P.2 ~ Is Atlantic oil and gas leasing on the horizon?

On June 13, 2014, the Bureau of Ocean Energy Management (BOEM) issued a request for information (RFI) and comments on the preparation of the 2017-2022 outer continental shelf (OCS) oil and gas leasing program.

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The availability of good G&G data is key to an effective lease sale in the Atlantic and may help to maximize revenues from any such sale. The existing available data is 40 years old. New studies with modern practices and technologies will surely provide interested parties with a more comprehensive view of Mid and South Atlantic OCS geology. Furthermore, as mentioned above, the PEIS process was both time consuming and costly. It seems unlikely to have been undertaken lightly by the BOEM. Thus, the issuance of the ROD could signal that the 2017-2022 leasing program will include some leases on the Mid and South Atlantic OCS.

A second reason that oil and gas exploration may be coming to the Mid and South Atlantic OCS is the favorable political climate in many of the coastal states, specifically, Virginia, North Carolina, and South Carolina. As noted above, the governors of affected states are key stakeholders consulted by the BOEM as it develops the 2017-2022 leasing program. It is then noteworthy that the governors of Virginia, North Carolina, and South Carolina are members of the Outer Continental Shelf Governors Coalition. One of the key policy positions of the coalition is the expansion of areas available for offshore oil and gas development, specifically the Mid and South Atlantic. When the BOEM seeks comment from the governors of Virginia, North Carolina, and South Carolina regarding the 2017-2022 leasing program, it seems likely they will push to ensure Mid and South Atlantic OCS acreage is included for lease.

Third, it is possible that the Mid and South Atlantic OCS will be included because the area contains substantial untapped resources. BOEM estimates the undiscovered technically recoverable resources in the Mid Atlantic are 2.42 Bbbl of oil and 23.18 tcf (660 bcm) of gas. In the South Atlantic there are an estimated 550 MMbbl of oil and 2.18 tcf (62 bcm) of gas. Furthermore, according to the National Ocean Industries Association, oil and gas development in federal Atlantic waters could result in as many as 280,000 new jobs, $24 billion annually in the economy, and $51 billion in government revenue. Numbers such as those are surely attractive to some in both state and federal government who will be able to comment on this issue.

However, little is certain at this time. The planning, review, and adoption of the 2017-2022 leasing program is, at its core, a political process. There are many steps to undertake before the 2017-2022 leasing program is published, and, once published, planned lease sales can always be cancelled or delayed by the Interior Department, president, or Congress. Further, if properties are leased, they still may never be drilled due to government action, force majeure, or changes in economic conditions or political climate. The not-so-distant Macondo incident memorably resulted in a drilling moratorium and in the Obama administration's cancellation of potential lease sales of property on the Mid Atlantic OCS offshore Virginia. The incident should serve as a reminder that a great deal of uncertainty regarding future oil and gas exploration in the Atlantic still remains.

The author

Jeremy Kennedy is a partner in the Global Projects Practice at Baker Botts. His practice primarily focuses on domestic and international energy transactions, with an emphasis on upstream and midstream oil and gas projects. He also has experience in other core legal disciplines, including LNG, maritime law, EPC, project development, and finance.

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