Trump Administration to Open Oil & Gas Leasing on the Atlantic Outer Continental Shelf (OCS)

Guest post by David Middleton

Trump to Open the Door for Oil Drilling Off U.S.’s East Coast
By Jennifer A Dlouhy
December 11, 2017, 4:00 PM CST

  • Proposal for Atlantic exploration set to be released soon
  • New five-year plan would replace one put in place by Obama

The Trump administration is preparing to unveil as soon as this week an expansive offshore oil plan that would open the door to selling new drilling rights in Atlantic waters, according to people familiar with the plan.

President Donald Trump ordered his Interior Department to write the new blueprint with the aim of auctioning oil and gas drilling rights off the U.S. East Coast — territory that his predecessor, former President Barack Obama, had ruled out. The Interior Department’s coming draft proposal, an initial milestone in replacing the Obama-era sale plan, dovetails with the oil industry’s push for new places to drill, said the people, who asked not to be identified before a formal announcement.

Trump’s proposal would span the years 2019 to 2024, replacing the Obama plan, which runs through 2022.

Industry leaders have lobbied the Trump administration to sell drilling rights in the U.S. Atlantic as a way to complement existing oil production in the Gulf of Mexico. It is not clear how much oil and gas exists off the East Coast, because existing data stems largely from decades-old geological surveys and more than four-dozen wells drilled in the 1970s and 1980s.

Oil companies also want the Trump administration to sell drilling rights in Arctic waters north of Alaska and in the eastern Gulf of Mexico — where federal law bars new oil leasing through 2022. Lawmakers from Florida have fought efforts to expand offshore drilling they say would imperil the state’s tourism-tied economy and are seeking to extend that ban.

[…]

Bloomberg

With the Senate tax bill opening up ANWR and no valid reasons to prohibit drilling in the Eastern Gulf of Mexico, this is shaping up to be the best energy administration in US history.

On top of all of this, after announcing our withdrawal from the Paris climate joke, Trump is using our remaining 3 years as a party to the joke as a vehicle to promote American fossil fuels and nuclear power.

Oil and Gas Potential of the US Atlantic OCS

The Bureau of Ocean Energy Management’s (BOEM) 2014 estimate of technically recoverable hydrocarbon potential to be 4.6 billion barrels of oil and 38 trillion cubic feet (TCF) of natural gas.

While much of this is rank frontier exploration, the northern boundary of the US Atlantic OCS is adjacent to Canada’s very active Scotia Basin.

AtlanticOCS_1

Canada’s total offshore Atlantic production is about “180,000 barrels of oil per day and 150 million cubic feet of natural gas per day.”  Unlike the US Federal and State governments, Canada has been actively marketing its Atlantic offshore hydrocarbon potential.

 

 

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48 thoughts on “Trump Administration to Open Oil & Gas Leasing on the Atlantic Outer Continental Shelf (OCS)

  1. While Trump is at it, he should definitely open up the off shore drilling on the west coast, especially off the coast of California where reserves are probably very high. So much winning!

    • Or we could just drain all the “evil” fossil fuels from all the parked private jets in Hollywood. That could keep us going for a while and has the added benefit of keeping the ignorant riff raff grounded and out of sight for the foreseeable future.

  2. I believe I saw in comments over at Euan Mears, that while it has been opened or is about to be, not many are interested in taking it up.

    Just what I have read, mind. But I will be curious to see who steps forward and what the ecoterrorists will claim if little happens there.

    • People opposing opening up new areas always say that industry isn’t interested. Industry usually ignores them.

    • They might be worried about spending money to explore only to have the next administration close the areas off again.

    • I thought it was the Anwar region that the oil companies weren’t interested in bidding on. Makes sense if the east coast is going to be opened.

  3. They are going to have to set the rules in stone for the oil industry to dive in. The last thing they want to do is invest billions in a frontier area only to have the rug pulled out from underneath them by the next administration.

  4. At this point it is a little difficult for me to get worked up about this either way. When you look at our net Petroleum and Products imports and then subtract off Canada (so our net imports from countries not named Canada) you get <1M barrels per day, 16oz for each person in the country, 5% of our consumption. The SPR has enough reserves to replace 2 years at that rate, so this isn't about security.
    Also, if we wanted to increase oil production the lowest cost wells would be fracked wells on land. Oil typically needs to be $80+ before offshore becomes viable. Long before oil got up to $80 the marginal shale wells would ramp up and put a lid on prices. So there is no economic argument either.
    So in other words, to me the headline should say "Trump offers to let businesses lose money drilling for unneeded oil that may or may not exist"

    • In order to find out how much oil and gas might be in a leasehold, you have to pony up for the lease. After your survey you know whether or not you have anything of interest and at what price points it makes sense to start dropping drill rigs. Eventually, the lease will be worth tapping. Eventually.

      • Correct, but it is unlikely to be worth drilling anything offshore until we use up so much shale oil that the price rises to $80/bbl. That is a time horrizon that is beyond 2024. Alternatively the cost of putting a rig on a platform in a region where there are hurricanes, holding it steady and pumping oil either through an undersea pipeline or offloading it onto a boat comes down by half. Frankly my money is on wells you can drive to rather than have to float on top of.

      • We’re drilling offshore right now… in very deep waters. We’ve been drilling offshore right through periods when oil prices dropped into the $10’s and $20’s. Offshore prospects have much greater potential to be large discoveries, which are economic even at low oil prices.

      • Shallow water. The finds you point to are both 1000m. Mexico. I think the costs might be slightly higher with the US EPA and permitting requirements. The reality is though, I am not opposed to oil leasing. I am just saying if I were an oil company I would look at shale fields long before offshore. The only reason I would look at offshore is that from a single negotiated lease I could access large quantities of oil rather than managing dozens or hundreds of contracts with land owners in the Permian basin.
        However, I may be wrong. Offer the lease by all means, let’s see if there are bidders!

      • I have no idea what happened to my comment. The finds you pointed to are less than 200m. The potential leases have depths from 200 to 1000+m.

      • We’re drilling like crazy in the deepwater of the US Gulf of Mexico. The average deepwater GOM well produces about 10,000 bbl/d. A typical shale well produces a few hundred bbl/d.

        Well productivity improvements in GoM deepwater have been more significant than the recent improvements in shale. Figure 2 shows average oil well decline curves across all shale oil (Left) and GoM deep water (Right) wells in two different periods: 2011-2013 and 2014-2016. Average shale oil well productivity increased by 38% in the first 1.5 years after a well is turned-in-line from 2011-2013 to 2014-2016. The improvements were predominantly driven by the growing contribution from horizontal wells and boosted well configuration: longer laterals, more frac stages per lateral, increased proppant and fluid intensity. However, the average productivity in the first 1.5 years improved even more, by 41-42%, in GoM deep water over the same period. Significant uplift in average well productivity was caused by the high contribution to the average from several deep-water installations in 2014-2016 (e.g. Jack/St. Malo, Lucius) where a typical well produced at the rate of over 10-12 kbbl/d for more than 12 months. An average recent GoM deepwater well produced 3.6 million barrels of oil over the first 18 months.

        http://www.ogfj.com/articles/print/volume-14/issue-4/features/shale-vs-offshore.html

      • In addition to resurgent growth in shale plays such as the Permian, BTU Analytics is forecasting continued growth in the Deepwater Gulf through 2020. The region currently supplies 15% of daily U.S. oil production, more than the Eagle Ford or Bakken, and is expected to remain just as relevant by 2020. Considering the region’s significant role in the U.S. supply and demand balance, do Deepwater project economics support the investment levels needed to achieve growth despite long-term pricing uncertainties?

        As shown below, Deepwater production has been on the upswing since 2013, increasing from 948 to 1,296 Mb/d and accounting for a larger share of total Gulf production due to declines in shallow water production. BTU defines Deepwater as the Gulf’s eight OPDs, or Official Protraction Diagrams: Alaminos Canyon, De Soto Canyon, East Breaks, Garden Banks, Green Canyon, Keathley Canyon, Mississippi Canyon, and Walker Ridge.

        https://btuanalytics.com/deepwater-gulf-mexico-economics/

    • Chad, where did you get those numbers? Offshore deepwater is closer to $50/barrel. Deepwater also has the flexibility in field location as the platform is semisubmersible which means station position will vary. Gone are rigid platform or even tension leg . One platform services multiple wells over hundreds of acres. Then there are tiebacks which can be miles from the platform.

      First, a suitable field must be found. Then the money will flow. The majors plan 20 years in the future. Big projects like Crazy Horse ( renamed Thunder Horse) and Atlantis were planned when crude was under $15 a barrel.

      • Yep. Auger, Mars and a lot of other deepwater fields were discovered in the late 80’s to early 90’s and developed when oil was routinely $10-20/bbl.

  5. Johns Hopkins University’s Board (Mikie Bloomberg is a very big donor) voted to divest all thermal coal stocks from the university’s endowment funds.

    This follows on the heels of Hopkins’ divestment of tobacco stocks in 1991. Of course, from 1998 ’til the present, the stocks of Philip Morris, R.J. Reynolds, British American Tobacco PLC, U.S. Tobacco (UST Corp) and Gallaher Group PLC (including the companies that were subsequently spun out of Philip Morris such as Kraft Foods, Altria, and Philip Morris International) proved to be fantastic investments providing spectacular returns for shareholders.

    Over many years, managing endowments in accord with the latest politically correct cause de jour has proven to be a colossally counter-productive endeavor, producing sub-standard returns. It’s one reason (among many) that I will never again provide financial support to my various alma maters.

  6. Massachusetts politics can be a strange beast. The state is as liberal as can be, with a host of liberal policies, like support for wind, solar, RGGI (the Regional Greenhouse Gas Initiate), opposition to a new natural gas pipeline.
    Curiously, when last checked to get a sense of things, the politicians were quietly *pro* offshore oil development. (very quietly).
    It seems they got a whiff of that fantastic substance which allows them to set aside all principles, Money.
    Whether they will support a republican president in this matter is another question entirely.

  7. As the green blob’s heads are already exploding over Trump’s current energy policies, there are no reasons to not lease both the east and west coast offshore. Doing away with the Carter era nuclear rules would be a really good idea as well. Give the organized greens multiple things to oppose, and spread their efforts thin.

  8. In 1975, I listened to a Park Ranger in Maine go on about how offshore drilling would be bad for fisheries and lobsters, etc. The world had just suffered through a couple of lean years after the price shock of the Arab oil embargo of 1973, but officialdom was against the big bad oil companies, even then.

    • People who fish are worried about their ability to earn a living.

      At the time I was in the navy and stationed in New England and enjoyed lobster from the market down where the boats docked. If you can boil water you can cook lobster.

      Being on a fixed income at a time when oil prices were increasing limited our ability to enjoy lobster.

      Talking Econ 101 does not make me an economist but a low cost supply of energy is good for the economy and therefore the environment.

      • I was also stationed in New England, at the time. The Ranger’s main point was that if an oil spill occurred during the annual lobster spawn, an entire year’s production would be lost, as he talked about the dependence of the Maine economy on fishing and lobstering, with NIMBY points sprinkled throughout his talk.

        I couldn’t help wondering if the Maine lobstermen might be better off if it didn’t cost them so much to fuel their boats and pay for everything they need, (just like their neighbors,) while risking localized, temporary setbacks to their harvest.
        Having been raised in a family employed in the Western US oil industry, his rationale seemed shortsighted and a bit selfish, albeit political, since the ecosystem back home was at risk (minimal) to provide him with fuel.

  9. David Middleton
    We’re drilling like crazy in the deepwater of the US Gulf of Mexico…

    As much as I wish you were correct, TransOcean, Diamond Offshore and Tidewater would vehemently disagree.

    • Transocean Ltd. Provides Quarterly Fleet Status Report

      ZUG, Switzerland—October 26, 2017—Transocean Ltd. (NYSE: RIG) today issued a quarterly Fleet Status Report that provides the current status of and contract information for the company’s fleet of offshore drilling rigs. As of October 26, 2017, the company’s contract backlog is $9.4 billion.

      The newbuild ultra-deepwater drillship Deepwater Pontus commenced operations in late October on its 10-year contract with Shell in the U.S. Gulf of Mexico.

      The company agreed with SembCorp Marine’s subsidiary, Jurong Shipyard, to enhance the two, newbuild drillships by increasing the hook load capacity to three million pounds. With the upgrade, the company has further delayed the delivery dates on each rig. The drillships are expected to be delivered in the second and
      fourth quarter of 2020.

      The report also includes the following contracts:
       Deepwater Invictus – Awarded a two-year contract plus three one-year priced options
       Deepwater Nautilus – Awarded a four-well contract plus 11 one-well priced options offshore
      Southeast Asia
       Paul B. Loyd, Jr. – Awarded two contracts, both in the U.K. North Sea
      o two-well contract plus three one-well priced options
      o two-well contract plus two one-well priced options

      The report can be accessed on the company’s website: http://www.deepwater.com.
      […]

      http://www.deepwater.com/Documents/October%202017%20Fleet%20Status%20Report.pdf

      Apart from TransOcean’s 7-10,000′ WD drillships, almost all of their rigs are under contract, particulalry their semis and ultra-deepwater drillships.

      Gulf Of Mexico Deepwater Exploration Remains Strong Despite Downturn
      Stratas Advisors Monday, April 17, 2017

      The year 2015 saw a record 101 exploration wells spudded in deepwater areas, including water with depths between 1,000 ft and 5,000 ft and ultra-deepwater with depths greater than 5,000 ft in the U.S. Gulf of Mexico (GoM). That’s 21 more than in 2014, when the oil price collapse started (Figure 1.1). Deepwater exploration drilling dropped after the downturn, starting in 2016.

      However, operators still managed to spud 78 deepwater exploration wells, which is on par with 2014. Exploration in shallow water (water depth less than 1,000 ft) bears the most impact by the low oil price. Only two and three exploration wells were drilled in shallow water in 2015 and 2016, respectively, significantly down from the high of 23 in 2014.

      […]

      https://www.epmag.com/article/gulf-of-mexico-exploration

      The downturn in prices most adversely affected the shelf (<500' WD) where the potential for large discoveries is minimal.

      • With all due respect, DO will lose money this year. RIG is marginally profitable. Both have suspended their dividends. DO’s fleet has been reduced to 19 from a peak in the high 30s and has a number of cold-stacked floaters. TDW (the largest offshore supply vessel/crewboat/anchor handling operator in the GOM) went through a “pre-pack” bankruptcy reorganization this year. Long term day rates negotiated 3 and 4 years (or more) ago, continue to roll over to lower day rates. While there are pockets of relative strength offshore, on the whole, things are not all “beer and skittles.”

      • We are definitely still feeling the effects of the price collapse, particularly on the service side. However, rig rates, which had fallen to where they could barely cover insurance, have been rising.

        “Drilling like crazy,” was a subjective phrase in response to the claim that oil companies can’t drill offshore with less than $80 oil.

        Diamond Offshore’s Q3 2017 earnings release…

        “Despite the continued weakness in the offshore drilling market, we achieved favorable third quarter results,” said Marc Edwards, President and Chief Executive Officer. “During the quarter we were able to secure additional work for our proficient moored fleet, with new wins for the Ocean Apex and Ocean Patriot, at rates well above cash flow breakeven. In addition, we took proactive measures during the quarter to further enhance our liquidity runway and better position Diamond for the eventual recovery.”

        As of September 30, 2017, the Company’s total contracted backlog was $2.6 billion, which represents 20 rig years of work.

        http://phx.corporate-ir.net/external.file?t=2&item=o8hHt16027g9XhJTr8+weNRYaV9bFc2rMd0Q/AXw4zsnxk9kyfm6XvBPt8LW3nKrfSTdaRjovoLnY3wrpmDCU+05IAharEauusxZSg2ebe5hUrO3UxPIeotiQMzt0/OWGuFxmGnSorZ60/mSFGHq3A==&cb=636449561015991382

  10. As an aside, I see extensions of state boundaries extending into the shelf. How big an influence do the individual states have on permits and operations?
    Georgia must not have gotten the notice about the meeting that divvied up the parcels, They seem to have been squeezed out. :)

  11. I guess the “green” activist shareholders at Exxon will now take the opportunity to point out how much money could be saved by not drilling at all in these areas. In Greenpeace-accounting that would be called profits. It’s a similar calculus to that used by NIMBYs who believe we don’t need industry and can all get rich just by re-selling our existing houses to each other for ever-increasing prices.

  12. Still gonna need certainty. The first seimic data will be large spec surveys and they will need large amounts of prefunding for the seismic industry to take the chance, So the oil majors are gonna need to know that prefunding is worth it and the area wont be shut down by the next administration. Trump being a lock for a 2nd term is far from certain. And the majors are gonna want to know if they start investing in drilling they will be able to produce if anything is found. There was more certainty when Mexico opend up its waters than there is for the eastern seaboard.

  13. This is great news. Opening up ANWAR is also a very important link providing for greater utilization of the Alaskan pipeline and eventually further exploration of the Artic outer shelf which holds the promise of huge oil deposits. The Russians have a head start on Artic exploration and have expanded their military in the area to protect their interests or possibly to try and expand them. Trump is building a foundation for not only energy independence but a return to being the solid world’s leader in energy exportation. This nation became great on plentiful. affordable energy and this goes a long way to making the US great again.

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