Appeals court cancels offshore drilling program

A federal appeals court ruled Friday that the Bush administration did not properly study the environmental impact of expanding oil and gas drilling off the Alaska coast and canceled a program to find new reserves.

A three-judge panel in Washington found that the Bush-era Interior Department failed to consider the effect on the environment and marine life before it began the process in August 2005 to expand an oil and gas leasing program in the Beaufort, Bering, and Chukchi seas.

It wasn't entirely clear whether the decision applies to other areas of the same expanded offshore drilling program, including tracks in the Gulf of Mexico and along the Atlantic Coast. Attorneys for the environmentalists and the industry said they think it would cancel the entire program, not just the Arctic region.

The appeals court ordered the department, now run by President Barack Obama's appointee Ken Salazar, to analyze the areas to determine environmental risks and potential damage before moving ahead with the program.

The seas off Alaska that were at the center of the suit are home to wildlife including polar bears, whales, seals, walruses and seabirds. The lawsuit was brought by three environmental groups that want to protect the ecosystem and the Native Village of Point Hope, Alaska, a tribe that lives off the wildlife on the Chukchi Sea coast.

The decision comes at a time when oil and gas producers are finding it increasingly difficult to find new reserves and boost production at home and abroad. Output from the biggest U.S. oil companies has largely been in decline in the past few years.

Even though most people recognize the names of the giant multinationals - Exxon Mobil, Shell, BP and others - they control less than 10 percent of the world's oil reserves. Most proven reserves - about 80 percent - are held by national, state-run companies like those in Venezuela and Saudi Arabia.

The American Petroleum Institute, the industry's trade association which joined the lawsuit to defend the program, said Friday it's reviewing the implications.

"It would be a disservice to all Americans - and a devastating blow to the economy - if this decision were to delay further the development of vital oil and natural gas resources," the organization said in a statement. "Development in federal waters off the nation's coast provides thousands of well-paying jobs, government revenues and the fuel needed to run America's cars and factories, heat our homes and the feedstock needed to make the materials we use every day."

The Interior Department did not comment other than to say it was reviewing the decision. The department had already delayed the leasing program by five years to complete environmental studies.

Attorney William Snape, who argued the case for the environmentalists before the appeals court, said the species in the Arctic are already under significant environmental threat because of global warming. He said Interior Secretary Salazar has sent mixed signals on how he'll handle drilling in the outer continental shelf, but the ruling is a chance for the new administration to protect sensitive areas.

"We're seeing a whole ecosystem potentially collapse," Snape said. "This really is a great opportunity for Salazar to do the right thing."

Joseph Stanislaw, an independent senior adviser to Deloitte LLP, said it's becoming increasingly clear the rules are changing for oil and gas production under the Obama administration - changes that are likely to add time and cost to many drilling projects.

Obama's priorities, Stanislaw said, place the environment and climate change ahead of energy security and domestic oil and gas supplies.

"Trying to get a handle on these new rules will make life tougher for oil and gas companies," he said. "But these are very creative companies that will rise to the challenge and meet them. They're part of the game, and they want to stay in the game."

So far, the Interior Department has only approved one lease sale in the disputed Artic area, which involved more than 29 million acres in the Chukchi Sea extending from about 50 miles to 200 miles offshore. The sale in February 2008 attracted 667 bids totaling almost $3.4 billion, the most in any offshore lease sale in Alaska history. The high bids totaled more than $2.6 billion.

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Associated Press Energy Writer John Porretto in Houston contributed to this report.