November 21, 2008 / 1:59 AM / 10 years ago

UPDATE 2-Court voids Shell's Beaufort Sea drilling plan

(Adds Shell reaction paras 11-12)

By Yereth Rosen

ANCHORAGE, Alaska, Nov 20 (Reuters) - The 9th Circuit Court of Appeals on Thursday blocked a major oil-drilling program in the Beaufort Sea, ruling that federal officials failed to address environmental impacts when they granted permission to Shell Oil (RDSa.L) to drill wells over a three-year period.

The U.S. Minerals Management Service did not properly consider the risks of oil spills, disturbance to migrating whales, disruptions to the traditional hunting lifestyle of Inupiat Eskimos and other potential harms from Shell’s program to drill at a prospect known as Sivulliq, the court ruled.

Before authorizing drilling, the agency must start anew with its review and perhaps launch a full-scale environmental impact statement rather than a more abbreviated environmental assessment, the court ruled.

“There remain substantial questions as to whether Shell’s plan may cause significant harm to the people and wildlife of the Beaufort Sea region,” the ruling said.

The long-awaited decision followed a temporary order issued last year that halted Shell’s drilling at Sivulliq, about 16 miles (25 km) off the coast of northern Alaska. The prospect, once called Hammerhead when it was drilled decades earlier, is known to hold oil, but it was abandoned in the past for economic reasons.

The ruling was in response to a pair of combined lawsuits filed by environmental and Native groups, the North Slope Borough and the Alaska Eskimo Whaling Commission.

“Before we take the leap and turn the Arctic Ocean into an oil field, we first need to take a fuller look at what the potential impacts will be,” said Eric Jorgensen, a Juneau-based attorney for Earthjustice, the environmental law group that represented some of the plaintiffs.

The MMS defended its environmental review process.

“We were just made aware of the 9th Circuit Court of Appeals decision and of course are disappointed by the ruling. We intend to review the court’s ruling closely,” the MMS said in a statement.

“We believe that MMS did conduct the required hard look’ to see if an environmental impact statement was necessary.”

Shell said the MMS did “a thorough job” and the company “met or exceeded requirements for responsible Arctic exploration.”

“The decision by the court delays drilling and extends the timeline it will take to bring this much-needed U.S. production on-line,” Shell said in a statement.

Exploration at Sivulliq is part of an aggressive program by Shell to develop oil and gas resources in Alaska’s federally managed outer continental shelf, an area where there has been little development to date.

The company spent $2.1 billion earlier this year for exploration rights in the remote Chukchi Sea off Alaska’s northwest coast, on top of a combined $83.7 million spent to acquire Beaufort Sea exploration rights in MMS lease sales held in 2005 and 2008.

Shell has also launched a broad program to conduct seismic tests in the Chukchi and Beaufort to gather geological data needed in advance of drilling.

The Alaska outercontinental shelf holds an estimated 26.6 billion barrels of undiscovered recoverable crude oil and 132 tcf of undiscovered recoverable natural gas, according to the most recent MMS resource estimate. Nearly all of that is in the Chukchi and Beaufort Seas, according to the resource estimate. (Editing by Mary Milliken and Christian Wiessner)

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