OCS Drilling

Following through on promises to jump-start U.S. energy production, U.S. Secretary of the Interior Ryan Zinke announced Jan. 4 his agency will offer oil and gas lease sales in 90 percent of the Outer Continental Shelf submerged lands off America’s coasts, including Alaska.

Zinke and the Trump Administration has drawn a sharp contrast with the policies of former president Barack Obama, in which 94 percent of the nation’s OCS was off-limits to drilling. The proposed leasing would also make 98 percent of the offshore undiscovered technically recoverable resources available.

“Responsibly developing our energy resources on the Outer Continental Shelf in a safe and well-regulated way is important to our economy and energy security, and it provides billions of dollars to fund the conservation of our coastlines, public lands and parks,” Zinke said in a statement.

Today's announcement lays out the options that are on the table and starts a lengthy and robust public comment period.

Technically, the announcement begins the National Outer Continental Shelf Oil and Gas Leasing Program for 2019-2024. There is also no guarantee that lease sales will actually be held. The listing of sales represent options that industry can consider, after which recommendations will be made to the Interior Department.

“This creates a lot of options in evaluating acreage,” said Kara Moriarty, president of the Alaska Oil and Gas Association, an industry trade group. “If there’s little or no interest in an area by industry there’s no reason for the department to actually have a lease sale. There’s no guarantee that wells will actually be drilled,” she said.

The Interior Department has cancelled lease sales in the past including in Alaska’s Cook Inlet and the Arctic, due to lack of industry interest.

Moriarty reacted positively to Zinke’s announcement, however. “He’s being very consistent and doing exactly what he said he would do,” in making lands available for exploration, she said.

The schedule is ambitious for sales off Alaska’s coast but the Alaskan OCS has seen lease sales and offshore exploration for decades. “This would not be the first time we’ve drilled offshore,” Moriarty said.

The plan, which is still in draft form, proposes 19 lease sales in the Alaska Region, with three in the Chukchi Sea, three in the Beaufort Sea, two in Cook Inlet, and one sale each in 11 other offshore areas in Alaska). These include areas in the Gulf of Alaska, Kodiak, Shumagin, Aleutian Arc, St. George Basin, Bowers Basin, Aleutian Basin, Navarin Basin, St. Matthew-Hall, Norton Basin, and Hope Basin.

Significantly, waters off Bristol Bay, a rich fisheries region, are not included. This area, called the North Aleutian Basin Planning Area by the Interior Department, has been under a Presidential withdrawal order since late 2014 which Zinke will continue, for now at least.

OCS leases were sold in the North Aleutian Basin area in the 1970s but fierce reaction by the state of Alaska and fishing organizations led to the leases being cancelled. Companies that won the leases were repaid by the federal government.

“Just like with mining, not all areas are appropriate for offshore drilling, and we will take that into consideration in the coming weeks,” as plans for leasing are further developed. “The important thing is we strike the right balance to protect our coasts and people while still powering America and achieving American energy dominance," Zinke said in his Jan. 4 statement.

Alaska Gov. Bill Walker was generally upbeat but also cautious about potential new Alaska OCS leasing, and noted a need to engage residents of the state and to weigh safety and environmental concerns.

“I thank Secretary Zinke for his Department’s work on this plan, and invite him to cooperatively engage with Alaskans as the plan’s development process continues,” Walker said in his statement.

“We look forward to continued dialogue to ensure that any offshore development takes into account environmental and safety concerns, and robust input from community residents who live, work, and subsist in the lease sale areas included in this proposed plan,” the governor said.

A state legislative leader was more critical, however. Rep. Andy Josephson, a Democrat from Anchorage who co-chairs the Resources Committee in the state House, said “We’ve been very supportive of onshore drilling on the North Slope, the Arctic National Wildlife Refuge coastal plain and the National Petroleum Reserve-Alaska, but offshore is another matter.”

Under current federal law Alaska or its coastal communities receive no share of royalties from offshore production, unlike in the U.S. Gulf of Mexico where OCVS revenues are shared with coastal states, but coastal communities and states share the risks and costs of offshore oil spills.

Josephson questioned whether industry is all that supportive, also. Oil prices are still at modest ranges and companies have had mostly negative results after years of drilling off Alaska’s coasts. Only one commercial discovery has been made, the small North Star field in the Beaufort Sea, which actually straddles the Alaska border, although Hilcorp Energy hopes to develop the Liberty deposit, also a modest discovery, which is east of Northstar in the Beaufort Sea.

Other than those finds, companies have experienced bad luck in the Alaska OCS, most notably at Shell’s famous “Berger” dry hole in the Chukchi Sea in 2015, and the “Mukluk” well drilled by Sohio Petroleum in the Beaufort Sea in 1981. Both were multi-billion-dollar wells that found water instead of oil.

“Shell made a huge investment in the Arctic OCS and it didn’t pay,” Josephson said. “Not all of the problems can be laid on the Obama administration. A lot of problems were created by Shell itself, mainly in equipment problems, he said.

In decades past companies have drilled dry holes in all of the proposed areas for new leasing. Those experiences combined with the remoteness of the regions, high costs and modest outlook for oil prices may temper industry’s interest.

Nationwide, the draft program includes 47 potential lease sales in 25 of the 26 U.S. offshore planning areas including the 19 sales off the coast of Alaska, seven in the Pacific Region off the U.S. west coast, 12 in the Gulf of Mexico, and nine in the Atlantic Region off the U.S. east coast.

It is the largest number of lease sales ever proposed for the National OCS Program’s five-year lease schedule. “This decision could bring unprecedented access to America’s extensive offshore oil and gas resources and allows us to better compete with other oil-rich nations,” said Vincent DeVito, Counselor for Energy Policy at Interior.

In its Jan. 4 statement, the Interior Department said that the release of the draft plan is an early step in a multi-year process to develop a final OCS program for 2019-2024. “Before the program is finalized, the public will have opportunities to provide input,” the department said. Meanwhile the current 2017-2022 Five Year Program will continue to be implemented until the new National OCS Program is approved.

Many decision points still remain before the plan is finalized, the Interior Department said.

In conjunction with the announcement of the draft plan, the Interior Department is also publishing a Notice of Intent to prepare a Draft Programmatic Environmental Impact Statement, or EIS, in accordance with the National Environmental Policy Act.

Public meetings will be held around the country starting on January 16, 2018, to receive comments on the draft plan and to provide information for the EIS. The draft plan and the Notice of Intent on the EIS will be available for public comment for 60 days following the publication of the documents in the Federal Register.

Programmatic EIS. Specific dates, times, and venues will be posted on BOEM’s website at https://www.boem.gov/National-Program/.

The Outer Continental Shelf Lands Act requires the Secretary of the Interior, through BOEM, to prepare and maintain a schedule of proposed oil and gas lease sales in federal waters, and to indicate the size, timing, and location of leasing activity that would best meet national energy needs for the five-year period following program approval.

In developing the National OCS Program, the Secretary is required to achieve a balance among the potential for environmental impacts, for discovery of oil and gas, and for adverse effects on the coastal zone, the Interior Department said in its statement.

The U.S. Bureau of Offshore Energy Management, the Interior Department agency that manages offshore leasing and lease administration, currently manages about 2,900 active OCS leases, covering almost 15.3 million acres – the vast majority in the Gulf of Mexico.

In fiscal year 2016, oil and gas leases on the OCS accounted for approximately 18 percent of domestic oil production and 4 percent of domestic natural gas production.

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