Jan. 22 (Bloomberg) -- Alaskan coastal drilling by oil companies including ConocoPhillips and Royal Dutch Shell Plc may be further delayed after a federal appeals court ruled the government acted illegally in opening almost 30 million acres on the continental shelf to energy exploration.
The Sierra Club and other organizations sued the government after the $2.6 billion sale of development leases for the Chukchi Sea off the northwest coast of Alaska in 2008, saying the amount of oil from the leases was far higher than the 1 billion barrels the U.S. Interior Department estimated in an environmental review approving the sale.
The U.S. Court of Appeals in San Francisco today concluded the estimate was “chosen arbitrarily.” That meant the Interior Department “based its decision on inadequate information about the amount of oil to be produced pursuant to the lease sale,” the court said in a decision reinstating the lawsuit.
“The agency is going to have to revise or supplement its analysis of the lease sale,” Erik Grafe, an attorney for the group Earthjustice who argued the case, said in a phone interview. “We think the agency shouldn’t allow any drilling on this basis.”
The appeals court returned the case to a district judge in Anchorage who in 2012 upheld the lease sale and granted the U.S. request to dismiss the case. Grafe said the plaintiffs may ask for a court order canceling the leases.
Connie Gillette, a spokeswoman for the U.S. Bureau of Ocean Energy Management, said the agency doesn’t comment on pending litigation.
“We are reviewing the opinion,” Kelly op de Weegh, a spokeswoman for The Hague-based Shell, said in an e-mailed statement.
Shell suspended its Arctic operations after a series of mishaps in 2012 as it sought oil off Alaska’s North Coast. It submitted an operating plan to the Interior Department’s Bureau of Ocean Energy Management on Nov. 26, according to the agency’s website. The government on Jan. 14 asked for additional information.
The conservation groups said in their complaint that the Bush administration’s decision to open the Chukchi Sea to oil and gas exploration violated the U.S. National Environmental Policy Act.
The U.S. said the Bureau of Ocean Energy Management already had analyzed the environmental impact at the behest of a federal judge in Alaska. It said supplemental environmental impact statements had adequately addressed the impact of drilling on whales and other species and on the generation of greenhouse gases.
While the appeals court agreed with the U.S. on that point, it said the government’s lowest possible estimate of oil was “not justified.” The estimate ranged from 1 billion to almost 12 billion barrels.
Federal law requires the government to base its analysis “on the full range of likely production if oil production were to occur,” the appeals court said in a 2-1 ruling. “It did not do so here.”
The court rejected the government’s claim that an error in the estimate could be fixed during later reviews.
“A later project or site-specific environment analysis is an inadequate substitute,” the court said. Only at the lease-sale stage can the agency consider “the overall risk of oil spills and the effects of the sale on climate change,” the court said.
ConocoPhillips, based in Houston, and Shell’s Gulf of Mexico unit joined the case on the side of the U.S. government.
The case is Native Village of Point Hope v. Jewell, 12-35287, U.S. Court of Appeals for Ninth Circuit (San Francisco).
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