Judges say Arctic offshore lease sale was flawed

ANCHORAGE, Alaska (AP) -- A federal appeals court Wednesday ruled in favor of environmental groups that claimed the federal government conducted a flawed environmental review before selling $2.7 billion in petroleum leases off Alaska's northwest coast in 2008.

A three-member panel of the 9th Circuit Court of Appeals ruled in a split decision that the Minerals Management Service, now the Bureau of Ocean Energy Management, prepared an environmental assessment for a sale in the Chukchi Sea based on minimal development — just 1 billion barrels of oil.

Environmental groups said that was too low and that drilling and development was likely to be far more widespread in petroleum-rich Arctic Ocean underwater deposits.

The panel ordered the case back to federal District Court, where a trial judge could order the correction of the environmental review.

The lawsuit was filed by 15 environmental or Alaska Native groups, who called for an immediate suspension of drilling until a more adequate assessment is completed on drilling's possible effects on polar bears, walrus, ice seals, endangered whales and coastlines used by Alaska Native subsistence hunters.

"President Obama now has the chance to do right by the Arctic and the planet by keeping oil drilling out of the Chukchi Sea," said Earthjustice attorney Eric Grafe, who represented the groups, in a prepared statement. "It makes no sense to open up the fragile, irreplaceable, and already melting Arctic Ocean to risky drilling for dirty oil that will only exacerbate climate change already wreaking havoc on the Arctic and elsewhere.

Royal Dutch Shell PLC was the leading bidder in 2008. The company spent $2.1 billion on Chukchi leases and has spent upward of $5 billion on Arctic offshore development.

Shell in 2012 drilled pilot holes and dug mudline cellars in both the Chukchi and the Beaufort seas. The company was not allowed to drill into oil-bearing deposits because required response equipment was not on hand.

The company experienced problems in the challenging Arctic conditions, culminating with the drill vessel Kulluk running aground off an island near Kodiak as it was being towed across the Gulf of Alaska.

Shell chose not to drill in 2013. The company filed a Chukchi exploration plan for 2014 that is under review. The company has not decided whether to resume Chukchi drilling even if the plan is approved.

Shell Alaska spokesman Curtis Smith said by email that the company is reviewing the court decision.

Grafe said by phone that the environmental groups want drilling suspended immediately because of the flawed analysis. They would expect the District Court judge to order BOEM to redo its environmental analysis, and if the potential for harm is too great, to reject drilling.

"It ought to reconsider the sale in light of that new analysis," Grafe said. "In the meantime, it shouldn't allow drilling."

Judge Johnnie Rawlinson dissented in part from the majority opinion written by Judge William Fletcher. He disagreed that BOEM's environmental analysis was flawed and said there was no such thing as a perfect analysis of possible production.

"We do not sit as a panel of super scientists to dissect the agency's analysis," he wrote. "Rather, we only review the process for reasonable thoroughness."