Industry could be headed for another showdown with Florida over the possible reopening of at least a portion of what remains in the Eastern Gulf of Mexico lease planning area, closed to oil and gas activities in 2001 following a political dispute between the Bush administration and President Bush’s younger brother, Florida Gov. Jeb Bush.
Depending on public interest in the Eastern Gulf leading up to adoption of the federal government’s 2007 to 2012 offshore leasing program, additional acreage that would more than double the current sale area could be included in the Gulf’s eastern planning area, according to the U.S. Minerals Management Service.
“We’re asking for public comment,” MMS spokeswoman Caryl Fagot said. “This is the time when these issues can be addressed.”
However, the U.S. Department of Interior said the lion’s share of the Eastern Gulf, currently under a leasing moratorium, will remain closed to exploration and development until at least 2012 when restrictions could be lifted.
U.S. Interior Secretary Gale Norton, in an Aug. 22 press release, reaffirmed the Bush administration’s pledge not to conduct any new leasing within 100 miles of Florida’s coast under the next five-year leasing plan.
Nevertheless, the Bush administration is asking the public to comment specifically on whether the existing withdrawals or moratoria should be modified or expanded to other areas of the outer continental shelf, and whether Interior should work with Congress to develop more environmentally friendly “gas-only” leases.
More than 85% of Lower 48 OCS off limits
In fact, presidential withdrawals and congressional moratoria already have placed more than 85 percent of the OCS in the U.S. Lower 48 off limits to drilling. Large portions of the Gulf of Mexico and Alaska are the only regions currently open to offshore leasing in U.S. waters.
Interior emphasized that recent energy legislation passed by Congress calls for a comprehensive inventory and analysis of the oil and natural gas resources for all areas of the OCS in the United States, including areas currently off limits to leasing.
“The OCS contains billions of barrels of oil and trillions of cubic feet of natural gas that can be safely produced,” Norton asserted. “With our reliance on imports of foreign oil climbing each year, we would be irresponsible if we did not consider how we might develop these abundant domestic resources.”
Most Gulf exploration in west, central
Most exploration and development in the U.S. Gulf of Mexico occurs in the western and central areas where thousands of blocks are available annually through MMS’ areawide leasing program. That compares to just 233 blocks, or a mere sliver of the more than 1,000 blocks initially included in what already was a scaled-down Eastern Gulf of Mexico Lease Sale 181, held in December 2001 following the dispute over the size and reach of the proposed sale area.
The Bush administration, yielding to Jeb Bush and other politicians and environmentalists worried about the potential effects of drilling on Florida’s tourism, turned aside industry pleas and slashed the proposed sale area by some three-quarters.
That decision not only resulted in a sale area much reduced from its original dimensions, but left most of the remaining 233 blocks in water depths over 8,000 feet. Critics said the sale would favor the majors and deep-pocketed independents over less able smaller companies.
Specifically, the withdrawal of gas-prone tracts in shallower waters of the Eastern Gulf’s continental shelf brought a predictable howl from small independents that simply did not have the resources to compete against the financial might of larger companies active in deepwater Gulf.
Interest strong in eastern area
Eastern Gulf of Mexico Lease Sale 181, despite a barrel full of political spats and remaining uncertainties, including untested geology and other issues, was among the strongest lease sales pound-for-pound in the history of the U.S. Gulf, generating a surprising $340.5 million in high bids from 17 companies on 95 of the 233 blocks offered in the sale. Competition was keen with six different tracts receiving five bids and eight receiving four bids. Anadarko Petroleum submitted a sale-high $26 million bid for a single block in Lloyd Ridge.
Sale 181 also was the first offering for the Eastern Gulf in 13 years. Thus far exploration activities in the scaled-down sale area, measuring roughly 100 miles north to south and 25 miles east to west, have produced mixed results. On the negative side, no commercial oil has been found in what has turned out to be largely gas-prone geology.
However, exploration drilling in the Eastern Gulf has turned up enough natural gas discoveries over the past four years to help support a $665 million investment in a floating central production facility, called Independence Hub, and pipeline system capable of handling 800 million cubic feet of gas per day. The project is expected to come on stream in 2007.
Available eastern area lacks quality blocks
The problem now is a lack of quality prospects on the remaining unleased blocks in the tiny sale 181 area. While the first lease sale was a boomer at more than $340 million in high bids, the second sale (189) in December 2003 drew just $8.4 million in high bids on 14 blocks with just six companies participating. The third and last sale (197), held in March 2005, took in a paltry $6.9 million in winning bids on 12 tracts with nine companies taking part. Clearly, industry needs more exploration acreage in the Eastern Gulf.
Prior to whittling down the proposed Eastern Gulf sale area in 2001, the area consisted of 1,033 blocks covering 5.9 million acres extending from three miles offshore Alabama and Florida’s western Panhandle to several hundred miles south into the deep waters of DeSoto Canyon and Lloyd Ridge, and then eastward toward Florida’s Tampa Bay.
Some 633 new blocks could be opened to leasing
Reopening the first 144 blocks from the Alabama-Florida border near the coast to just past the DeSoto Canyon boundary in deepwater would be out of the question because of the 100-mile restriction. However, from DeSoto Canyon and Lloyd Ridge eastward toward central Florida there are around 633 new blocks that were withdrawn from the initial sale 181 area that could be opened to leasing, depending on support, according to MMS.
The eastern boundary of the original plan is 213 miles from the coast near Tampa and well outside the 100-mile restriction area. Moreover, the 633 new blocks would nearly triple the 233 blocks offered in sale 181.
The Interior department, in addition to the Eastern Gulf, is asking industry “to provide information indicating interest in the opportunity to lease and develop additional OCS oil and gas resources,” specifically within the 2007-2012 time frame.
The resource inventory mandated under the new U.S. Energy Policy Act also directs Interior to analyze “available data on oil and gas resources … offshore Mexico and Canada that can aid in establishing hydrocarbon trends in the U.S. areas of the OCS.”
Moreover, Interior also has directed MMS to seek industry comment on ways the leasing program can be designed to further promote increased production of natural gas from the OCS. Interior calls this “gas-only leasing.”
“Natural gas has been identified as the environmentally preferred fossil fuel and currently accounts for at least 25 percent of the nation’s fuel needs,” Interior said. “It is expected to remain a critical component of the nation’s energy demand well into the 21st century.”
