Feds up Arctic oil estimates to satisfy court

WASHINGTON — The Obama administration is quadrupling its estimate of how much crude could be harvested from Arctic drilling leases it sold oil companies six years ago.

The move — part of a draft environmental impact statement issued by the Bureau of Ocean Energy Management on Friday — is designed to shield that disputed 2008 auction and the Chukchi Sea oil and gas leases sold during it from further legal scrutiny.

The agency was forced to redo the analysis after the 9th Circuit Court of Appeals ruled in January that regulators wrongly relied on an arbitrary estimate about the amount of oil that could be recovered in their first environmental study of the 2008 auction.

At the time, regulators said up to 1 billion barrels of oil was economically recoverable from leases on the auction block.

On Friday, the bureau proposed a new estimate: 4.3 billion barrels of oil.

The agency said its new, higher estimate is based on better information about where oil companies’ interests lie and a deeper understanding about geologic structures in the region. In revising its estimate, the bureau also relied on actual bidding data from the disputed 2008 auction, which brought in a record $2.6 billion in high bids.

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The new draft, spread over nearly 1,000 pages, also boosts the perceived risk of a large oil spill as a result of drilling in the region.

According to the document, the ocean energy bureau is now determining there is a 75 percent chance of at least one large spill occurring and releasing more than 1,000 barrels of oil. Six years ago, regulators put the chance of a large spill at 40 percent.

For its analysis, the bureau assumed two large spills would occur during a projected 64 years of development and production of oil under leases sold in 2008.

But the agency said it did not expect any spills from exploratory oil drilling in the Chukchi Sea — an accident akin to the Deepwater Horizon disaster in 2010.

The agency casts that incident as an anomaly, noting that other than the Deepwater Horizon disaster, no large oil spills have occurred during the exploration phase while “more than 15,000 exploration wells drilled on the outer continental shelf from 1971 through 2010.”

Environmentalists pounced on the conclusion.

“This analysis shows that the Obama administration’s own experts agree that an oil spill in the remote Arctic is inevitable and virtually impossible to clean up, but they’re somehow still considering letting Shell go forward in Alaska anyway.” said John Deans, the Arctic campaign specialist for Greenpeace.

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Shell spent $2.1 billion buying up acreage in the Chukchi Sea during the 2008 auction, with six other companies also nabbing territory in those Arctic waters north of Alaska.

A legal cloud has hung over the sale ever since, as environmentalists have successfully challenged the auction. The January ruling follows a separate decision in 2010 that the auction was held in violation of federal environmental law that requires a full analysis of species that could be affected.

Environmentalists said the new draft supplemental environmental impact statement still does not justify the auction nor drilling in the region.

Michael LeVine, the Pacific Senior Counsel for the conservation group Oceana, quipped that the announcement “feels more like Groundhog Day than Halloween.”

“This is the third time the government has tried to justify the unjustifiable decision to offer tens of millions of acres of the remote and important Chukchi Sea to oil companies,” he said. “The government should have more fairly evaluated the impacts of the sale before holding it, and companies should have more carefully weighed the risks to their investments before making them.”

LeVine stressed that science and caution should dictate “responsible stewardship” of ocean resources — “not industry investment.”

The legal dispute stands in the way of Shell’s bid to resume drilling next summer on Chukchi Sea leases from the 2008 sale. Although the company has filed a Chukchi Sea drilling blueprint with regulators, the ocean energy bureau said a formal review is on hold until — and if — the new environmental review is finished.

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That is still months away. First, the public has a chance to comment on the draft environmental impact statement, and then regulators will develop a final version, likely issued next spring.

Shell welcomed the new analysis.

“We appreciate the release of the draft and are reviewing it,” said Shell spokesman Curtis Smith.

Sen. Lisa Murkowski, R-Alaska, said she hoped the updated environmental review “will satisfy the court and allow responsible drilling to resume next summer.”

But, she noted, time is tight. Because of the costs of mobilizing assets and bringing drilling rigs to the area, Shell is likely to wait for a final ruling affirming the sale before it makes big decisions. If a formal verdict comes after May next year, it could be too late to clear permit reviews and get some ships and equipment to the area in time for the summer drilling season.

“We’re now getting down to the wire and it’s vital that there be no further delay,” Murkowski said. “The leaseholders are under a very tight schedule and have to receivefinal approval for their drilling plans by early spring in order for there to be drilling next summer.”

Bureau officials gave no hint on the timeline. Walter Cruickshank, acting director of the ocean energy bureau, cast the new analysis as part of a “balanced approach to safe and responsible energy development in the region.”