Ninth Circuit Reverses NEPA Approval of an Oil and Gas Lease in the Chukchi Sea


The Bureau of Ocean Energy Management (BOEM) of the Department of Interior sought to lease approximately 30 million acres of federal land in the Chukchi Sea for oil and gas development, but, according to a recent decision by the Ninth Circuit Court of Appeals, BOEM’s analysis of the potential environmental consequences of the lease was based on an inadequate assumption of one billion barrels of recoverable oil for purposes of the National Environmental Protection Act (NEPA).  Native Village of Point Hope v. Jewell, No. 12-35287, 2013 WL 223716 (9th Cir. Jan. 22, 2014).

The Chukchi Sea is a southern arm of the Arctic Ocean between Alaska and Russia and contains a variety of animals, including bowhead whales, polar bears, pacific walrus, seals, fish and birds.  NEPA requires federal agencies to prepare an Environmental Impact Statement (EIS) for major federal actions significantly affecting the quality of the environment.  BOEM prepared an EIS based on the presence of one billion barrels of economically recoverable oil.  The federal government sold the lease and collected more than $2.6 billion.  Environmental groups challenged the sufficiency of the EIS based on the Administrative Procedure Act.  Although a federal district court ordered BOEM to supplement its EIS, it later granted summary judgment to BOEM.

The plaintiffs argued on appeal that BOEM failed to include information concerning animal populations potentially affected by oil exploration under the lease in the EIS and underestimated the volume of recoverable oil.  The Court of Appeals determined that sufficient protections for the animal populations would be provided by the requirements of other federal environmental statutes, such as the Endangered Species Act, and also emphasized that further environmental analysis would be appropriate if site-specific activities were contemplated in the future.

The Court of Appeals, however, reversed the summary judgment, concluding that the one billion barrel of oil estimate was chosen arbitrarily for three reasons.  First, BOEM did not justify its choice of the lowest amount of oil that was economical to produce as the basis for its analysis.  Internal BOEM correspondence demonstrated BOEM chose the one billion barrel figure because any volume lower would not be economical to produce.  At the same time, BOEM was aware that the recoverable oil was likely to exceed one billion barrels, and an internal assessment even indicated that recoverable oil resources in the Chukchi Sea could range from 3.6 billion to 11.8 billion barrels.  Second, the billion barrel estimate did not take into account variation in oil prices.  Third, BOEM did not provide an adequate explanation for its decision to base its EIS only on the amount of oil expected to be produced from an initial field in the leased area of the Chukchi Sea, especially in light of an acknowledgement that more projects likely would follow.  The Court of Appeals noted that that it was appropriate for BOEM to provide estimates, but it was necessary to use the full range of the likely volume of available oil if production were to occur.  The case was remanded to the district court for further proceedings.

BOEM would need to prepare and make a revised EIS available for comment from other agencies and the public.  BOEM’s prior EIS drew criticisms from the Environmental Protection Agency and the Division of Migratory Bird Management at the U.S. Fish and Wildlife Service based on the one billion barrel estimate.  The Ninth Circuit’s ruling presents a robust application of the arbitrary and capricious standard governing a challenge to agency action because the Court of Appeals did not suggest that BOEM committed a type of legal error, such as relying on factors that Congress did not intend it to consider.  Future oil development plans in the Chukchi Sea likely will be scrutinized in subsequent court challenges.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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