Offshore E&P after the moratorium

The 26-year-long congressional ban on offshore energy development is no more. With President Bush’s signature on a moratorium-free spending bill, the long-standing policy of locking away resources off America’s Atlantic and Pacific coasts has finally been cast aside.

After several months of political wrangling amid rising energy prices and public clamoring for increased offshore drilling, Congress was left with no choice but to let the moratorium expire. But long-time drilling opponents warn that the victory may only be temporary, vowing to reinstate the ban - in some form - when the new Congress and new president gather in Washington next year.

So the question for the offshore energy industry is: Where do we go from here?

There are five key areas in which action must be taken in the next year to ensure that the progress made on increasing access in 2008 translates into enduring opportunities for domestic offshore energy development.

Fight to prevent return of the presidential ban. While it is clearly the prerogative of President-elect Obama to simply re-impose the presidential prohibition on offshore leasing, we have an opportunity to negotiate a more nuanced offshore policy, featuring expanded access paired with select new limitations.

One limitation under consideration is requiring the consent of nearby coastal states. Another is to define a statutory distance from shore beyond which development can occur. There are also differing opinions on whether to share royalties with the adjacent coastal states.

Still, the stalemate has been broken. While there are battles ahead to shape the new policies, at least there will be new policies.

Participate vigorously in the MMS five-year plan. Despite the removal of the congressional and presidential bans, there remain a number of regulatory limits that preclude immediate new drilling. First and foremost, no acreage can be leased for exploration unless it is included in the Minerals Management Service’s (MMS’s) 5-Year OCS Leasing Program.

The current five-year plan runs from July 1, 2007, through June 30, 2012, and includes 21 lease sales in eight of the 26 OCS planning areas in the Gulf of Mexico, Alaska and the Atlantic Ocean, according to the Interior Department. It does not, however, include any areas covered by congressional bans with the exception of a single sale in 2011 off Virginia. (MMS added this sale to the plan after the state included possible OCS activity in a comprehensive energy strategy Gov. Tim Kaine signed into law in early 2006.)

The next 5-Year OCS Leasing Program could consider any part of the nation’s offshore submerged lands. Interior estimates that these formerly restricted portions of the OCS contain 18 billion bbl of oil and 76 Tcf of gas. In light of the energy situation facing the nation, Interior Secretary Dirk Kempthorne this summer directed his agency to begin the extensive process of creating a new 5-Year OCS Leasing Program. This plan will run from 2010 to 2015, starting a full two years before the existing plan expires.

The initial phase of the plan’s development was completed on Sept. 15, 2008, when the public comment period closed. During the six weeks that the agency was accepting input, MMS received about 165,000 comments from companies, trade associations, environmental groups and concerned citizens. This is more than the combined number of comments received in all four comment periods during the last plan’s development. While about 79,000 of the comments opposed expanding offshore production, about 86,000 comments were submitted in favor of offshore energy. This represents a sea change in the public’s feelings about offshore energy.

There are still additional comment periods on the 5-Year OCS Leasing Program to come, and the energy industry will have to remain engaged to ensure we are able to generate similar levels of support the next time around.

Promote offshore energy facts in Congress. Before it recessed in October, members of Congress had introduced more than 20 separate bills dealing with the offshore. While it remains to be seen what shape legislative efforts to re-impose restrictions will ultimately take, both the House and Senate have discussed approaches that may serve as a starting point next year. Examples include basing leasing on an arbitrary distance from shore (12 mi, 25 mi, 50 mi and 125 mi have all been proposed) or on the consent of the nearest state.

Also sure to be discussed is the eastern GOM, which remains under a separate moratorium enacted in 2006 as part of an agreement to open 8.3 million acres to leasing while sharing resulting royalties with Gulf states.

While it is too soon to predict how the 111th Congress will tackle OCS energy, there is bound to be ample debate. After decades of simple prohibition, such a vigorous approach is a welcome change.

Gather data. For years, opponents of offshore energy have touted the statistic that the US contains only 3% of the world’s oil and gas reserves. There is too little, they argue, to justify producing domestic energy. These conclusions, however, are based on data that was collected decades ago by outdated technology and without the benefit of modern information processing. There may be much, much more beneath the waters off our coasts than is currently believed.

Consider the GOM. According to MMS resource estimates, in 1985 this region was believed to hold 6.03 billion bbl of oil and 59.64 Tcf of gas. Yet by 2006, after 20 years of constant E&P, the GOM is estimated to still contain 44.92 billion bbl of oil and 232.54 Tcf of gas. Improved technology for locating and profitably extracting resources from formerly impossible depths has demonstrated that the more you look, the more you find.

Maintain a focus on safe day-to-day operations. The success of these steps toward increased access to domestic energy resources depends on the continuation of the industry’s strong environmental and safety record.

According to MMS, since 1985, more than 7 billion bbl of oil have been produced in federal offshore waters with less than 0.001%, or 7 million bbl, reported spilled. This translates into a 99.999% record for clean operations.

The National Academy of Sciences’ 2002 study Oil in the Sea III similarly found that offshore extraction accounts for only 1-2% of oil that makes its way into the oceans each year. By contrast, transporting oil accounts for four times as much spillage, and a far greater amount is the result of runoff from land-based sources. Successfully continuing this pattern of responsible operations is critical to everything we do.

Clearly, the debate on expanded offshore energy production is just beginning. But with the removal of the blanket restrictions that existed for over two decades, the nation now is free to engage in an actual policy debate over where it is and is not appropriate to explore for and produce oil and natural gas from public submerged lands.  

THE AUTHOR
	Dean E. Taylor has been CEO of Tidewater Inc. since March 2002 and its President since October 2001. Mr. Taylor served as Executive Vice President of Tidewater from 2000 to 2001 and served as its Senior Vice President from 1998 to 2000. He has been Tidewater’s Executive Chairman since July 31, 2003 and has been its Executive Director since October 2001. He has been Director of Whitney Holding Corp. since 2002. Mr.Taylor also serves as Chairman of the National Ocean Industries Association.