Watching Government: Beyond OCS sale results

April 9, 2018
So what, exactly, is going on with federal offshore oil and gas leasing 1 year into the Trump administration? One area-wide sale has taken place already for tracts in the Gulf of Mexico, and another has been scheduled for August. But some commentators have suggested that results so far indicate declining industry interest.

So what, exactly, is going on with federal offshore oil and gas leasing 1 year into the Trump administration? One area-wide sale has taken place already for tracts in the Gulf of Mexico, and another has been scheduled for August. But some commentators have suggested that results so far indicate declining industry interest.

Not surprisingly, the actual situation is more complicated. So to get a better idea of what it is, OGJ turned to National Ocean Industries Association Pres. Randall B. Luthi, who previously directed the US Minerals Management Service, the Interior Department agency then responsible for offshore oil and gas activity oversight during President George W. Bush’s second term.

Luthi began by noting that the 2012-17 OCS oil and gas program offered tracts in the central and western gulf, with a sliver of the eastern gulf that was not put off-limits to win congressional passage of the 2006 Gulf of Mexico Energy Security Act. The forthcoming and most recent lease offerings, by contrast, involved tracts that had not been leased earlier. “They’re still picking over areas which have been picked over for the last 50 years,” Luthi observed.

But he added that last summer’s area-wide sale in the gulf was a good barometer of the oil industry’s attitude, which seems to be that the gulf is still a good area.

“Commodity prices, while better, certainly aren’t prime for new deepwater well exploration. We still have some unknowns about regulatory requirements, such as the well control rule, which is being rewritten, and the production safety rule,” he continued.

At the same time, the Department of the Interior called for information and nominations for a proposed 2019 lease sale in the Beaufort Sea off Alaska, which would be part of a draft proposed 2019-24 OCS oil and gas program that would replace the 2017-22 program enacted near the end of the Obama administration.

Luthi theorized that Interior is not waiting for it to become final because leasing has not taken place there for several years and it will take time to gather up-to-date information.

A 10-year timeframe

“The so-called standard wisdom has been if you purchase a lease in deep water, without any infrastructure nearby, you’re probably looking at 10 years before you can put it into production. That timeframe will need to be reduced if deepwater offshore properties are going to compete with onshore operations,” Luthi told OGJ.

“Shortening that timeframe will require industry and regulators to have a constructive dialogue to reduce permitting time while advancing technology for producers to move more quickly, but as safely as possible, to bring the leases into production,” he suggested.