Opinion ID: 3066130
Heading Depth: 3
Heading Rank: 2

Heading: One Billion Barrel Estimate

Text: Plaintiffs contend that BOEM chose an arbitrary number for the total barrels of economically recoverable oil from Lease Sale 193. The FEIS estimated the amount of recoverable oil by estimating production from the “first offshore oil field” that would be developed within the area of the leases. BOEM did not make any estimate of recoverable oil from additional fields that might be developed. The FEIS specified that the “recoverable oil resources from this field are assumed to be 1 billion barrels (Bbbl).” The FEIS then used the one billion barrel estimate as the basis for its environmental analysis. We must determine whether BOEM has articulated a rational basis for its decision to use the one billion barrel estimate. Mora-Meraz v. Thomas, 601 F.3d 933, 939 (9th Cir. 2010). We must reverse a decision as arbitrary and capricious if the agency relied on factors Congress did not intend it to consider, entirely failed to consider an important aspect of the problem, NATIVE VILLAGE OF POINT HOPE V. JEWELL 21 or offered an explanation that runs counter to the evidence before the agency or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. Lands Council II, 537 F.3d at 987 (internal quotation marks omitted). For the reasons that follow, we conclude that BOEM’s one billion barrel estimate is arbitrary and capricious.
BOEM first announced it was developing an EIS in preparation for Lease Sale 193 in July 2005. According to internal BOEM emails, BOEM analyst Jim Craig was assigned to provide “resource estimates and a scenario” which other BOEM scientists would use to analyze environmental effects. Craig emailed his supervisor, Deborah Cranswick, stating that he believed that “[t]he reasonably foreseeable scenario” should include “oil production from the first field only, not the full economic potential.” Craig’s reason for focusing on the first field production was practical; he would have to wait for about two months to have information that would allow him to develop a scenario for the entire area covered by the lease sale. Craig stated in his email, “You realize that we won’t have the 2005 resource assessment numbers until Sept, so we must base the scenario on the ‘first development’ not the total economic potential.” Craig also indicated that this emphasis on the first oil field was a “departure from previous work.” Craig asked Cranswick whether the scenario should employ a single estimate of oil production from that first 22 NATIVE VILLAGE OF POINT HOPE V. JEWELL field, or whether it should employ a range. Cranswick responded by email that she preferred a range. Craig then suggested, in a July 29 email, a range from 500 million barrels to 1.5 billion barrels. Craig emphasized in his email that the scenario should assume “equal probability for any volume within the range” so that one billion barrels “does not become the de facto most-likely” outcome. Craig’s draft scenario also noted, with respect to recoverable oil in the Chukchi Sea, that “[o]ur current petroleum assessment indicates that recoverable oil resources could range from 3.6 to 11.8 billion barrels.” There is a gap in the email chain in our record, so we do not know Cranswick’s next response to Craig. But we do know that in a subsequent email from Craig to Cranswick on August 2, Craig proposed a single one billion barrel estimate as an alternative to using a range that was “too broad”: Attached is a table with E&D data. If this represents too broad of a range, then I think we should fall back to a single volume (1.0 Bbbl) for the EIS analysis with a corresponding set of single E&D numbers. It’s hard to have it both ways (very narrow range) when these figures are entirely speculative. There are two clear options: 1) 500-1500 MMbbl, as a uniform distribution (every point in range is equally likely). This will require a low and high case analysis. NATIVE VILLAGE OF POINT HOPE V. JEWELL 23 2) 1.0 Bbbl as a single point estimate with no confidence interval. This will require a mostly likely case analysis only. Although it would be nice to propose a recoverable oil volume of 932 MMbbl +/- 134 MMbbl in a 90% confidence interval, we don’t have any data to support it. Pick (1) or (2), but not (1) and (2). On August 3, Cranswick emailed Craig a data chart reflecting Craig’s second option. It contained only a single one billion barrel estimate. On that same day, Craig emailed to Cranswick a draft scenario relying on the one billion barrel estimate of oil production. This draft explained: The scenario assumed for environmental analysis involves the discovery, development, and production of the first oil field in the Chukchi sale area. Ultimately recoverable oil resources from this field are assumed to be 1 billion barrels (Bbbl). Smaller oil volumes are not likely to be economic to produce and single pools containing larger volumes are increasingly rare. If oil prices drop below $30.00 per barrel (they are above $50.00 when this scenario was written), exploration in the Chukchi OCS is expected to be minimal and oil discoveries may not be developed. 24 NATIVE VILLAGE OF POINT HOPE V. JEWELL The draft also pointed out that “the mean recoverable oil resource [in the Chukchi Sea] is 12 Bbbl with a 5% probability of 29 Bbbl.” Craig also prepared a chart for Cranswick comparing the numbers Craig had selected for the Lease Sale 193 EIS to an EIS prepared for the Chukchi Sea and Hope Sea Basin for the 2002–2007 Five Year Oil and Gas Leasing Program. That previous EIS had estimated a range for economical oil production from 0.96 billion barrels to 2.42 billion barrels. On August 10, Cranswick circulated the Lease Sale 193 EIS scenario to other BOEM scientists who would be working on the EIS. The scenario contained the one billion barrel estimate. Cranswick explained in an email that [t]he scenario is based on a one mid-range economic resource number (note - this is not necessarily the most likely. A lower volume is more likely to occur but less likely to be developed from an economic standpoint; a higher volume is less likely to occur but more likely to be developed). Several BOEM employees expressed concern with the agency’s proposed scenario. For example, one NEPA analyst employed by BOEM, Dee Williams, wrote, “I don’t understand why [the agency] doesn’t use their sophisticated assessment indices to impose a more definitive likely scenario. Clearly, it is impossible to predict ‘with certainty’, but the narrative needs to inspire greater public confidence by explaining the parameters of reasonable expectations.” Williams further stated: NATIVE VILLAGE OF POINT HOPE V. JEWELL 25 If it becomes economical to build one platform to produce an estimated 1 billion barrels, and there is between 12 and 29 billion barrels that are recoverable, why is the scenario not compelled to imagine more than one platform (i.e. is a single platform always the initial scenario, in which case maybe we should just explain that)? Cranswick responded that “the initial scenario is one platform because we can’t have only a partial platform if that is all that the resource estimate support[s].” At the same time, Cranswick suggested that smaller oil developments would be associated with the first oil platform. “Once the first platform goes in, it is likely that additional satellite subsea completions would be developed before another host platform would be considered.” Once the draft EIS was completed, BOEM sought comments from other agencies and from the public. Numerous outside commentators expressed concern about the scenario BOEM had developed. For example, the Environmental Protection Agency wrote that the hypothetical development scenario that is used in the document add[s] additional layers of uncertainty regarding the probabilities of exploration, production and development activities and the risks associated with those activities. . . . EPA is concerned that, overall, the depth and diversity of uncertainties presented in the document resulted in the lack of adequate support for many of the document’s conclusions. 26 NATIVE VILLAGE OF POINT HOPE V. JEWELL The Division of Migratory Bird Management at the U.S. Fish and Wildlife Service (“FWS”) similarly challenged the one billion barrel estimate as inaccurate: The basic assumptions used in the analysis of effects are flawed with regards to the size of development scenarios. The [Draft EIS (“DEIS”)] states that the current petroleum assessment indicates a mean recoverable oil resource of 12 billion barrels; yet all environmental analyses reported in the DEIS are based on a development of 1 billion barrels, thereby significantly underestimating likely scenarios. The Division recommended that BOEM not proceed with the lease sale until problems with the EIS were corrected. Public commentators similarly pointed to flaws in employing a one billion barrel production estimate, including that such an estimate was “based on a price of oil at half the current market value,” that the estimate “severely understates the true cumulative impacts” of oil production, and that it was “nowhere . . . justified with scientific analysis.” Despite these criticisms, BOEM continued to rely on its one billion barrel estimate. The one billion barrel estimate was the basis for the entire FEIS, including its analysis of the risk of a large oil spill. For example, BOEM instructed the FWS to rely on that estimate in that agency’s analysis of whether the lease sale would jeopardize listed threatened species such as the spectacled and Steller’s eiders. Had FWS made a jeopardy finding, BOEM either would not have been able to proceed with the Lease Sale under the ESA or would have had to obtain an exemption from the “no jeopardy” rule. 16 U.S.C. § 1536(a)(2). NATIVE VILLAGE OF POINT HOPE V. JEWELL 27
Plaintiffs contend that the one billion barrel estimate was chosen arbitrarily, and that BOEM did not provide an adequate explanation for its selection. We agree for three reasons. First, BOEM has not justified its choice of the lowest possible amount of oil that was economical to produce as the basis for its analysis. The draft EIS scenario stated that the agency chose to focus on a one billion barrel estimate in part because any volume lower than one billion barrels would not be economical to produce. At the same time, BOEM was well aware that if any oil was produced from Lease Sale 193, the economically recoverable oil was very likely to exceed one billion barrels. In an August 18, 2005, email commenting on the in-progress draft EIS, Jim Craig wrote, “We assume 1 billion bbl for the first field, but there is another 11 Bbbl that is economic at $70.” Craig attached a table to a December 2005 email, listing “Estimates for Speculative Oil and Gas Reserves,” specifying a range between 1.0 and 6.1 billion barrels for the “Chukchi Shelf.” Finally, in a May 2006 email Craig wrote, “The ‘1-billion barrel, first field’ assumption is subjective (‘for purposes of analysis’) and represents only a fraction of the full economic resource potential in the Chukchi (which was recently published).” The mean estimate of economical oil production, at the center of the distribution curve, is by definition a more likely occurrence than is the lowest estimate of viable oil production. Previous EISes in the Chukchi Sea had used the mean estimate of oil production as the basis for their analyses, and those EISes had also included low and high 28 NATIVE VILLAGE OF POINT HOPE V. JEWELL estimates. For example, BOEM previously leased portions of the Chukchi Sea in now-expired Lease Sale 109. The parcels leased in Lease Sale 109 overlap substantially with the parcels leased in Lease Sale 193. Documents prepared in advance of Lease Sale 109 stated that “[t]he mean resource estimate . . . is 2.68 billion barrels of oil with a 20 percent chance of a discovery of commercially recoverable oil.” In estimating the effects of oil spills from Lease Sale 109, BOEM “assume[d] the full development of the resource estimate of 2.68 billion barrels.” In contrast, while estimates in the record about the economically recoverable amount of oil from Lease Sale 193 vary, nowhere is the mean amount of economical production calculated to be less than 2.37 billion barrels. But the FEIS for Lease Sale 193 uses one billion rather than 2.37 billion barrels as the basis for its analysis of environmental consequences. BOEM’s primary explanation for using its low-end estimate for oil production is that this scenario overestimates the likely amount of production. BOEM emphasizes that because of the remoteness of the area and the risk of economic failure, any oil production activity is an unlikely result of the lease sale. More specifically, BOEM estimates that there is a less than 10 percent likelihood that oil development in the region will occur. Defendants argue that since the most likely foreseeable outcome is no oil development at all, one billion barrels of oil production is actually a generous estimate. This analysis is flawed. The assumption that there is a 10 percent chance of commercial oil development is itself without a rational basis in the record. Jim Craig first developed the estimate “off the top of [his] head” in an email exchange. That calculation contradicts estimates used earlier NATIVE VILLAGE OF POINT HOPE V. JEWELL 29 in the EIS, as well as estimates used in past EISes for the Chukchi Sea. Further, BOEM conflates the likelihood of oil and gas production with the likelihood of environmental effects if such production occurs. Based on its responsibility to “‘consider[] all foreseeable direct and indirect impacts’” of the proposed action, N. Alaska Envtl. Ctr., 457 F.3d at 975 (citation omitted), BOEM concluded that oil production was “reasonably foreseeable.” There is a substantial basis for this in the record because, as noted by BOEM, “the area has high oil resource potential and there is existing transportation infrastructure to move oil from northern Alaska to distant markets.” Once BOEM made the determination that production is reasonably foreseeable, it was required to consider the full cumulative impact of that production. See 40 C.F.R. § 1508.7. Put differently, BOEM might well be right that the most likely outcome is that there will be no oil development in the Chukchi Sea. But that fact should have made no difference to BOEM’s analysis of the reasonably foreseeable environmental effects of oil development, if such development does occur. Second, the FEIS did not take into account variation in oil prices in arriving at the estimate that one billion barrels of oil are economically recoverable. An assumption of stable prices ignores the fact that the amount of economically recoverable oil varies substantially depending on oil prices. This may be seen, for example, in a 2006 report of the Minerals Management Service (a prior incarnation of BOEM), which estimated economically recoverable oil from the Chukchi Shelf at different prices. At $30 per barrel, the mean estimate was 0 barrels; at $46 per barrel, the mean estimate was 2.37 billion barrels; at $60 per barrel, the mean estimate was 8.38 billion barrels; at $80 dollars per barrel, the mean estimate was 12 billion barrels. 30 NATIVE VILLAGE OF POINT HOPE V. JEWELL Third, BOEM has not provided an adequate explanation for its decision to base its EIS only on the amount of oil expected to be produced from the first field in the leased area of the Chukchi Sea. It is unclear from the record how BOEM initially estimated that the first field would produce one billion barrels of oil. Jim Craig himself suggested that his calculations regarding that first development were “entirely speculative.” But even assuming that one billion barrels is an accurate estimate of the amount of oil to be produced from the first field, it is unclear why BOEM assumed that only one oil field would be developed in the lease area. The FEIS itself acknowledges that “[w]hen the first project overcomes the cost, logistical, and regulatory hurdles, more projects are . . . likely to follow.” The FEIS explains that it is unlikely that “all economically viable resources will be developed” in the Sea due to the difficulties in operating in a frontier area of oil production. But the FEIS does not explain why production would be expected to stop if the first oil field is developed. The primary explanation for that assumption suggested by the record is that data to analyze “the full economic potential” of the lease sale would not be available until about two months after Jim Craig initially proposed an estimate based on the first field. Previous evaluations of Chukchi Sea oil development had assumed that multiple oil fields would develop once commercial development was viable. In a technology assessment of Chukchi Sea petroleum development performed in 1983 for BOEM, the Bureau of Land Management had used a 1.5 billion barrel estimate to measure prospects in “the central Chukchi shelf.” That assessment assumed that two oil fields would be developed: one of one billion barrels and one of 0.5 billion barrels. On the record before us, it remains unclear why BOEM chose to NATIVE VILLAGE OF POINT HOPE V. JEWELL 31 analyze the lowest amount of oil that could be produced in the Chukchi Sea from the smallest number of oil fields that could be developed. Defendants contend that any error resulting from using the one billion barrel estimate can be corrected through sitespecific EISes later in the development process. We disagree. An agency is required to analyze the environmental effects in an EIS as soon as it is “reasonably possible” to do so. Kern, 284 F.3d at 1072. An appropriate time to estimate the total oil production from the lease sale is the time of the lease sale itself. Under NEPA, BOEM is required to take into account the full environmental effects of its actions when deciding whether and in what manner to pursue the lease sale. 42 U.S.C. § 4332(2)(C). A later project or site-specific environmental analysis is an inadequate substitute for an estimate of total production from the lease sale as a whole. It is only at the lease sale stage that the agency can adequately consider cumulative effects of the lease sale on the environment, including the overall risk of oil spills and the effects of the sale on climate change. It is also only at the lease sale stage that the agency can take into account the effects of oil production in deciding which parcels to offer for lease. We also disagree with defendants that our decisions in Akutan, 869 F.2d at 1191–92, False Pass, 733 F.2d at 617, and Watt, 683 F.2d at 1267–68, compel a contrary result. In False Pass, plaintiffs challenged the agency for failing to consider the worst case scenario for oil development. 773 F.2d at 614. In the circumstances presented there, we held that there was a rational explanation for not considering the worst case at the lease sale stage. Here, in contrast, the BOEM considered only the best case scenario for 32 NATIVE VILLAGE OF POINT HOPE V. JEWELL environmental harm, assuming oil development. A best case scenario “skew[s]” the data toward fewer environmental impacts, and thus impedes a “full and fair discussion of the potential effects of the project.” Native Ecosystems Council v. U.S. Forest Serv., 418 F.3d 953, 965 (9th Cir. 2005) (citation and internal quotation marks omitted). Unlike in Akutan, BOEM’s estimate did not merely inform an assessment of the likelihood of an oil spill. 869 F.2d at 1192. Among other things, its estimate informed an assessment of seismic effects, habitat effects, oil production, and the cumulative effects of the sale on global warming. BOEM’s estimate also informed FWS’s determination that Lease Sale 193 would not jeopardize listed species. The record suggests that FWS was close to finding, even under the one billion barrel assumption, that the lease sale would jeopardize the spectacled and Steller’s eiders. Had BOEM not selected the least amount of oil necessary for production, FWS may well have concluded that the listed species were in jeopardy. See 16 U.S.C. § 1536(a)(2). Finally, the degree of error in the estimation of total oil production is greater here than in our earlier cases. In Watt, the agency was ready to publish its EIS when newly available figures suggested that oil reserves were “roughly twice those originally estimated.” 683 F.2d at 1267. We held in Watt that the agency had acted reasonably when it decided not to supplement its EIS with last-minute analysis of the risk of an oil spill based on the new figures. Id. at 1267–68. In the case before us, BOEM was fully aware from the very beginning that if one billion barrels could be economically produced, many more barrels could also be economically produced. Indeed, at current oil prices, it would be economical to NATIVE VILLAGE OF POINT HOPE V. JEWELL 33 recover twelve times the one billion barrel estimate used by BOEM. This is a far more dramatic difference than in Watt. We do not criticize BOEM’s decision to estimate the total amount of economically recoverable oil from the lease sale. Given the uncertainties involved in the Chukchi Sea, BOEM had no choice but to make an estimate. But having decided that oil production was reasonably foreseeable, NEPA required BOEM to base its analysis on the full range of likely production if oil production were to occur. It did not do so here.