Feds roll out five-year plan for offshore drilling

Shell's Frontier Discoverer drilling rig in Dutch Harbor, Alaska. (AP Photo/Shell Exploration & Production)

The Obama administration today unveiled a plan for selling offshore drilling leases over the next five years that focuses on exploration in the Gulf of Mexico, proposes three auctions in the Arctic and rules out development in unexplored areas along the Atlantic coast.

All told, the Interior Department is paving the way for 15 lease sales in six offshore areas, including the eastern Gulf of Mexico, near an area where development is currently off limits under a federal ban.

For the first time since 2008, oil and gas companies would also have the chance to bid on drilling rights for Arctic waters near Alaska, including the Beaufort and Chukchi seas, as well as the Cook Inlet.

But the administration is ruling out drilling along the Pacific and Atlantic coasts — including an area near Virginia that had been slated for exploration under the Bush administration. The Interior Department still plans to permit energy companies to conduct seismic research along the mid- to south-Atlantic to help identify hidden pockets of oil and gas in the region.

Interior Secretary Ken Salazar pitched the new proposal as an expansion of “safe and responsible oil and gas production from the outer continental shelf” that would “help us continue to reduce our dependence on foreign oil.” He stressed that the program would make available more than 75 percent of the oil and gas resources that the government estimates are lurking under the outer continental shelf and are viewed as technically recoverable.

But the Obama administration’s proposal alienated both energy industry leaders and environmentalists — illustrating the political challenges in charting a path for offshore drilling less than two years after the 2010 Deepwater Horizon disaster.

Erik Milito, the upstream director of the American Petroleum Institute, called it a “trimmed-down leasing program,” and urged the Obama administration to reconsider its decision to exclude parts of the Atlantic Ocean.

“Taking these areas off the table at this stage could impede the nation’s drive toward enhancing both its economic and energy security,” Milito said. By contrast, he added, ”opening these areas could create additional jobs, enhance our economic growth and energy security, and create a national energy policy that our country needs. Unfortunately, the proposed plan falls short of this approach.”

Randall Luthi, the president of the National Ocean Industries Association, called the administration’s proposal an “ill-conceived plan (that) leaves us looking in the same areas we have looked for over a generation.”

And Rep. Doc Hastings, R-Wash., the head of the House Natural Resources Committee, complained that the draft plan “places some of the most promising energy resources in the world off-limits and indefinitely abandons the scheduled lease sale off the coast of Virginia that was supposed to take place last year.”

Environmentalists also panned the proposal for opening up Arctic waters for new exploration.

“In a time when we’re still recovering from the devastation caused by the BP Deepwater Horizon oil disaster, the government should keep safety and environmental conservation at the forefront of decisions when determining when and where to move forward on drilling,” said Ocean Conservancy Executive Vice President Dennis Takahasi-Kelso.

Holly Harris, an attorney with Earthjustice, noted that federal scientists have documented “big gaps in what they know about the basic features of the Arctic Ocean,” including the location of marine life, the movement of currents in the region and how to clean up oil spills under frozen ice.

“It’s hard to imagine a responsible way to develop oil now in this largely unknown body of water when we don’t understand what harms we need to avoid or how to avoid them,” Harris added.

In releasing its proposed offshore lease program and a draft environmental impact statement on it, the Interior Department is on course to have a new plan in place when the current one expires on June 30, 2012.

The move follows President Barack Obama’s decision last December to reverse plans to expand drilling in the Atlantic Ocean in response to the 2010 oil spill. Previously, in March 2010 — just weeks before BP’s Macondo well blew out in the Gulf — Obama had said he would consider allowing drilling at least 125 miles off the Florida Gulf Coast and would launch studies that could pave the way for exploration in the mid- and south-Atlantic.

Tommy Beaudreau, the head of the Interior Department’s Bureau of Ocean Energy Management, said the new lease “proposal recognizes the need to proceed carefully and in a manner that protects human safety, coastal areas, and the environment.” He said it represented a “tailored, region-specific approach to leasing,” instead of a historic “one-size-fits-all approach.”

For instance, the proposed Arctic lease sales would only happen after further study of how industry can safely search for oil and gas in the region — and tackle any spills in the slushy, remote waters near Alaska. And unlike the Gulf — where generally all unleased acreage would be up for grabs — the Arctic lease sales would be designed to avoid areas where there are concerns about harming native communities reliant on subsistence fishing.

“While we include the Chukchi and the Beaufort seas, we have put off any potential sales under that plan until later in the period,” said Deputy Interior Secretary David Hayes. “Our approach is to use the intervening years to better address the science gaps … and also to continue the discussions with interested parties.”

Federal regulators are currently reviewing plans by Shell Oil Co., to drill in the Beaufort and Chukchi seas, under leases purchased years ago.

Hayes acknowledged the planned sales could be delayed — or new ones added — based on what the government learns about the region from scientific studies and any new drilling by Shell.

“There is flexibility for either delaying or increasing the lease sales in the Arctic,” Hayes said. “There is flexibility in all five-year plans. The proposed lease sales are scheduled to help provide a forward look, but they are not etched in stone.”

Michael Bromwich, the head of the Bureau of Safety and Environmental Enforcement, noted the “special challenges that are presented by potential development” in the region.

“The Arctic is special, it is different and it is an area that has so far been largely unexplored,” he added. “We know far less about the Arctic than we do about, for example, the Gulf of Mexico. We know there are lots of challenges we face there that we are struggling to figure out.”

Sen. Lisa Murkowski, R-Alaska, cheered the administration’s plans for Arctic drilling as “a positive sign for our energy security.”

“While the administration has not opened any new areas to leasing, I’m encouraged that they are moving forward with offering sales in both the Beaufort and Chukchi seas,” Murkowski said. But she added that “any company interested in exploring for oil and gas off the coast of Alaska must have a reasonable expectation that the permitting process will be robust but with a timeline that is not unreasonable.”

Salazar stressed it was important to focus future offshore oil and gas exploration on the relatively mature Gulf of Mexico, which has the support of bordering states and the infrastructure to support that development. The region also has equipment readily available to respond to oil spills and blown-out wells, including containment systems developed after the 2010 Deepwater Horizon disaster, Salazar added.

The Obama administration is also planning changes to the offshore oil and gas leases that will be sold under the proposed plan — including shorter contract terms and higher minimum bids to snap them up. Deep-water leases now typically run for 10 years, but the administration is planning on paring those to seven years — with the option of a three-year extension for leases where companies have launched development.

The goal, Salazar said, is to “incentivize the development of the areas that are leased so we don’t have companies sitting on vast swaths of the outer continental shelf and not doing anything with them.”

“Shorter lease terms . . . would incentivize companies to go out and explore and develop a lease as opposed to sitting on it for up to 10 years,” Salazar added.

Required by law, the OCS leasing plans are designed to lay out every planned government auction of drilling leases in federal waters for a five-year period. If a sale doesn’t make it into the plan, it can’t happen.

Energy companies use the schedule as a guide for planning their investments, including where they may focus seismic and geological research in hopes of honing in on potential underground pockets of oil and gas.

Last year’s Gulf oil spill prevented some public scoping meetings and hindered some initial planning for the schedule, sparking some concern that the government would not have a new plan ready by July 1 next year.

The public now has 90 days to weigh in on the proposed lease program in written comments and at meetings nationwide before the Interior Department can issue a final environmental impact statement and proposed final program. The government could officially roll out the final OCS leasing plan after another 60 days of review before Congress.

Here are the Interior Department’s proposed sales:

• Western Gulf of Mexico: Five annual area-wide lease sales beginning in the spring of 2013.
• Central Gulf of Mexico: Five annual area-wide lease sales beginning in the spring of 2013.
• Eastern Gulf of Mexico: Two sales, including one in 2014 and another in 2016, in areas of the eastern Gulf that are not currently under a federal moratorium imposed by Congress.
• Beaufort Sea: One sale in 2015.
• Chukchi Sea: One sale in 2016.
• Cook Inlet: One special interest sale including the entire planning area, which is initially scheduled for 2013. In the past, there has been limited industry interest in exploring the region (believed to be home to big natural gas plays), but Apache is among companies expressing new interest in the area.