The proposed re-opening of the US Atlantic coast from Delaware to Florida may spur long-awaited industry activity.
Diane Langley, Technology Editor
First steps are being taken by seismic firms and the Minerals Management Service (MMS) based on US President Barack Obama’s announcement March 31 that his administration will allow offshore exploration in federal waters that have been closed to oil firms for decades. Large areas of the Atlantic and part of the eastern Gulf of Mexico totaling 1,712 acres will be opened up, starting with a lease sale for oil and gas drilling 50 miles off the Virginia coast that may occur during the current five-year federal leasing program. Lease sales are also being considered off much of the rest of the Atlantic coast. The lease sales, advocated by oil companies since both Congress and then-President George W. Bush lifted long-standing bans on Outer Continental Shelf (OCS) development in 2008, are still subject to public input and environmental review overseen by the MMS. However, the sinking of the Deepwater Horizon could jeopardize the opening of these new lease areas.
The Obama administration has ruled out offshore drilling in federal waters off the entire Pacific seaboard through 2017. President Obama also issued a memorandum withdrawing Alaska’s Bristol Bay area of the North Aleutian Basin, which had been opened for development under the previous administration, from oil and gas leasing through June 30, 2017, citing environmental concerns.
Obama announced that plans will be made to study the viability of drilling in previously off-limits areas of Alaska’s Beaufort and Chukchi Seas. No new drilling leases will be issued in these areas before 2013, but Shell did receive long-awaited federal air-quality permits to conduct exploratory drilling this year in other parts of the Beaufort and Chukchi Seas. Shell had been seeking the permits, which require the use of pollution reduction controls and ultra-low-sulphur diesel fuel, for nearly four years.
“I want to emphasize that this announcement is part of a broader strategy that will move us from an economy that runs on fossil fuels and foreign oil to one that relies on homegrown fuels and clean energy,” Obama said during his announcement at Andrews Air Force Base in Maryland. However, he also said, “Given our energy needs, in order to sustain our economy and keep it competitive, we are going to need to harness traditional sources of fuel even as we ramp up renewable sources of energy.”
Joining Obama in making the announcement, Secretary of the Interior Ken Salazar said, “By providing order and certainty to offshore exploration and development and ensuring we are drilling in the right ways and the right places, we are opening a new chapter for balanced and responsible oil and gas development here at home.” Salazar said these priorities will guide changes to the current 2007–2012 offshore oil and gas leasing program, as well as the new 2012–2017 program.
Seismic companies have already submitted permit applications for 2D surveys in the offshore Atlantic areas. These companies are CGG Veritas, GX Technology, Seabird Exploration Americas, Spectrum Geo, Spectrum CGS, TGS-Nopec and WesternGeco. Eleven applications have been filed by the seven companies.
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Fig. 1. US offshore areas being opened up for exploration and newly protected areas.
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OFFSHORE ATLANTIC
The Atlantic Outer Continental Shelf (OCS) area is divided into four planning areas along the Atlantic seaboard—North Atlantic, Mid-Atlantic, South Atlantic and the Straits of Florida. The MMS estimates that 39–63 billion barrels of economically recoverable oil and 168–294 Tcf are economically recoverable from the eight planning areas under consideration for leasing under the 2012–2017 program. This represents as much as 80% of the undiscovered economically recoverable oil and gas on the US OCS.
According to a statement by Steven Kopits, managing director of Douglas Westwood’s US operations, “The Obama administration’s decision to permit offshore drilling in the southern half of the US Atlantic coast, from Delaware to Florida, is a welcome development for oil and gas producers and consumers. With a drilling moratorium in place for decades, the resources of the south Atlantic shelf are not well known, but hopefully can add several hundred thousand barrels of crude oil production daily by the later years of this decade.”
Ten oil and gas lease sales were held in the Atlantic between 1976 and 1983. A total of 51 wells were drilled in the Atlantic OCS—five continental offshore stratigraphic test wells between 1975 and 1979 and 46 industry wells between 1977 and 1984. Five wells offshore New Jersey had successful drillstem tests of natural gas and/or condensate; these wells were abandoned as non-commercial at the time.
According to the MMS, the Programmatic Environmental Impact Statement (PEIS) being launched will evaluate the environmental impacts of multiple geological and geophysical activities in OCS waters of the Atlantic. This PEIS will review advances in geological and geophysical (G&G) technology and improved knowledge of acoustic impacts on marine life. It will determine whether significant impacts to Atlantic resources could occur as a result of G&G activities and, where needed, outline mitigation and monitoring measures that will reduce or eliminate the potential for impacts to the environment. All permit applications are reviewed for compliance with the National Environmental Protection Act, the Marine Mammals Protection Act, the Endangered Species Act and the Coastal Zone Management Act.
According to the MMS, these environmental assessments are expected to be completed in 18 months to two years. “It looks like we’re going to be busy,” said MMS spokesperson Eileen Angelico. “We are in the process of scoping meetings.” The scoping process is public and involves all interests—federal, state, local and tribal governments; natives; commercial interests; environmental groups and the general public. Typically, scoping meetings are scheduled early in the pre-lease process in communities that may be affected by activity resulting from the lease sale.
Lease sales are already approved for offshore Virginia no earlier than 2011, although this may be pushed ahead to 2012 or 2013. The proposed Virginia lease area, located about 50 miles from shore, may hold 130 million barrels of oil and 1.14 Tcf of natural gas, based on Interior Department estimates. The MMS says the 2.9-million-acre area offshore Virginia, while having been explored in the distant past, is being considered a frontier area for assessment purposes. The offshore Virginia lease area will also undergo environmental assessments.
Production from the Atlantic acreage, according to Kopits, “while welcome, will represent only a small fraction of global oil production, almost certainly less than 1%. Consequently, its impact on oil prices will be both distant and muted. It will, however, bring high-paying jobs to the adjacent states and provide both incomes and tax revenues in these regions. Oil from the region may help also to modestly reduce US dependence on imported oil and should improve the US trade deficit, half of which is today the result of oil importation.”
Commenting on the presidential announcement, National Ocean Industries Association (NOIA) President Randall Luthi said in a statement, “NOIA is very pleased with the access to new OCS areas announced by President Obama. If the proposed areas ultimately end up being leased, it will represent the most significant increase in access to domestic energy from our oceans in decades. ... Today’s plan is a good start to secure reliable and increased access to areas of the OCS where vital energy resources may lie.”
The “announcement is not the finish line,” continued 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 recognizing the need for greater domestic energy production … We are never happy to see sales removed from plans, and are disappointed that sales in Alaska included in the remaining years of the 2007–2012 plan will not take place as scheduled.
“Due to existing infrastructure and current oil and gas production, there are areas of the OCS that can be developed relatively quickly,” said Luthi. “It is therefore somewhat perplexing that this plan, ... removes so early in the process southern California—including the known Santa Barbara-Ventura Basin, the Oceanside-Capistrano Basin and the Santa Maria Basin—and much of the eastern Gulf of Mexico, including the known Destin Dome formation.”
EASTERN GULF OF MEXICO
Obama commented that his administration will also work with Congress to allow leasing in the eastern GOM in an area about 125 miles from the Florida coastline. While the area is currently under a moratorium until 2022, a total of 25 permit applications have been filed by the following seismic firms between 2008 and 2009: Coastal Planning & Engineering, EMGS, Fugro Geoteam, Geophysical Services Inc., GX Technology, PGS Geophysical, Spectrum Geo and TGS-Nopec.
Salazar said, “The plan we are proposing calls for four more lease sales in the GOM 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. Our efforts to strategically open new areas in the eastern Gulf would represent the largest expansion of our nation’s available offshore oil and gas supplies in three decades.”
Kenneth Mohn, Vice President for Fugro Multi Client Services, told World Oil that Fugro has been shooting regional long-offset 2-D seismic data in the Gulf of Mexico offshore Florida for the past two years. “We were anticipating this announcement because of increased activity in the eastern part of the central lease sale region of the GOM.”
Mohn said the activity was partly driven by the Shiloh well drilled by Shell in Desoto Canyon, which encountered the Jurassic Norplet Formation. He said clients anticipate that this play and some other existing and new plays could extend further to the east, offshore Florida. “What also drove us to acquire this survey was client interest in Cuba and what the geology looks like on the Florida side of the border. There was a live oil discovery made by the Gulf Oil Company in the Florida Keys in the 1960s. This discovery was in Cretaceous-age rocks and was non-commercial at 35 bpd,” said Mohn. “The regional extent of the data from the eastern GOM gives regional application for clients trying to understand the basin framework and potential plays in the eastern Gulf of Mexico. A couple of the lines extend from the coast offshore Texas to the coast of Florida. There is exploration potential to the grid. Any company working in the deep GOM should be having an interest in lease sales in the eastern GOM.”
NEW POLICY SIGNIFICANCE
“The permitting of increased offshore drilling has symbolic importance as it suggests a more positive stance by the Obama administration towards the oil and gas sector, which has felt marginalized during the administration’s first year,” said Kopits of Douglas-Westwood. “It acknowledges the need for oil and moves the administration closer to a view of oil as an increasingly scarce, expensive and strategically vital resource. It also, for the first time, demonstrates the administration’s awareness that energy policy extends beyond renewable, efficiency and climate.”
Obama emphasized in his announcement that the only way to successfully transition from an economy that runs on fossil fuels and foreign oil to one that relies more on homegrown fuels and clean energy is if it strengthens the US economy in the short term and the long term. “To fail to recognize this reality would be a mistake.”
ACCESS MAY BE CONTINGENT ON ROYALTIES
US Rep. Edward Markey said he will introduce a bill to require companies seeking access to leases in the Atlantic and the eastern GOM to first pay royalties on GOM leases issued from 1996 to 2000. Court rulings last year said companies could not be forced to pay royalties on leases granted under the 1995 Deepwater Royalty Relief Act. “When Congress reconvenes, I will introduce legislation that will give oil companies a choice,” Markey told reporters April 8. “They can continue to drill for free as oil prices continue to climb this summer but, if they do so, they won’t be able to drill in these newly opened areas.” Similar legislation passed the House before but not the Senate.
WILL OIL SPILL SLOW EXPLORATION PROGRESS?
The Deepwater Horizon explosion and the rig’s subsequent sinking in the western GOM is being reported as sending political shockwaves and prompting Congress to investigate the disaster even while efforts to control the spill are underway. Environmentalists and members of Congress are taking this opportunity to voice concerns. Emphasizing the importance of continued vigilance and interagency coordination in the disaster response, Secretary of Homeland Security Janet Napolitano and Secretary of the Interior Ken Salazar announced next steps for the investigation that is underway to determine causes of the explosion. The joint investigation is being conducted by the US Coast Guard and the MMS. The MMS said it inspected the Deepwater Horizon in February, March and on April 1 of this year.
Environmentalists are using the explosion and aftermath to try to stall opening up of the new OCS area. An online news source, the Alaska Dispatch, reported that growing optimism is being replaced with “jitteriness” and concern about an environmental backlash spawned by the growing oil spill in the south. “This is the technology I am going to depend on to protect my food source, the food I need in order to live in the Arctic with?” said George Edwardson, a trained geologist who serves as president of the Inupiat community of the Arctic Slope, according to the article.
However, the Obama administration has not indicated plans to reconsider its offshore leasing plan. Asked if the ongoing oil leak would affect the plan, White House spokesman Robert Gibbs shrugged it off, saying, “I doubt this is the first accident that has happened, and I doubt it will be the last.” 
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