From the diaries, by Erick

On April 17, a decision in the DC Circuit blocked oil drilling in the Chukchi Sea off Alaska. Environmental interests (namely “The Center for Biological Diversity”) joined a native village in successfully arguing that the Minerals Management Service (MMS) of the Department of the Interior erred in its Five Year Leasing Program (2007-2012) back in 2005 by failing to consider all of the potential environmental impacts on the Outer Continental Shelf. Intrepid RedStater achance blogged about it here.

The Five Year Program covers the entire OCS, including the Gulf of Mexico. There was some concern that by setting aside the Five Year Program, GoM activity would be shut down.

Last week, Houston-based Mariner Energy, owner of 90 lease blocks in the deepwater GoM, applied for a drilling permit for the first of four wells it planned to drill. MMS denied the permit, apparently having received an opinion from the Department of Justice that the Court’s ruling vacated the entire Program, not just the portion affecting Alaska.

Having a drilling rig under contract with no place to go, at a total cost of $800,000 per day, tends to focus one’s attention. After some wrangling, Mariner got its permit, but the whole episode underscored the uncertainty of GoM operations under the 2005 Five Year Plan.

Now, Secretary of the Interior Ken Salazar has asked Justice to seek clarification of the ruling.

The court vacated the entire 2007-2012 Outer Continental Shelf oil and natural gas leasing program two years after lease sales began. At Salazar’s request, the Department of Justice is asking the court to confirm its interpretation of the decision as not requiring retroactive invalidation of prior leases and to allow it to move forward and fix the shortcomings in the environmental analysis for the 5-year plan without developing and approving an entirely new five year program.

“The previous Administration’s failure to apply the law has resulted in widespread uncertainty in the oil and gas industry and put reliable conventional energy production from offshore areas at risk,” Salazar said. “We must fix the problems the court identified and put oil and gas leasing decisions back on firm scientific footing.”

From the Petition for Clarification:

The 2007-2012 Five-Year Program scheduled 21 lease sales in eight areas. In its merits brief, filed on August 29, 2008, the Government explained that Interior had by then already conducted four of those lease sales-three in the Gulf of Mexico (Sale #204, #205, and #206) and one in Alaska’s Chukchi Sea (#193). … Interior has already issued 1,854 leases in the Gulf of Mexico and 487 leases in the Chukchi Sea pursuant to the lease sales described above. …Interior collected $9.94 bilion in bonus payments alone during those lease sales. …

Before this Court issued its opinion, Interior had already approved exploration plans for 92 leases issued from Sales #204-207 in the Gulf of Mexico. Similarly, Interior had approved development plans for 20 Gulf leases and issued 197 permits for platform and pipeline construction and well drilling. Relying on these approvals and permits, lessees have already drilled 47 wells, laid 589,623 feet of pipeline, and built 18 oil platforms on Gulf leases issued from Sales #204-207, all at a cost of $764 million. They have also planned an estimated $345 million in further work for the near future; at present, Interior has pending before it three development plans, 15 exploration plans, and 33 applications for permits to drill or install platforms or pipelines in Gulf areas. Given the nature of offshore oil work, it would be extraordinarily disruptive if the Court’s opinion were interpreted to prohibit ongoing and planned OCS work on Gulf of Mexico leases unrelated to [the native Village of Point Hope’s] asserted injuries. [emphasis added.]

Industry’s investment is ongoing, slightly more advanced than “shovel-ready”.