OTC '18: BOEM’s director says agency continues to carry out Trump’s offshore agenda

Date:2018-05-05 09:24:16

HOUSTON -- Earlier this week, Dr. Walter Cruickshank, acting director of the federal Bureau of Ocean Energy Management, delivered an update on the state of offshore activity and regulation. Speaking to a luncheon crowd at the Offshore Technology Conference (OTC) in Houston, Cruickshank said that his agency is working diligently to implement the offshore oil and gas vision of President Trump and Interior Secretary Ryan Zinke.

“We are making progress in implementing the components of President Trump’s executive order of last year,” said Cruickshank, referring to the America First Offshore Energy Executive Order of April 2017. That directive has aimed to expand offshore oil and gas exploration and production on the Outer Continental Shelf (OCS) through a review of the five-year leasing program, and reconsideration of certain regulations pertaining to offshore energy potential. The order also directed Zinke to implement a streamlined permitting approach for privately funded seismic data collection, to determine offshore energy resource potential.

“One thing that’s important to us is that exploration continue (on the OCS),” said Cruickshank. “Five exploration projects sanctioned this year have been for high-definition seismic.” He noted that the Draft Proposed National OCS Program for 2019-2024 “is a top priority” for his agency. Considered a landmark reversal of offshore leasing policy under the Obama administration, the program proposed by Zinke would make over 90% of the total OCS acreage and more than 98% of undiscovered, technically recoverable oil and gas resources in federal offshore areas available to consider for future exploration and development. By comparison, the old program put 94% of the OCS off-limits. In addition, the program proposes the largest number of lease sales in U.S. history.

Yet, the new National OCS Program is likely to be in for rough sledding before its final approval and implementation take place. Various environmental groups are expected to file lawsuits against several components of the plan, in an effort to slow or halt the draft program’s goals. And congressional support for the plan is inconsistent, at best. Thus, in the meantime, the far-less-ambitious 2017-2022 Five Year Program will continue to be implemented until the new program is approved.

One thing that the Trump administration has wanted to do is to reverse the 10-year decline in offshore leasing revenues coming in to the federal government. Back in 2008, OCS leasing revenues were nearly $18 billion. By contrast, in 2016, those revenues had plunged to just $2.8 billion. Not coincidentally, that massive decline, and the period during which it occurred, just happens to have taken place during the entire eight years of the Obama administration.

And while Trump officials have tried, under the current five-year plan, to reverse the slide, their efforts so far have had modest results. During March 2018, Gulf of Mexico Lease Sale 250 generated $124.7 million in high bids for 148 tracts covering 815,403 acres in federal waters of the Gulf. While these figures are better than the region-wide GOM lease sale last August that generated $121.1 million in high bids for 90 tracts covering 508,096 acres, the results are considered disappointing by most industry observers.

“While these results are less than we might hope for, they are still relatively successful,” insisted Cruickshank. He noted that several factors played into the results, including oil prices that are still a bit less than desirable for activity in the GOM, the focus on cheaper shale activity onshore by so many operators, and the fact that BOEM is handicapped in offering the most attractive lease offerings that it might craft, until the new 2019-2024 program gains approval.

Meanwhile, looking at current OCS activity, Cruickshank said that offshore projects continue to add considerable value to U.S. energy assets. “The OCS supports $55 billion in spending and 350,000 jobs,” said the acting director. “And we estimate that undiscovered resources total 90 Bbbl of oil and 327 Tcf of natural gas.”

Looking at individual areas, “The Gulf of Mexico accounts for 97% of offshore production,” noted Cruickshank. “And the number of active deepwater leases accounts for over 70% of all Gulf leases.” Roughly half of all the undiscovered OCS resources lay in the GOM, estimated at 48 Bbbl of oil and 141 Tcf of gas. Thus, officials hope that these figures will attract greater interest for the next lease scheduled for the Gulf during this coming August.

In the Pacific OCS region, Cruickshank said that “there is not much new here. The All-American pipeline remains shut in since 2015, while repairs are underway to fix it. And this accounts for the 60% drop in production from this region.” He added that five existing leases in the Pacific OCS were relinquished in January, including a couple of platforms. Those facilities are set for decommissioning. “Given the current political climate, it is going to be difficult to increase activity in this region, despite it having very attractive potential reserves offshore California,” lamented Cruickshank.

By contrast, the outlook for Alaska is more hopeful, he said. “We have seen a recent uptick in activity in this region. In the Arctic area, alone, there are 23 Bbbl of undiscovered oil resources, including 17 Bbbl in the Beaufort Sea.” He explained that the new draft OCS leasing program contains a provision for a Beaufort lease sale in 2019, and just last week, BOEM extended the period for comments on that proposed sale to May 30. “And yet, the industry has been able to get by without using a mobile rig to drill in the Beaufort,” added Cruickshank. “Eni has been conducting drilling from its near-shore artificial Spy Island, and Hilcorp has the Liberty and Northstar Island projects, as well.” Also, last June, BOEM conducted a lease sale in Alaska’s Cook Inlet that generated $3.03 million in high bids for 14 tracts, all of which were submitted by Hilcorp. It was the first Cook Inlet lease sale since 2008.

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