OFFSHORE DRILLING

5-year plan nixes most Arctic development

Drilling in two key Arctic seas is off the table, though one lease sale in the Cook Inlet off Alaska is allowed under the Interior Department's five-year leasing plan announced today.

The Bureau of Ocean Energy Management (BOEM) released its final offshore drilling lease schedule to cover the period from 2017 to 2022. In its interim plan that went up for public comment, BOEM proposed rescinding earlier scheduled lease sales in the Atlantic Ocean. Now the agency has also pulled leasing from the Arctic Ocean, in particular offshore acreage in the Beaufort and Chukchi seas.

As expected, industry and Republican protests failed to sway BOEM, and the Arctic and Atlantic will remain closed to drilling, unless the incoming Trump administration can reverse the plan. Such a move could take up to two years, depending on how vigorously environmental groups fight back.

Interior Secretary Sally Jewell said the plan put forth is fair to both industry and government.

"The plan focuses lease sales in the best places — those with the highest resource potential, lowest conflict, and established infrastructure — and removes regions that are simply not right to lease," she said in a statement. "Given the unique and challenging Arctic environment and industry's declining interest in the area, forgoing lease sales in the Arctic is the right path forward."

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BOEM's five-year lease schedule maintains the effective moratorium on drilling in federal waters in the Atlantic Basin off the coasts of Georgia, North and South Carolina, and Virginia. But the Obama administration ignored calls this week by environmental groups to ban all new offshore drilling, and as of publication time there are no indications that the administration will designate the Atlantic Basin as permanently off-limits to drilling rigs and seismic surveys by industry.

One lease sale is scheduled for Alaska, but in Cook Inlet. All other sales laid forth in the plan are in the Gulf of Mexico.

"No sales will be held in the Beaufort and Chukchi Seas, and the Cook Inlet Program area has been reduced as compared to the 2012-2017 Program area," the Interior Department stated in a fact sheet.

Green organizations hailed the decision, while indicating they planned to continue pressing President Obama to designate the Atlantic as a special protected zone off-limits to the oil and gas industry.

Oceana Senior Vice President Jacqueline Savitz called the decision "excellent news for our oceans."

"This plan means no expansion of offshore drilling in the Arctic or the Atlantic for the next five years," Savitz said in a release. "Oceana applauds President Obama and Secretary Jewell for their leadership in protecting our coasts from dirty and dangerous offshore drilling."

Lawmakers from Alaska decried the decision.

"Look, they've been trying to kill Alaska oil and gas development for eight frickin' years," Sen. Dan Sullivan (R) told reporters yesterday.

"We have the highest standards of environmental protection of any hydrocarbon basin in the world," he said. "And when they shut it down in Alaska, people think they're protecting the environment. No, they're not, they're just driving capital and exploration and development to Russia, to Kazakhstan, places whose standards are much lower than ours. I've never understood why they're so focused on shutting it down."

Weak prices

President-elect Donald Trump campaigned on a largely pro-fossil-fuels platform, vowing to open up all federal onshore and offshore areas to drilling, including the Atlantic, Arctic Ocean and Arctic National Wildlife Refuge. Despite a massive surge in U.S. oil and gas production during Obama's term in office, Trump said the outgoing administration kept drillers off federal lands and bogged down the industry in red tape.

The industry's biggest enemy is the weak oil price.

Offshore oil production in the Gulf of Mexico is rising, but no new projects are being sanctioned as the industry struggles to recuperate from the oil price crash. New offshore drilling has plunged globally.

Offshore rig operators continued to report bad news to analysts and shareholders in their most recent third-quarter 2016 financial reports. Noble Corp., Vantage Drilling Co. and Diamond Offshore Drilling Inc. all reported ongoing hits to profitability.

Still, the industry continues to demonstrate interest in offshore exploration in North America.

Though undersubscribed compared with past sales, major oil companies have continued to snatch up new Gulf of Mexico offshore drilling rights in lease sales conducted during the downturn. And this month the Canada-Newfoundland and Labrador Offshore Petroleum Board enticed BP PLC to pick up new acreage off Canada's Atlantic shores.

BOEM's new schedule sees 10 auctions for Gulf drilling rights to be conducted out to 2022. The Cook Inlet lease sale is planned for 2021.

Opening up more offshore acreage will involve several hurdles for the Trump administration, including a new planning process with public comment period. Interior notes that the law does not allow BOEM to add new areas to a final five-year plan, but it can cancel prior planned lease sales.

"The Department of the Interior cannot offer an area for lease or add an additional lease sale within an area without it being included in an approved Five-Year Program," Interior clarified. "However, the geographic scope of a lease sale area can be narrowed and a lease sale can be cancelled during the implementation of a Five-Year Program."

The industry itself had given up on plans to explore for hydrocarbons in the Alaskan Arctic after the oil price fell.

Reporter Brittany Patterson contributed.

Email: ngronewold@eenews.net

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