Access, For a Robust Offshore Energy Sector

Mark Green
Posted August 20, 2015

Some observations on this week’s federal oil and natural gas lease sale in the Western Gulf of Mexico, reported with alarm by some media outlets because it wasn’t as large as other recent sales.

First, every lease sale is welcome. Access to U.S. offshore reserves represents opportunity for energy development, job creation, economic growth and greater American energy security. We need more offshore opportunities to support the strategic, long-term energy security of the United States – advanced by a robust offshore energy sector.

This week the Bureau of Ocean Energy Management (BOEM) announced five companies submitted 33 bids on 33 tracts in the Western Gulf, with high bids totaling about $22.7 million (map):

That compares with an August 2014 sale, also in the Western Gulf, that drew 93 bids on 81 tracts, with high bids totaling nearly $110 million.

Certainly, the current price of crude oil is a factor in the interest level given to this year’s sale – but perhaps not as critical as some of the media reports suggest. Offshore exploration and development leading to production is a long-term equation, based on the fact that newly bought leases take seven to 10 years to start production of oil and/or natural gas.

Very important is the reality that the Western Gulf and the Central Gulf have been explored and developed for decades, and the areas available in recent federal lease sales have been looked at before. Companies remain committed to offshore energy development, but investment decisions on projects that run into the hundreds of millions of dollars must be carefully managed.

The fact is U.S. offshore reserves in the Eastern Gulf, on the outer continental shelf (Atlantic and Pacific) and in the waters off Alaska hold great promise. But these areas remain off limits to energy development by government policy. In all, 87 percent of federal offshore acreage is off the table for development:

Another thing affecting offshore development is regulatory uncertainty, with the federal Bureau of Safety and Environmental Enforcement (BSEE) proposing new regulations on well control and blowout prevention equipment – on top of a number of industry efforts to improve offshore safety, which earned praise from the co-chairs of the National Oil Spill Commission.  Earlier this summer API and a number of other organizations expressed concern in comments to BSEE:

The current proposed rule does not take these improvements into account and instead establishes prescriptive new requirements that would impose unjustified economic burdens discouraging economic growth, innovation, competitiveness and job creation contrary to Executive Order 13563. In many cases, these requirements are either impracticable or are ill-advised and in some cases would introduce new risk rather than reduce risk.

Again, offshore energy development is a vital U.S. interest. Critically important to advancing that interest is increased access to reserves and oversight that promotes certainty while avoiding duplicative regulatory layers. National Ocean Industries Association President Randall Luthi:

“As other countries continue to open up their offshore oil and natural gas resources, the U.S. should truly be concentrating on a broad energy policy, firmly based upon the wise and continued development of fossil fuels and complemented by renewables. Today’s lease sale was quick, quiet and small, but it is still a step in the right direction and will create jobs, boost economic activity, and strengthen US energy security. We are hopeful that policy makers in Washington will acknowledge these benefits and validate their importance to our nation’s economic and energy health by opening up new offshore areas for exploration and development.”