The Trump administration is moving aggressively to open new offshore areas for oil and gas development. Yesterday, the House Subcommittee on Energy and Natural Resources held a hearing to review the status of federal Outer Continental Shelf (OCS) lease permitting rules. The hearing comes as the Department of the Interior issues new rules limiting onshore oil and gas regulatory reviews to 30 days and plans to reconsider federal OCS areas available for development.
The Trump administration is moving aggressively to open new offshore areas for oil and gas development.
“The administration’s ‘America First’ energy agenda aims to safely harness all of our nation’s energy resources,” Katherine MacGregor, Acting Assistant Secretary for the Bureau of Land Management, said at the hearing. “Offshore energy production is vital to this strategy, and currently accounts for 18 percent of our domestic oil production, four percent of our domestic gas production, and supports billions of dollars in annual revenues for states and local communities.”
Drawn out permitting delays are often cited as a major impediment to offshore oil and gas development. Gulf approval times skyrocketed under the Obama administration when—following the Macondo oil spill in April 2010—the federal government introduced a six-month moratorium on all offshore drilling activities. In the immediate aftermath of the spill, the Interior Department lifted the 30-day cap on regulatory reviews and later introduced more stringent well control rules. New permitting approvals swelled to an average of 94 days, and remained elevated, on average, throughout the duration of the Obama administration.
The process has already begun to speed up under the Trump administration. Through the first half of 2017, Interior reviewed 28 applications at an average of 43 days for each, a sharp decline from the department’s 69-day review period in H1 2015. Despite the delays and oil prices coming under pressure from 2014-17, deepwater production has for the most part thrived, increasing each consecutive year.
Through the first half of 2017, Interior reviewed 28 applications at an average of 43 days for each, a sharp decline from the department’s 69-day review period in H1 2015.
EIA’s latest forecast calls for combined federal and state offshore production to reach 2.0 million barrels per day (mbd) in 2020 as new projects sanctioned by the Trump administration come online. Offshore oil and gas production generally follows long-cycle investment trends and is less responsive to short-term volatility in prices. New discoveries made earlier this decade or in the 2000s are only now coming online. Shell’s ultra-deepwater Stones project—the company’s deepest water venture in the world—was in fact leased in 1996, and only started production last year.
The vast majority of U.S. offshore oil and gas operations are now conducted in deep waters exceeding 1,600 feet. In 2016, these projects accounted for 85 percent of Gulf supplies. Declining shallow water reservoirs have pushed producers farther away from the U.S. coastline, but improved economics and enhanced efficiencies have allowed them to drill in the deeper areas. According to Interior Department data, deepwater production generated a record 1.4 mbd last year alone. Industry confidence in deep-water technologies—now seven years post-Macondo—and in particular advanced well control capabilities are enabling growth in the offshore oil and gas industry despite comparatively high up-front capital costs, long-term planning periods, and recently low prices. Deepsea wells accounted for 24 of the 28 new well projects reviewed by the Interior Department in the first half of 2017.
Shallow water discoveries are still possible. On Tuesday, for example, Mexico’s government—alongside a consortium of British and American companies—announced a massive new find at depths of roughly 500 feet just 37 miles off the country’s coastline. Houston-based Talos Energy estimates the oilfield contains 1.4 billion to 2 billion barrels. Discovery of the field was made possible by private exploration off Mexico’s coastline. In 2014, the government deregulated state oil giant Petróleos Mexicanos, opening up auctions for foreign companies to bid on Gulf blocks.
“In order to adequately manage our energy inventory, meet future demand, and ensure national security, it’s imperative we survey the seismic surveying permitting process in the Atlantic and Pacific Oceans.”
In the U.S., the Trump administration’s plan to open offshore energy will start with an evaluation of resource potential in areas not currently open to offshore oil and gas development. “Much of our nation’s offshore resources have not been evaluated in more than 30 years—inhibiting our regulators’ ability to make informed decisions,” said U.S. Rep. Paul Gosar (R-Arizona), chairman of the House Natural Resources’ Subcommittee on Energy and Mineral Resources. “In order to adequately manage our energy inventory, meet future demand, and ensure national security, it’s imperative we survey the seismic surveying permitting process in the Atlantic and Pacific Oceans.”
In May, Interior Secretary Ryan Zinke announced that the administration would allow six companies to begin seismically surveying portions of the Atlantic OCS. The announcement is part of a broader Trump administration plan to rollback Obama-era drilling restrictions on the OCS. Speeding up the process is good news for the industry in that there are plenty of untapped offshore reserves. However, many companies may choose to withhold capital investment given the current low-price environment and typical long-cycle investment in offshore production.