US court blocks ConocoPhillips Alaska oil project

ConocoPhillips' multibillion-dollar Willow North Slope oil project suffered a setback in federal court Aug. 18 when US District Court Judge Sharon Gleason voided permits and rights-of-way granted by the US Bureau of Land Management that were challenged in lawsuits filed by conservation groups.

Alaskans are now left to assess the impact of the federal court decision on Alaska's North Slope from the lawsuit brought by conservation groups.

Judge Gleason cited legal defects in the Environmental Impact Statement study prepared by the US Bureau of Land Management in 2018 and 2019 during the previous Trump administration.

"This is at best a two-year delay and possibly longer" because of time needed to redo certain environmental studies, said Dudley Platt, an independent Alaska oil and gas consultant, and because it may delay two winter seasons of developmental drilling for Willow production wells.

"It definitely stops drilling in the 2021-2022 winter season and, unless the new environmental reviews can be cleared by next fall, it will stop the 2022-2023 drill season," Platt said.

Gleason agreed with contentions by lead plaintiff Sovereign Inupiat for a Living Arctic and five other plaintiffs that key parts of a lengthy federal Environmental Impact Statement for Willow were legally defective. The judge, however, upheld defendants BLM and ConocoPhillips on several other points.

Gleason found the analysis of greenhouse gas emissions to be inadequate along with mitigation measures for impacts on polar bears.

The judge also found that BLM had done an inadequate analysis of alternatives to plans for gravel roads and drilling pads in sensitive areas.

"The permits and approval granted to ConocoPhillips disregarded local health concerns, required public process and the law, and today's ruling corrects that," said Bridget Psarianos, a staff attorney with Trustees for Alaska, the environment law firm that represented the plaintiff group.

Alaska Gov. Mike Dunleavy reacted strongly, arguing the ruling "outsources production to dictatorships and terrorist organizations."

"This is a horrible decision. We are giving America over to our enemies piece-by-piece," Dunleavy said. "The Willow project would power America with 160,000 b/d, provide thousands of family-supporting jobs, and greatly benefit the people of Alaska."

ConocoPhillips spokeswoman Rebecca Boys was cautious in her assessment. "We will review the decision and evaluate the options available regarding this project," she said.

IMPACTED TIMELINES

The court decision will require the agency and company to redo parts of the environmental analysis for the project, which may require a supplemental EIS.

ConocoPhillips was hoping to make a construction decision on Willow by the end of this year, but a new environmental review and SEIS could delay that for a year to two, assuming the project is ultimately upheld by the courts.

A delay will have effects on anticipated new oil for the Trans-Alaska Pipeline System, which is running at less than one-fourth of its original capacity.

If Willow could remain on schedule, it could be in production in 2025 or 2026 with peak production estimated at 150,000 b/d. If a new SEIS is done, Willow production could happen in 2027 or 2028, or later.

This will affect future TAPS oil volumes, which are also impacted by declining production in existing North Slope fields. It will minimally affect the state of Alaska's revenues because the state's share of federal royalties from Willow go to a special fund to support Inupiat villages on the North Slope.

While state production taxes do apply on federal lands, the near-term tax payments are reduced by ConocoPhillips' ability to apply expenses from its fields elsewhere on the slope under the state's net-profits type tax.

The regional municipality, the North Slope Borough, will be adversely affected by the delay in development of a new industrial property tax base.

Construction of gravel roads and drill pads for Willow had been planned for the winter/spring of 2021 but when the lawsuits were filed, Gleason ordered an injunction halting the work until decisions were made on the overall case, which has now happened.

ConocoPhillips has, however, continued offsite engineering work on the project. Willow's initial phase is estimated to cost about $3 billion but the ultimate build-out of the project will require a total of about $6 billion, the company has said.