Federal judge halts activity on Chukchi Sea petroleum leases, says enviro law not followed

A federal judge on Wednesday stopped companies from developing oil and gas wells on billions of dollars in leases off Alaska's northwest coast, saying the federal government failed to follow environmental law before it sold the drilling rights.

The lease sale in February 2008 brought in nearly $2.7 billion for the federal government from the sale of 2.76 million acres in the Arctic waters of the Chukchi Sea, including $2.1 billion in high bids submitted by Shell Gulf of Mexico Inc.

U.S. District Judge Ralph Beistline said that the Minerals Management Service failed to analyze the environmental effect of natural gas development despite industry interest and specific lease incentives for such development.

The agency analyzed only the development of the first field of 1 billion barrels of oil — despite acknowledging that the amount was the minimum level of development that could occur on the leases.

Beistline enjoined all activity under the lease sale pending additional environmental reviews.

The decision comes after the massive oil spill from a BP PLC well in the Gulf of Mexico and is a blow to the unit of Royal Dutch Shell PLC, which had hoped to drill three exploratory wells this summer in the Chukchi Sea. Those plans were halted with President Barack Obama's decision in May to delay offshore oil drilling in the Arctic Ocean until at least 2011.

Offshore drilling is strongly supported by Alaska Gov. Sean Parnell and other elected officials in the state, where upward of 90 percent of general fund revenue is provided by the petroleum industry.

However, environmental and Alaska Native groups have long contended it would be impossible to clean up a spill in icy Arctic waters, far from deep water ports and airports.

The nearest Coast Guard base is on Kodiak Island more than 1,000 miles away.