The energy industry has little confidence that the Obama administration will revise its proposed five-year offshore leasing plan to include potentially prolific areas that historically have been off-limits, an official with the American Petroleum Institute (API) said last Tuesday.
“We’re going to keep working with the administration…but there’s not a lot of encouraging signs” that it will move in another direction, said Erik Milito, API’s group director of upstream and industry operations, during a teleconference with reporters.
“This [leasing] decision is going to be very difficult from an administration standpoint to make any changes in the near future,” he said. However, Milito said there’s been a lot of discussion on Capitol Hill about whether to “move forward with legislation to direct leasing in other areas.”
He disputed the Interior Department’s claim that its new offshore plan, which was released earlier this month, encompasses 75% of the undiscovered, technically recoverable resources in the Outer Continental Shelf (see NGI, Nov. 14). “The 75% number is inaccurate,” Milito said, adding that it’s based on old and inadequate seismic data from the 1970s. About five to seven companies have submitted applications to update the seismic information, but the government has not acted on them, he said.
Basing the leasing plan on old seismic data “puts us in a “Catch-22” situation, he said. Asked to estimate the oil and natural gas potential of some of the areas excluded from the five-year leasing plan, Milito said, “That’s the million-dollar question.” But if he had to guess, he said he believes the most promising offshore areas in terms of oil and gas resources are the eastern Gulf of Mexico and offshore Virginia. A small part of the eastern Gulf, South 181, is already open to leasing, but the vast majority is off-limits and has a lot of potential, Milito said.
As for leasing offshore Virginia, “That’s one of the areas that should have been included [in the leasing plan] at a minimum.” It has the support of Republican state Gov. Bob McDonnell, and Virginia’s Democratic Sens. Jim Webb and Mark Warner.
He also believes the lease sales for Alaska’s Beaufort and Chukchi Seas should be held sooner. “Those lease sales are put off until 2015 and 2016…Shell is on target to get out there in 2012 and to get some exploratory drilling [done]. And if they have success in the Alaskan offshore…then we may have opportunities where companies want to come forward with interests sooner than 2015 and 2016 and get those bonus bids into the government.”
Milito further assailed the decision in the lease plan involving increasing bonus bid amounts and shrinking lease terms. “It’s a problem,” he said, adding that they “discourage companies from going out there and leasing.”
Some of the bonus bids in the deepwater are going up as much as 200%, and “lease terms [are] getting shrunken down to five to seven years in some cases,” he said. Milito said producers won’t have enough time to develop these leases.
While the Obama administration’s leasing plan is “modest” at best, the neighboring countries of the United States — Cuba, Mexico, the Bahamas, Canada and Russia — are aggressively moving ahead on offshore development adjacent to U.S. borders, warned Sen. Lisa Murkowski last Monday.
“Each of those nations has weighed the economic benefits of offshore production against the potential environmental risks. All five have decided it is in their best interest to proceed,” she wrote in the Wall Street Journal.
“Mexico is advancing on a deepwater well only 22 miles from U.S. waters in the Gulf of Mexico. Before the year’s end, Cuba is scheduled to be drilling 60 miles from Key West, and the Bahamas are proceeding with leases not much farther away. Canada is actively drilling projects not far from Maine’s coastline and proceeding towards development in the Beaufort Seas, just east of Alaskan waters. Along Alaska’s western boundary, Russia is aggressively moving into the Arctic Ocean, with exploration at the very edge of the boundary of Alaskan waters,” Murkowski said.
“In a few years the U.S. could wind up in a very regrettable position — exposed to all of the risks of offshore development but with no control and none of the rewards. Imagine that foreign development is not done to our standards and a spill occurs.”
“We face a stark choice. We can sit between active drilling operations in neighboring countries, complaining that it’s too risky to develop our own resources while the world around us does exactly that.” Or the U.S. can lead on offshore development — “not only so that we can show others how it’s done, but also to ensure our own protection and prosperity,” Murkowski said.
In the Gulf of Mexico, the most mature of all offshore drilling regions, activity continues at a slow pace, according to the latest Gulf Permit Index (GPI) issued by Greater New Orleans Inc.
Over the past three months, an average of five deepwater well permits have been issued each month, representing a decrease of 14% from the monthly average of 5.8 deepwater permits in the year prior to the Deepwater Horizon oil spill, and a decrease of 29% from the three-year historical monthly average of seven new deepwater well permits, the GPI said.
The dearth of permits is tied to the longer approval process. The average approval time for an exploration plan has been 114 days this year, up 88% from the five-year historical average of 60.6 days, GPI said. Since the April 2010 oil spill, all deepwater plans that include any type of drilling activity must undergo an environmental assessment (EA). The approval time for deepwater plans requiring EAs this year has been 218 days.
Thirty-six percent of the plans submitted to the Bureau of Ocean Energy Management this year have been approved, far less than the historical 73.4% approval rate, the GPI said.
An average of seven shallow-water permits were issued monthly over the past three months, just 1% less than the 7.1 monthly average in the year prior to the oil spill, but 52% below the historical monthly average of 14.7 new shallow-water well permits, according to the index.
In another offshore development, the Interior Department’s Bureau of Safety and Environmental Enforcement (BSEE) last Tuesday provided guidance to industry on when it will approve or deny requests for suspensions of production. The guidance reflects a recent decision by Interior’s director of Office of Hearings and Appeals, which upheld BSEE’s requirements that lessees must demonstrate a commitment to produce in order to be eligible for a suspension.
Suspensions can be granted to leaseholders to extend a lease past the primary term for oil and gas leases on the Outer Continental Shelf. Typically a lease will have a primary term of five, eight or 10 years, depending on water depth.
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