The oil and natural gas industry last Wednesday generally welcomed the Obama administration's proposed plan to open up the Mid-Atlantic and South Atlantic waters and parts of the eastern Gulf of Mexico (GOM) to expanded exploratory and development activities, saying it was a good start. But others, such as the U.S. Chamber of Commerce and American Solutions, noted the the proposed plan was far from a sure thing, with President Obama stressing that the offshore areas "will be considered potential areas for development."
In a speech at Andrews Air Force Base, Obama said the proposed offshore leasing plan was a compromise between drilling opponents who want the entire Outer Continental Shelf (OCS) closed to oil and gas development and proponents who say "open all our waters...without any restrictions." The "answer is not drilling everywhere all the time," he said.
According to the Interior Department, its plan proposes expanding development of the entire GOM, with a focus on new areas of the gas-rich eastern GOM that currently are under moratorium; increasing exploratory activity in new frontier areas, such as the Mid-Atlantic (offshore Virginia) and South Atlantic regions and the Arctic Ocean; while putting Alaska's Bristol Bay off-limits as a national treasure. It takes the West Coast off the table, deeming it "too special" and in need of protection, as well as the North Atlantic (New Jersey to Maine) where there is little appetite for offshore drilling.
"The plan we are proposing calls for four more lease sales in the Gulf of Mexico by 2012 and, in the years beyond, would open up two-thirds of the oil and gas resources in the eastern Gulf while protecting Florida's coast and critical military training areas," said Interior Secretary Ken Salazar, who joined the president and spoke to reporters later. Under the proposed plan, Interior would be opening four times more area in the eastern Gulf for leasing than was opened during the entire eight years of the Bush administration, according to the department.
Salazar said the next GOM lease sale (Lease Sale 215) is scheduled for Aug. 18 in New Orleans. Interior's Minerals Management Service (MMS) estimates the proposed sale could result in the production of 242-423 million bbls of oil and 1.64-2.64 Tcf of natural gas.All told, the agency believes the GOM may hold 36-41.4 billion bbls of undiscovered, economically recoverable oil and 161-207 Tcf of undiscocvered, economically recoverable natural gas.
The Obama plan tentatively schedules a lease sale off the coast of Virginia for 2012 rather than 2011. Interior will make a final decision on the sale (50 miles off the Virginia coast) in either late 2011 or early 2012 after environmental analyses and other reviews are completed, Salazar said. This is the first lease sale proposed off the East Coast in nearly three decades. There is strong support for the proposed sale by the Virginia congressional delegation, the governor of Virginia and the Virginia General Assembly.
While seismic information on the East Coast is largely outdated, MMS estimates that the areas of the Atlantic Ocean and the GOM that the administration is considering for potential development could contain 62 Tcf of natural gas -- enough to heat all of the U.S. households that heat with natural gas for more than 13 years, according to the Natural Gas Supply Association.
Based on historic data, the MMS has estimated that the entire Atlantic OCS may hold mean technically, recoverable natural gas reserves of 37 Tcf and about 4 billion bbls of oil (see related story). The estimates include potential reserves in the North Atlantic, which is not part of the Obama OCS plan.
Interior also proposed a 2012 lease sale for Alaska's Cook Inlet under the new 2012-2017 plan. At the same time, pending lease sales under the existing 2007-2012 offshore plan for Alaska's Bristol Bay are canceled; Interior said it may subject the bay to long-term protections, which would remove it from future consideration for development. Also lease sales scheduled for the Beaufort and Chukchi seas are canceled pending the completion of studies. Salazar said there were "huge unanswered questions" relative to Beaufort and Chukchi.
The Obama administration's announcement last Wednesday addressed both the existing 2007-2012 OCS oil and gas leasing plan, which was written by the Bush administration and found to be flawed by the courts last April, and the Obama administration's new 2012-2017 program (see NGI, April 20, 2009). It was viewed as a compromise among drilling advocates on Capitol Hill, producers and environmentalists.
The 2012-2017 leasing plan comes more than a year after Salazar took steps to slow the approval process by extending the deadline for public comments and holding regional meetings to take the public's pulse on OCS development (see NGI, Feb. 16, 2009). It scraps much of an aggressive OCS plan that the Bush administration proposed in its final days.
The National Ocean Industries Association (NOIA), which represents the offshore industry, generally applauded Obama's proposal. "We are pleased to see the president is continuing the ongoing process for developing an offshore leasing plan that began in the prior administration with the removal of the moratoria. However, today's announcement is not the finish line," said NOIA President Randall Luthi.
"Additional rounds of review and permitting are required before any new leasing is authorized. It is, however, a step in the right direction to recognize the need for greater domestic energy production. The key will be to actually finish the process in a timely manner," he said.
Luthi noted that there were a few disappointments with the Obama proposed plan -- Obama failed to call on Congress to provide the funding to conduct the environmental analysis needed before seismic studies can move forward off the Atlantic Coast. The request was not part of the administration's budget for fiscal year 2011, he said.
Also not addressed was the sharing of royalties with coastal states that allow drilling off their shores, Luthi noted. "Allowing states such as Virginia to share in revenue from offshore drilling is a key component missing in today's announcement...Congressional action in support of revenue sharing is part of the package. It just makes sense."
And "we...are disappointed that sales in Alaska included in the remaining years of the 2007-2012 plan will not take place as scheduled. Although we are pleased that these areas are included in the [subsequent] 2012-2017 proposed plan, delayed sales equal delayed energy jobs and revenues urgently needed to fuel our struggling economy," Luthi said.
The Independent Petroleum Association of America, which represents independent oil and gas producers, called Obama's proposed plan for the offshore a "welcomed first step." But given the lengthy process involved in Interior approving it, IPAA President Barry Russell said it was "imperative that the administration and Congress put their plans in motion today."
Likewise, the American Petroleum Institute (API) called it a positive development. "We look forward to reviewing the details of the proposal and we stand ready to work with them to make this a reality," said API President Jack Gerard.
"As we move forward, we hope that consideration can be given to other resource-rich regions, such as the Destin Dome area of the eastern Gulf and areas off the Pacific Coast and Alaska. We also need to ensure that permitting processes are handled in an expeditious way," he said.
But Karen Harbert, president and CEO of the Institute for 21st Century Energy at the U.S. Chamber of Commerce, had more biting comments. "The administration scuttled the [Bush-era] January 2009 plan, which would have allowed exploration to go forward immediately in far more areas. The plan released today still leaves billions of barrels of American oil and significant reserves of natural gas under lock and key, including some of the most productive areas of exploration," she said (see NGI, Jan. 19, 2009).
"The new plan does create the potential for new areas of exploration on the Outer Continental Shelf. But at this stage, that's all it is -- potential. Much of what is promised is many years away, subject to more study and congressional action. What is needed...is urgent action, not analysis," Harbert noted.
"The media is widely reporting that President Obama is bravely 'opening up' new areas offshore to energy development. What the president actually said...was 'my administration will consider potential areas of development.' [This] is not a breakthrough. In fact it's not news at all," said Vince Haley, vice president of American Solutions, a citizen action network.
"The only news...is that the Obama administration has canceled five lease sales off the Alaska coast that were planned over the next two years. In one of these areas, there are an estimated 77 billion bbl of oil, or more than three times U.S. reserves," he noted.
But drilling advocate Sen. Mary Landrieu (D-LA) said the Obama plan "has set the stage for the largest expansion of the offshore drilling program since its inception in 1953." She noted that legislation signed into law in late 2006, which opened up part of the eastern Gulf for the first time, allowed Louisiana and three other Gulf coastal states (Texas, Mississippi and Alabama) to share royalties from production off their coastlines (see NGI, Dec. 25, 2006).
It is "equally critical" that other states that permit development off their coasts "should enjoy similar rewards," Landrieu said. "I will continue to work with Secretary Salazar and my colleagues in the Senate to ensure that we compensate states for the role they play in our national energy solution."
The S&P 500 closed down 0.3% last Wednesday, but the Obama plan proved positive for the energy sector -- especially for those involved in offshore production.
Saratoga Resources Inc., which develops gas and oil along the U.S. Gulf Coast, jumped 13.04%, while offshore service provider Omni Energy Services Corp. gained 10.29%. Houma, LA-based Gulf Island Fabrication Inc., which fabricates offshore drilling and production platforms, was up 10.13%.
Major integrated producers that work in the GOM also showed some gains, with Chevron Corp., Royal Dutch Shell and BP plc showing slight upticks.
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