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Shell official says issue in Chukchi Sea court ruling can be fixed

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Shell official says issue in Chukchi Sea court ruling can be fixed


Shell's decision not to proceed with 2014 drilling in the Chukchi Sea wasa tough one for the company, but the silver lining in the US Circuit Court ofAppeals decision that scuttled Shell's plan was the fact that the court onlyagreed with the plaintiffs on one narrow issue, which can be remedied, asenior company official said Thursday in an interview.

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Unfortunately, the repair job cannot be done in time for Shell to drillthis summer, said Shell's Alaska president, Pete Slaiby.

The issue is now back in an Alaska US District Court. Slaiby would notspeculate on the options before US District Court Judge Ralph Beistline, buthe said the fault identified by the appeals court was very specific.

The Court of Appeals for the Ninth Circuit invalidated a lower courtorder upholding an Environmental Impact Statement for the Department of theInterior's 2008 Outer Continental Shelf lease sale in the Chukchi Sea.

Shell and other companies had bid for $2.6 billion worth of leases in thesale. But a coalition of environmental groups and two Alaska Nativeorganizations sued the officials with the Bureau of Ocean Energy Managementand the Interior Department, as well as Shell, ConocoPhillips and Statoil, allthree of which won leases in the sale, arguing the EIS was inadequate.

In a ruling last week, the US circuit court judges ruled that the federalgovernment erred in its assessment of the environmental impact of oil and gasdevelopment in the Chukchi Sea off Alaska when preparing the 2008 lease sale.

The Court of Appeals did not agree with the plaintiffs that the BOEM didnot properly take into account what the plaintiffs said was "incomplete orunavailable information" about the ecology of the sea.

But the court did agree that an estimate for economically recoverableoil, used when assessing the potential environmental impact of development ofthe leases, "was arbitrary and capricious."

The plaintiffs had argued that the estimate -- 1 billion barrels -- was"unrealistically low," and led the agency to underestimate the negativeenvironmental impact of development.

Referring to court's agreement with the plaintiffs on the estimate,Slaiby said: "It was a very narrow issue the court identified. The good newshere is that the decision didn't open up a wide range of areas for discussion.

"We believe this means all the other work accomplished in the EIS isadequate. We believe there will be a very focused amount of work to bolsterthe EIS."

Slaiby would not speculate, however, on the mechanics of how the BOEMwould do this. It could require a Supplemental EIS, a process that could takeseveral months.

As for the company's announcement Thursday that its Alaska drillingprogram would stand down, Slaiby said: "The issue was very clear based on theruling by the Ninth Circuit court. We have the ninth circuit taking issue withthe EIS and this would leave our exploration plan very vulnerable tochallenge.

"Because of the decision, we would not even get permits. We've workedhard this year to get our assets in place so this is hard for us. But lookingat the results of the ruling, moving forward with any kind of certainty isimpossible."

Slaiby said it was fortunate the ruling came before Shell had startingmoving vessels. Had the company been able to proceed, the drill ships andvarious support vessels would have started moving in February to Alaskawaters.

"We will have some costs, because these vessels had been contracted, butwe'll be working to farm them out} to reduce the impact, Slaiby said.

The mobilization of vessels would have cost tens of millions of dollars,Slaiby said. Had the ninth circuit ruling come later in the spring, much ofthat would have been lost, he added.

--Tim Bradner, by Deepa Vijiyasingam,