the federal district court resolves pending litigation. In July of 2010 the federal district court directed the Bureau of Ocean Energy Management (BOEM) to reevaluate the lease sale and its environmental impact. To comply with the court order the BOEM conducted additional studies on the impacts of natural gas drilling. This week, the U.S. Department of the Interior completed a supplemental environmental impact statement, and upheld the lease sale agreements.

Oil exploration and development in the Chukchi Sea is subject to stipulations that protect two federally listed threatened bird species, Spectacled and Steller's Eiders. These stipulations will affect the placement of pipelines, and development is banned within 52 miles of the shore. Companies will also be responsible for conducting monitoring programs, which are designed to access the impacts on marine mammals and polar bears.

Royal Dutch Shell PLC as the largest leaseholder in the Chukchi Sea has the most at stake. Shell has exploration proposals in both the Chukchi and Beaufort Sea, and invested nearly $4 billion into the project. Shell expects to start drilling in 2012.

Shell faces numerous legal obstacles. For instance, Shell still needs to obtain air-quality permits for its drilling ships. Last week, EarthJustice filed an appeal in the Ninth Circuit of Shell's Beaufort Sea exploration plan. EarthJustice claims that Shell has not developed a satisfactory oil-response tactic.

The next step is for BOEM to evaluate Shell's plan to drill six exploratory wells in Chukchi Sea. Shell Alaska spokesman Curtis Smith stated, "we believe the Chukchi plan we submitted in May of this year is technically and scientifically sound and we look forward to exploring this critical part of our Alaska portfolio in 2012." While Shell claims its drilling plans are safe it will need to demonstrate that the structure is capable of containing a blowout in open water.

Artic Ocean drilling is on a precipice; Alaskan officials are expected to offer approximately 15 million acres of state-owned land and water for oil drilling leases. President Obama has already agreed to have annual lease sales in Alaska's National Petroleum Preserve.

Sources:

Tim Bradner, Shell Moves Closer to OK for Offshore Drilling, Alaska Journal of Commerce (Oct. 6, 2011), http://www.alaskajournal.com/Alaska-Journal-of-Commerce/October-2011/Shell-moves-closer-to-OK-for-offshore-drilling/.

Katarzyna Klimassinska, Alaska BP to Conoco Count On Shell Artic Bounty, Bloomberg BusinessWeek (Oct. 1, 2011), http://www.businessweek.com/news/2011-10-01/alaska-to-bp-to-conoco-count-on-shell-arctic-bounty.html.

Steven Mufson, Chukchi Sea Oil Lease Sale Reaffirmed, Washington Post (Oct. 3. 2011), http://www.washingtonpost.com/business/economy/2011/10/03/gIQAWi9eJL_story.html.

Phil Taylor, Offshore Drilling: Interior Reaffirms $2.7B Artic Lease Sale, Greenwire (Oct. 4, 2011), http://stevens.vermontlaw.edu:2069/Greenwire/print/2011/10/04/11.

Tennille Tracy, Artic Ocean Drilling Approved, Wall St. Journal (Oct. 4, 2011), http://online.wsj.com/article/SB10001424052970203791904576609401721404510.html.