With Smallest Five-Year Offshore Plan, Industry Braces for Shrinkage Among Leases

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By Ari Natter

 

April 20 — The Obama administration's draft five-year offshore oil and gas leasing program, already the smallest in history, is only expected to get smaller by the time it becomes final, representatives of the oil and gas industry and other industry analysts told Bloomberg BNA.

By keeping what the industry says is 85 percent of the nation's federal offshore acreage off limits to oil and gas development, the federal government is effectively leaving 3.5 million barrels per day of oil and natural gas beneath the ocean, as well as forfeiting more than 800,000 jobs, $200 billion in government revenue and $1 trillion in economic activity, according to a study conducted by Quest Offshore Resources, an oil and gas industry consulting firm.

Meanwhile, environmental advocates, mindful of disasters such as the Deepwater Horizon blowout and the Exxon Valdez spill, argue the draft plan places environmentally sensitive areas off the coasts of the Atlantic and Alaska at risk.

The 14 potential lease sales to occur between 2017 and 2022 in the Interior Department's draft plan are likely to be further narrowed down by public comment and multiple stages that allow revision, according to groups such as the American Petroleum Institute. API represents major players in the offshore drilling industry such as Transocean Ltd. and Noble Corp.

“Lease sales that you see proposed in this draft may be narrowed or taken out entirely in the future based on additional science, information and public comment that we receive.”

Interior Secretary Sally Jewell

By comparison, the previous five-year plan from 2012 to 2017 scheduled 15 lease sales, and the five-year plan covering 1982 to 1987 had the most with 41 lease sales, according to the Bureau of Ocean Energy Management, part of the Interior Department.

Generally, the draft plan, made public by BOEM, “is as big as it gets,” API spokesman Brian Straessle said in an interview.

 

Draft ‘As Big as It Gets.'

“They narrow it down further and further,” he said. “It is the start of a very long process. We were disappointed to see it was so restricted at this early stage.”

The draft, made public at the end of January, typically takes multiple years before it becomes final, including the issuance of a proposed version, environmental impact statement and final version.

“This is a step back from some of the earlier discussed proposals,” Erik Milito, API director of upstream and industry operations, said. “Given that this can only get smaller—that is where our concern lies. It's not a guarantee when all is said and done that we will have the acreage on this proposal.”

The vast majority of the lease sales in the draft proposal—10—would occur in the Gulf of Mexico, with three scheduled to occur off the coast of Alaska, and one in a yet-to-be-determined location in the Mid- or South Atlantic.

“We are in the early stages of what is a multiyear process to develop the plan,” Interior Secretary Sally Jewell said during a conference call with reporters in late January. “Lease sales that you see proposed in this draft may be narrowed or taken out entirely in the future based on additional science, information and public comment that we receive”.

A 1983 decision by the U.S. Court of Appeals for the District of Columbia Circuit, California v. Watt II, which described the federal leasing process as “pyramidic in structure, proceeding from broad-based planning to an increasingly narrower focus as actual development grows more imminent,” has been interpreted to mean the Interior Department is not allowed to add new lease sales or areas to the draft plan once it is proposed, said Connie Gillette, a BOEM spokeswoman.

“At each step, the secretary may only maintain or narrow the options, e.g., remove areas from leasing consideration or reduce the number of sales, but may not add areas back in or increase the number of sales in an area,” Gillette said in an e-mail to Bloomberg BNA. “So while it is true that lease sales that are in the program could be removed as the process moves along, at this time, we don't know if that will happen. We do know that nothing can be added to the program without starting the process over.”

Atlantic Lease Sale in Question.

The proposed Atlantic sale, which is scheduled to occur in 2021, would be the first time federal leasing has been allowed in federal waters off the Atlantic Coast since the early 1980s. But the sale may never ever happen because of fierce opposition from environmentalists, according to analysts such as Charles K. Ebinger, a senior fellow at the Brookings Institution.

While the Atlantic sale may be included in the final five-year leasing plan, “there is a good chance the Atlantic sale won't happen,” Ebinger said in an interview. “When it comes to the realities, you will see a lot of environmental opposition come forward.”

Privately, industry representatives said they are also concerned the proposed Atlantic sale may never occur, even though its inclusion in a five-year drilling plan may encourage the oil and gas industry to go through with an expensive permitting process for seismic testing off the Atlantic Coast.

A 2011 BOEM report estimates the technically recoverable resources off the Atlantic are 3.3 billion barrels of oil and 31 trillion cubic feet of natural gas, although industry argues it is based on old data gleaned from out of date technology.

Organized Environmental Opposition.

Meanwhile, environmental groups, such as Boston-based Environment America, are organizing opposition groups to attend public scoping meetings about the five-year plan. In a recent meeting, in Wilmington, N.C., roughly 300 out of 400 people came to register opposition to the proposal to hold a lease sale off the Atlantic Coast, Elizabeth Ouzts, a spokeswoman for the organization, said.

“Our coastline is too precious to risk to another BP catastrophe,” Ouzts said in an interview. “What we've seen in all these communities is people absolutely want to protect their beaches from the risk of another BP catastrophe. These are the voices we are bringing to the table and bringing to the fore to stand up for our beaches.”

The Obama administration canceled a scheduled lease sale off the Atlantic Coast in 2010 in the wake of the BP Plc well blowout and Deepwater Horizon drilling rig explosion in the Gulf of Mexico, which claimed 11 lives and dumped more than 4 million barrels of oil into the Gulf of Mexico, according to the federal government. The April 2010 disaster became the largest offshore oil spill in U.S. history.

“We are extremely hopeful the Atlantic lease sale stays,” National Ocean Industries Association spokeswoman Nicolette Nye said in an interview. “From our perspective, we would like to see all the planning areas included because we know it is going to be whittled down as it goes along. It has never happened that areas get added into the program in the later stage of the process.”

Arctic Lease Sales in Question.

The NOIA represents companies such as oil services company Schlumberger Ltd. and major drillers such as ConocoPhillips Co. and Exxon Mobil Corp.

Analysts such as Ebinger, who also is a member of the National Petroleum Council, believe the realities of Arctic lease sales could be in doubt as well. The draft plan calls for three potential new leases off the Alaska coast, one each in the Chukchi Sea, Beaufort Sea and Cook Inlet.

“Unless we see prices dramatically higher, I think there will be a number of oil companies that don’t want to put their dollars into a high-cost area when they feel there are better opportunities in the lower 48,” said Ebinger, who has worked on a yet-to-be-released study on the future of Arctic oil and natural gas development requested by Energy Secretary Ernest Moniz. “For the Arctic to really flow, you need $100-a-barrel oil,” he told Bloomberg BNA.

“Unless we see prices dramatically higher, I think there will be a number of oil companies that don’t want to put their dollars into a high-cost area when they feel there are better opportunities in the lower 48.”

Charles K. Ebinger  Senior Fellow, The Brookings Institution

Several scheduled Alaska lease sales that were included in the prior five-year plan were not held after the U.S. Court of Appeals for the District of Columbia Circuit vacated the plan in 2009 on grounds that the Bush administration's environmental review did not meet the requirements of the Outer Continental Shelf Lands Act.

Little Congress Can Do.

“The secretary, in complying with the court's remand, decided not to include those sales in the revised program,” Gillette, the BOEM spokeswoman, said of the five canceled sales, which were supposed to occur in the Beaufort and Chukchi seas and the North Aleutian Basin.

“I'm not optimistic, but I guess it's the first step,” Sen. Lisa Murkowski (R-Alaska), chairman of the Senate Energy and Natural Resources Committee, told Bloomberg BNA, referring to prospects for the Alaska lease sales occurring.

The Outer Continental Shelf Lands Act of 1953 defined submerged land—in most cases three miles from the coast—as federal property and gave the Interior Department jurisdiction over their mineral exploration and development.

The five-year plan doesn't require congressional approval, although Congress can pass legislation requiring the Interior Department to add more sales, or otherwise alter it—a legislative long shot in the current Congress.

Still, lawmakers such as Rep. Rob Bishop (R-Utah), chairman of the House Natural Resources Committee, have vowed efforts to expand the plan.

“We are going to have to be creative,” Bishop said in an interview. “We will do whatever we possibly can, both as far as direct appropriations approaches, direct legislative approaches—efforts to put pressure on the administration to change some of the rulemaking.”

 

By Ari Natter

To contact the reporter on this story: Ari Natter in Washington at anatter@bna.com

To contact the editor responsible for this story: Larry Pearl at lpearl@bna.com

More details on the five-year draft plan and the notice of intent to publish a draft environmental impact statement are available at http://www.boem.gov/Five-Year-Program/.