Alaska will be allowed OCS leasing in the Chuck-chi Sea, Beaufort Sea from 2012, and immediately in Cook Inlet areas. The President stated all other OCS areas including the entire West Coast, the entire NE coast from Delaware north and Bristol Bay and Aleutian Islands of Alaska would be closed to any leasing.  The President also stated 5 pending leases in the Beaufort and Chuck-chi Seas would be terminated.  All in all the President’s plan closed more areas of America’s OCS than it opened, and the areas it opened are only open after study periods and subject to Congressional approval.  Congress, not the President, has ultimate say in allowing the Minerals Management Service (MMS), which regulates the OCS, to open areas for leasing and exploration.  With the exception of Alaska and the Mid and Western Gulf, the nation has not allowed OCS leasing or exploration since 1981.  The public outcry from the 1969 Santa Barbara oil spill in California prompted Congress to impose an OCS moratorium nationwide.  This was tightened when President George H. Bush imposed a Presidential OCS ban in 1990.  Texas, Louisiana, Mississippi, and Alaska were the only states that continued to lease federal waters. 

All coastal states control waters from the shore line to 3.4 miles with the exception of Texas which does so to 9 miles.  In 2008 President George W. Bush lifted the Presidential ban on OCS and in September of that year Congress let lapse its yearly imposed Congressional ban.  Since the coming to power of the Obama Administration however the fate of the OCS has been left in limbo due to the newly appointed Secretary of Interior Salazar imposing a lengthened 60 day comment period followed last month by a scraping of the current MMS 5 year plan.  Salazar then announced that he will not complete a new plan until 2012.  As a result, despite the President’s announcement yesterday the US will not proceed with lease sales until 2012.   The President’s current FY2011 budget, states revenue estimates from OCS leasing will decline from 2009’s $1.5billion to $413 million in 2015, which can only mean that many fewer leases will be offered in 2012 and beyond than are currently being leased.   Nationwide OCS activity brings in billions of dollars annually to federal coffers.  Alaska alone has generated $9 billion for federal coffers from its OCS activity.  Due to lack of a revenue sharing agreement 100% of Alaska OCS royalties goes to the federal treasury. 

PROBLEMS REMAIN:

The President’s announcement has been viewed with muted positive response from many in the pro-development camp due to its many hidden caveats and restrictive details unmentioned during the press conference.  The number one roadblock unaddressed by President Obama is that of revenue sharing of tax royalties between the federal government and the states.  In the states that do currently lease their OCS, results are mixed.  All the Gulf of Mexico states receive a 37.5% royalty share with the federal government due to the Gulf of Mexico Energy Security Act of 2006.  Alaska on the other hand which has 2/3rds of the nation’s OCS gets 0%.  It would be highly unlikely that any new state would allow leasing without some percentage of revenue sharing going to state coffers.  The President’s announcement thus is really a work in progress to be taken by Congress before any leasing ever takes place.  Ten coastal state senators recently submitted a letter to Senate leader Harry Reid in opposition of revenue sharing, stating the resources and the taxes they generate belong to all states not just the coastal ones. The Chairman of the Senate Energy Committee, Senator Bingaman, is also against revenue sharing with states.  Despite this Sen. Mark Begich of Alaska has introduced legislation (S. 1560)  which asks for a 37.5% revenue sharing bill to apply for Alaska.   

Another detail that can cause problems with the President’s plan involves artificial OCS access borders.  The President stated that Virginia, for example, which recently passed pro-OCS legislation supported by its legislature and governor, will be allowed to lease its OCS, but only beyond a 50 mile limit.  Virginia only controls the sea 3 miles from shore thus imposing a 47 mile no go zone for industry.  The problem with this is that a majority of oil and gas prospects have traditionally been much closer inshore within this no-go zone.  As a result many feel the “opening” for Virginia may only generate a very limited response from the industry.  The President also stated Virginia OCS access is dependent on results of a proposed year long study on the issue.  The MMS estimates that the Virginia OCS contains 130 million barrels of oil. 

The Presidents plan to open the Mid and South Atlantic regions is conditional on the Department of Interiors recommendation after studying the area.  It does not by any means mean that exploration will be allowed.  If the Dept. of Interior does not find in favor of exploration no leasing will take place.  Regardless no leasing will take place before 2012.

Florida leases will only be allowed if environmental impacts are considered acceptable after extensive study by the Dept of Interior.  Like Virginia’s 50 mile no go zone Congress currently bans oil and gas leasing off Florida up to 125 miles. The State of Florida, also bans all oil and gas activity up to 100 miles off its coasts.  Both entities must approve any activity in the Eastern Gulf before the President’s ok will be meaningful. 

In Alaska the termination of 5 pending OCS leases in the promising Beaufort and Chuck-chi Seas in the Arctic along with the outright lock up of Bristol Bay does little to endear the State or industry to the President’s new plan.  The Chuck-shi Sea off NW Alaska holds the highest potential for oil and gas reserves in the nation and brought a record $2.6 billion in lease bids in the most recent lease sale.   Despite this, President Obama has cancelled 5 pending sales and stated future environmental study will be required to green light any future post 2012 sales.  Since 1973 to date the federal government has spent over $300 million studying environmental effects of oil and gas leasing in Alaska’s OCS.  The MMS requires that all leases in Alaskan OCS follow a very strict permitting process that involves thousands of permits with dozens of federal agencies that study everything from geology, air quality, marine and land environmental social and economic impacts. These studies required for permits, often take years to complete.
The ban on exploration in Bristol Bay north of the Aleutians is also an issue that is not supported by Alaska.  In a recent tour and public hearing in Alaska, Secretary Salazar was met with a public majority approval of oil and gas leasing in Bristol Bay, including support from Alaska State Governor Sean Parnell and the State Legislature.

WHATS AT STAKE:

The Minerals Management Service has not allowed an east or west coast OCS seismic survey to take place for three decades due to the Congressional and Presidential bans on leasing.  As a result the data the nation has to work with as to what is actually out there is based on quite dated 2D seismic surveys conducted in the 1970s.  The MMS state their estimates (excluding Alaska) of US OCS resources are 55 trillion cubic feet of natural gas, and 14 billion barrels of oil.  With regard to the President’s announcement MMS estimates the Mid and South Atlantic OCS to contain roughly 1.5 billion barrels of oil and 19 trillion cf of natural gas.  The Eastern Gulf is estimated at an additional 3.6 million barrels of oil and 19 tcf of gas.

The Alaskan OCS is estimated to contain 27 billion barrels of oil and 130 trillion cubic feet of gas.  By comparison ANWR’s onshore 10-02 area is estimated to contain 10.4 billion barrels of oil and 10 trillion cf of gas.  Onshore oil and gas exploration is considered much safer environmentally than off shore production.

 On February 15th 2010 a study on and offshore oil and gas potential conducted for State Utility Regulators concluded that restrictions on exploration on and off shore will cost the nation $2.36 trillion dollars in lost revenue and oil and gas imports.  Outright closures of areas like those announced by the President yesterday along with the often decade long permitting process and litigation by environmental groups has effectively meant conducting oil and gas exploration in the US is some of the most expensive and slowest in the world.