Latest proposed 5-year OCS plan falls short, API official says

The US Department of the Interior’s latest proposed 5-year US Outer Continental Shelf program misses an important opportunity because it would greatly limit where offshore oil and gas development could take place from 2012 through 2017, an American Petroleum Institute official said.

The proposed program announced by US Sec. of the Interior Ken Salazar on Nov. 8 provides activity in US offshore areas where the industry is already active while omitting areas with potentially substantial untapped oil and gas resources, according to Erik Milito, API upstream and industry operations group director.

“While US oil and natural gas production is increasing today, this is largely due to the development of shale oil and natural gas on private lands in North Dakota, Pennsylvania, Texas, Arkansas, Louisiana, and elsewhere—and because of leasing and development on public lands and federal waters initiated many years ago,” he told reporters during a Nov. 15 teleconference.

“We need a robust strategy for future development of offshore areas and BLM-administered lands because they are and will continue to be important to the nation's oil and natural gas production,” Milito maintained. “We need to be doing the right things today to be able to meet our nation's energy needs for tomorrow.”

He particularly questioned Salazar’s statement that the proposed 2012-17 OCS leasing areas would make more than three quarters of the estimated oil and gas resources available off US coasts. The Obama administration based this estimate on data collected in the 1970s without giving the industry permission or an opportunity to do 3D seismic mapping in OCS areas which were closed for 25 years, Milito said.

‘Substantially more’

“We won’t know what’s there until we’re actually out there and doing the tests and drilling,” he said. “But our experience has shown us, particularly in the Gulf of Mexico, that what we find once we do is substantially more than what was expected.”

He urged the administration to reconsider and schedule lease sales in the eastern Gulf of Mexico, which is largely closed by congressional moratorium, and off Virginia’s coast, where a lease sale was scheduled as part of the current 5-year program but canceled following the 2010 Macondo well accident and crude oil spill. Sales off Alaska which have been scheduled toward the end of the next 5-year period should be moved up, especially if Shell Exploration Co.’s Beaufort and Chukchi Sea tests produce positive results, he added.

Milito said higher minimum bids and shorter lease periods in the latest proposed 5-year program also pose a problem. “Bonus bids would go up by at least two times for some deepwater tracts,” he said. “Lease terms would be reduced to 5 or 7 years. Developing offshore leases takes a long time. Additional costs would make marginal properties subeconomic. A lot of resources at the margins which are being produced now wouldn’t be produced under the proposed terms.”

He conceded that it would be difficult to get the Obama administration to change the proposed plan. “There’s been discussion on Capitol Hill about proposing additional areas, and that could have influence down the road. But it appears unlikely in the near term,” Milito said. “We’re going to keep working to try and convince this administration to reconsider, but it will be a long process.”

Contact Nick Snow at nicks@pennwell.com.

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