Oil Companies Prepare for Battle Over Polar Bear Endangered Species Listing

The lawyers aren't clearing their calendars just yet, but the oil industry is bracing for some courtroom battles to maintain its stake in Alaska's oil-rich fields now that the Interior Department has listed polar bears as a threatened species.

About 15 percent of the nation's oil is being produced in Alaska, and soaring prices for the commodity are pushing companies to look farther and farther offshore to the floors of the Beaufort and Chukchi seas, which are frozen much of the year.

At a news conference Wednesday to announce the listing, Interior Secretary Dirk Kempthorne was armed with slides and charts showing the dramatic decline in sea ice over the last 30 years and projections that the melting of ice — a key habitat for the bear — would continue and may even quicken. He said that means the polar bear is a species likely to be in danger of extinction in the near future.

Major oil companies like ConocoPhillips, BP PLC, Exxon Mobil Corp. and Royal Dutch Shell PLC stand to lose the most; they either have huge stakes in current North Slope production or have their eye on future exploration.

Marilyn Crockett, executive director of the Alaska Oil and Gas Association, said she's concerned Wednesday's decision will drive prolonged court battles over oil future exploration and production. The association represents 17 oil and gas companies plus the owners of a trans-Alaskan pipeline.

"We now have a species threatened which is both healthy in size and population; the real risk is litigation that will follow," Crockett said. "Lawsuits will continue to be filed opposing individual operations, lease sales and permits, and that could have a significant impact on business up here."

Crockett added that there are no immediate plans to go on the courtroom offensive.

"We are going through all of the documentation to learn what the basis is for the decision," Crockett said. "Then we'll have a discussion of whether there is any action to take.

"We don't see any targets painted on projects yet, but it's likely we'll end up in court," she said. "In the end, significant energy policies will be decided by the courts."

The Interior Department outlined a set of administrative actions and limits to how it planned to protect the polar bear with its new status so that it would not have wide-ranging adverse impact on economic activities from building power plants to oil and gas exploration.

Kempthorne said the oil industry operates under rules of the Marine Mammal Protection Act and that an Endangered Species Act provision will allow oil and gas activities to continue under the MMPA's stricter standards.

"This rule, effective immediately, will ensure the protection of the bear while allowing us to continue to develop our natural resources in the arctic region in an environmentally sound way," the Interior Department said in its announcement.

The ruling comes at a time when the oil industry has its eye on resource-rich offshore fields.

Shell Oil Co. and ConocoPhillips have big plans for offshore drilling, especially after a recent lease sale conducted by the Interior Department's Minerals Management Service.

Shell said it's too early to tell how the ruling will effect any of the company's offshore plans.

Shell is a major player in prospective offshore drilling in the Beaufort and Chukchi seas.

In February, it was the high bidder on 275 leases for $2.1 billion. The Minerals Management Service still is reviewing those bids, the company said.

The area where the leases were sold is slightly smaller than Pennsylvania and part of a marine habitat used by one of two of Alaska's polar bear populations.

"Shell's polar bear policy currently meets or exceeds all existing regulatory requirements including reporting, training and avoidance measures," Shell spokesman Curtis Smith said in a prepared statement.

"In the future, as new regulations take shape, Shell will work with regulatory agencies and stakeholders to determine if additional mitigation measures are needed," he said. "Shell is absolutely committed to operating in a safe and environmentally responsible manner in the Alaska offshore."

ConocoPhillips also turned in 98 high bids for $506 million in February. It took no position on the ruling as of Wednesday afternoon.

Shell also has 179 leases in the Beaufort Sea for $84 million. It's hoping to begin some exploratory drilling this year, pending a favorable ruling from the 9th U.S. Circuit Court of Appeals and the company's ability to get the appropriate permits.

Last year, environmental and Native Alaskan groups asked the appeals court to block Shell plans for exploratory oil drilling near the Arctic National Wildlife Refuge.

They say Minerals Management Services didn't fully consider the drilling's impact on endangered bowhead whales and other marine mammals.

With the region's brief summer window for drilling is approaching, Shell is hoping for a favorable so it can proceed after the ice recedes.