Gulf of Mexico Oil Drilling Plan OK'd, Alaska Sales in Limbo

Turns out, the U.S. Interior Department made the right bet earlier this month when it decided to press ahead with plans to auction oil and natural leases in the Gulf of Mexico despite legal uncertainties swirling around the matter.

A federal appeals court clarified Tuesday an earlier ruling and will allow the Interior Department to continue with its five-year oil and natural gas leasing plan in the Gulf of Mexico. The prospects for offshore drilling in Alaska's Beaufort, Chuckchi, and Bering Seas aren't as clear. Drilling and future lease sales will be halted until the Interior Department conducts an environmental study, according to the court ruling. The Interior Department must report back every 60 days on the status of its environmental review.

The U.S. Court of Appeals for the District of Colombia threw out in April the entire 2007-2012 Outer Continental Shelf oil and natural gas leasing program on the premise Bush administration officials did not complete proper scientific and environmental studies before scheduling lease sales offshore Alaska.

The court's ruling in April centered on drilling offshore Alaska. But it wasn't clear until the court issued its clarification whether lease sales in the Gulf of Mexico were at risk. Obviously, the clarification is good news to oil producers who have recently bid on offshore leases in the Gulf of Mexico. The Minerals Management Service accepted bids of $690 million and awarded 328 leases in the last auction held in March.

Furrowed brows -- for environmentalists and oil producers alike -- are now focused on the Interior Department's impending environmental review and lobbying pressure from both sides is likely to increase in the coming weeks.

"It's very important considering the size of resources at stake," American Petroleum Institute spokesman Richard Ranger said in a phone interview Wednesday. "We want the Interior Department to move forward quickly."

Royal Dutch Shell, ConocoPhillips and Repsol of Spain are among oil producers that have bid on leases offshore Alaska. A Chukchi Sea oil and gas lease sale held in February 2008 attracted $2.6 billion in bonus bids. Shell and Conoco have the largest lease holdings in the Chukchi Sea.

Considering the billions already invested, I wouldn't expect oil producers to go quietly in the night if the environmental study doesn't fall their way. Environmental groups concerned drilling will threaten endangered wildlife as well as damage ecologically sensitive areas will be just as feisty. And then there's the state of Alaska, which stands to lose out considerably if plans to drill offshore are quashed. Let the cage match begin.