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Interior Takes Step Toward Seismic Testing of Atlantic OCS

The Interior Department last week took its first step toward allowing seismic studies of the oil and natural gas resource potential in federal waters off the Atlantic Seaboard -- a move long awaited by producers.

Interior is inviting comments over a 45-days period on the environmental impact of conducting seismic studies of exploring the Atlantic Outer Continental Shelf (OCS), Interior Secretary Ken Salazar told reporters in Washington, DC.

He said Interior plans to develop an environmental impact statement (EIS) based on the comments. The EIS would determine where seismic studies should be conducted and start the process of awarding contracts.

Salazar said nine companies currently are interested in conducting seismic studies to determine the extent of oil and gas resources off the East Coast. He noted that the last time seismic studies of the energy potential off the East Coast were done was 30 years ago.

The dearth of seismic data is only one of the barriers to drilling off the East Coast. Another major hurdle is the lack of infrastructure -- such as pipelines and processing facilities -- to prepare and deliver oil and gas to market.

Virginia is particularly eager to allow drilling to begin off its coastline. Gov.-elect Bob McDonnell has urged Salazar not to delay further the Virginia offshore lease sale scheduled for 2011 (Lease Sale 220). The planned lease sale, if it occurs, would be the first off the Atlantic Seaboard in nearly 30 years. Interior estimates that offshore Virginia may hold 130 million bbl of oil and 1.14 Tcf of gas.

Salazar further said the department plans to release a plan for exploration and production in the federal OCS in the coming weeks that will address the existing five-year leasing plan, which expires in 2012, and propose a new five-year leasing plan. "We will make the decision regarding the [existing] 2007-2012; at the same time we look forward." The Virginia lease sale slated for 2011 is being reviewed under the plan, but a final decision regarding its fate has not been made, a department spokeswoman said.

Virginia Sens. Jim Webb and Mark R. Warner last Wednesday called on Salazar to keep the Virginia lease sale on track for 2011. "Support among Virginia's political leadership for the development of oil and gas resources is strong. Virginia Gov. Robert F. McDonnell, as well as members of the General Assembly from both parties, recognize the potential benefits to the Commonwealth and to our nation. Therefore it is understandable that recent media reports highlighting additional delays are a source of frustration to Virginia and to a nation," wrote Webb and Warner, both Democrats, in a letter to Salazar.

Interior began its review of its OCS leasing plan after the the U.S. Court of Appeals for the District of Columbia Circuit in April vacated and remanded its existing five-year (2007-2012) leasing plan (see NGI, April 20, 2009).

Salazar declined to comment on any plans for oil and gas tax breaks that may be contained in the Obama administration's budget to be released on Monday (Feb. 1). President Obama last year proposed rolling back $32.6 billion in direct tax breaks for oil and gas producers over a 10-year period, as well as seeking other tax hikes that could raise the burden on oil and gas industry to more than $80 billion (see NGI, Sept. 14, 2009).

Salazar did indicate that he is considering raising the royalty rate for oil and gas production on public lands, which has stood at 12.5% for years. He compared the U.S. rate with the 20-30% being charged by the state of Texas.

"Are we getting a fair return for the American taxpayer by having a royalty rate that is 12.5% that has been in place for a very long time?" he asked. "That's a big question. That is part of what we will be answering with respect to our reforms."

Last September the Government Accountability Office reported that the U.S. federal government receives one of the lowest shares of revenue from oil and gas production when compared to foreign countries.

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