Court order halts Chukchi oil and gas activity

ANCHORAGE, Alaska, July 21 (Reuters) All activity on oil and gas leases in the Chukchi Sea off northwestern Alaska must cease until federal regulators complete a review of how the drilling would impact the environment, a federal judge in Anchorage ruled Wednesday.

U.S. District Court Judge Ralph Beistline, ruling in a lawsuit filed by several environmental and Alaska Native organizations, said the Minerals Management Service failed to abide by federal environmental law when it sold $2.66 billion worth of leases in the Chukchi in 2008, mostly to Royal Dutch Shell RDS.A.

The MMS, now reorganized and renamed the Bureau of Ocean Energy Management, regulation and Enforcement, must complete a more thorough evaluation before allowing any work to resume, Beistline said.

The agency must conduct a study of potential impacts of natural gas development, which was omitted entirely because the pre-sale review considered only oil development, and make a good-faith effort to supply important environmental information that remains missing, he said.

The plaintiffs, who filed the lawsuit in 2008, said the ruling was an important victory.

The Chukchi lease sale “was the product of the same broken system that led to poor oversight of BP's drilling operations,” Michael Brune, Sierra Club executive director, said in a joint statement released by the plaintiffs.

“The past few months have taught us all a painful lesson about the risks of offshore drilling. An oil spill in the Arctic's broken sea ice would be impossible to respond to. A spill would be the nail in the coffin for Arctic communities and wildlife like polar bears, which are already struggling to survive. And where there is offshore drilling, there are oil spills. This lease sale never should have happened,” Brune said in the statement.

The Chukchi is believed to hold about 15 billion barrels of recoverable oil and 76 trillion cubic feet of natural gas, according to recent Interior Department estimates. But the remote and usually ice-choked area, which lies between Alaska and Siberia, has barely been touched by energy companies. Only five exploration wells have ever been drilled in the Chukchi and they were completed about two decades ago.

Shell now has ambitious plans to develop the Chukchi, along with the Beaufort Sea off northern Alaska, as major new oil basins. The company had intended to drill up to three exploration wells in the Chukchi and two in the Beaufort this summer and fall, but President Obama suspended offshore Arctic drilling permits in the aftermath of the BP Deepwater Horizon disaster.

A Shell spokesman said the company was evaluating whether Beistline's decision would affect its Alaska program.

We are still analyzing the ruling and how it might impact our 2010 planned operations as well as our aspirations to drill in 2011,” said Curtis Smith, Shell's spokesman in Anchorage.

“These are regulatory breaches, not necessarily environmental concerns,” he added.

The Bureau of Ocean Energy Management, Regulation and Enforcement was also evaluating Beistline's decision, a spokesman said.

“Both in Anchorage and in Washington, we're very carefully reviewing the judge's decision,” said John Callahan, spokesman for the agency's Alaska office.

Although Shell is the only company that has submitted drilling plans for Chukchi, ConocoPhillips (COP.N), Statoil (STO), Repsol (REP.N) and Eni (ENI.N) also bought leases in the 2008 sale. ConocoPhillips and Statoil have struck a deal to jointly develop some leases, and Statoil has applied for permission to conduct seismic surveys this year. (Editing by Manash Goswami)