Offshore Energy: America Can Do Better

Mark Green
Posted August 21, 2014

There’s much good to report from this week’s federal offshore drilling lease auction for the western Gulf of Mexico. But we can do better.

The good: nearly $110 million in apparent high bids over 81 blocks covering more than 430,000 acres, according to the U.S. Bureau of Ocean Energy Management (BOEM). Click on the map for a larger view of the locations for the individual tracts. The bid total represents a moderate increase over last year’s western Gulf sale that generated slightly more than $102 million in bids. BOEM estimates the sale eventually could yield 116 million to 200 million barrels of oil and 538 billion cubic feet (bcf) to 938 bcf of natural gas.

Broadly speaking, the fact that the federal government conducted an offshore lease sale is in itself encouraging. Development of vast offshore oil and natural gas reserves starts with leasing areas for exploration.

That’s where we can do better. More sales are needed to begin the process of finding and developing offshore energy on the outer continental shelf, 87 percent of which is off limits by policy:

Erik Milito, API’s upstream group director, said the federal government needs to increase access to offshore energy by holding lease sales in new, more promising areas:

“The western and central sections of the Gulf of Mexico remain important areas for domestic oil and natural gas production, but they have been continually explored for decades while the vast majority of U.S. waters are kept off-limits. Tremendous potential exists for job creation and energy development in the Atlantic, Pacific, Arctic, and eastern Gulf of Mexico. We should seize the opportunity to further America’s energy renaissance by exploring and producing in new areas offshore.”

This week’s lease sale is the sixth offshore sale under the Obama administration’s five-year offshore leasing program for 2012-2017. According to the Oil and Gas Journal, the first five sales offered more than 60 million acres and attracted $2.3 billion. Randall Luthi, president of the National Ocean Industries Association, said while the sale didn’t draw the kind of bids typical in a central Gulf of Mexico sale (one there in March garnered $850 million in bids), it showed industry’s willingness to invest in exploration and development:

“With so many other countries opening up new promising areas, it is a testament to the oil and gas industry that so many have decided to try and keep jobs and investment here at home. This sale allowed many of the smaller exploration and production companies to successfully compete for leases in both deep and shallow water, keeping a diversity vital to the overall energy and jobs portfolio of the United States.”

But again, America can do better – and needs to do better to sustain the current U.S. energy revolution. That’s one of the main points API and 10 other associations recently made to officials who are developing the next federal five-year offshore leasing plan for 2017 to 2022.

Offshore energy development would make America more energy secure while adding jobs and economic growth. It could increase domestic energy production by 3.9 million barrels of oil equivalent per day, according to studies by Wood Mackenzie and Quest Offshore Resources. The Quest study calculates that Atlantic development alone could create nearly 280,000 jobs and grow the economy by up to $23.5 billion per year. API Senior Advisor Andy Radford recently explained:

“Opening new offshore areas to exploration and development could empower the U.S. and our allies by shifting the geopolitical balance. Signaling to the world that the U.S. is serious about discovering new oil and gas resources here at home and bringing them into production could give America greater leverage to positively influence events in Ukraine, the Middle East and around the world. To remain a global energy superpower, the U.S. must continue to explore for and produce new domestic supplies of oil and natural gas.”

Final point: Circling back to where this post started – discussing revenues generated to government by offshore oil and natural gas leasing – it was hard to miss the administration’s excitement earlier this week after two federal lease areas for wind energy off the Maryland coast drew a winning bid of $8.7 million.

Development of wind and other renewables is valuable in an all-of-the-above energy strategy. But as a revenue generator for government, understand that the wind lease represented less than 10 percent of the bids generated by this week’s western Gulf oil and natural gas sale and about 1 percent of the central Gulf sale in March.

The central Gulf leases also will generate $16 million per year in rental payments until royalties associated with actual production kick in – raising even more revenue. The Quest study mentioned above estimates $500 million per year in lease bonuses and $130 million per year in rental payments for Atlantic offshore development.

While offshore renewables are an important part of America’s energy future in terms of security, jobs, economic well-being and generating revenue for government, the revenues they’re delivering are relatively small compared to those flowing from offshore oil and natural gas development.