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.

Jeremy Kennedy
Baker Botts

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. The move represents the first step in the planning of the 2017-2022 leasing program. This announcement does not propose to schedule sales in any particular area, and there are many steps between this one and ultimately leasing new properties on the OCS under this program. Commenters have criticized the Obama administration for the 2012-2017 leasing program, which some contend is too conservative for not including lease sales outside of traditional production areas in Alaska and the Gulf of Mexico. Today many wonder whether the 2017-2022 leasing program will include leases in new areas and specifically whether the Atlantic OCS will be available for leasing and drilling.

The path from the initial announcement of the RFI for the 2017-2022 leasing program to the production of oil and gas is a long one. The process contains four parts: (i) the five-year planning program; (ii) the lease sale; (iii) exploration; and (iv) development and production.

The first step to develop and adopt a five-year leasing program is the RFI and an associated 45-day public comment period. Following an extension, this comment period ended on Aug. 15, 2014. The next step is for the BOEM to publish a draft proposed program, which is followed by another 60-day comment period, and to announce a notice of intent to publish a programmatic environmental impact statement (PEIS) as required by the National Environmental Policy Act. The PEIS evaluates the potential environmental impact of various leasing alternatives under the draft proposed program.

Next the BOEM will publish a proposed program and a draft PEIS and will allow for a further comment period specifically calling for comment from the governors of all affected states as well as executives of any affected local governments. Finally, the BOEM will prepare a proposed final program and a final PEIS. This is followed by another period for Congress, the president, and the attorney general to comment before a final 2017-2022 leasing program is announced. Each of the steps, from the initial RFI to the announcement for a final 2017-2022 leasing program, will winnow the scope of the 2017-2022 leasing program. Therefore, while the Atlantic OCS may still be on the table for inclusion as part of the 2017-2022 leasing program today, it is not guaranteed to stay there.

The Atlantic OCS is divided into four planning areas: the North Atlantic (bordering Maine to New Jersey); the Mid Atlantic (bordering Delaware to North Carolina); the South Atlantic (bordering South Carolina and the northern coast of Florida); and the Straits of Florida (bordering the southern coast of Florida). It seems unlikely that there will be any activity in the North Atlantic and Straits of Florida in the foreseeable future; however, the Mid Atlantic and South Atlantic may present a different story. Notwithstanding the long and uncertain path ahead, there are a few reasons to be bullish about the possibility of Mid and South Atlantic oil and gas leasing in the future.

First, a major hurdle to seismic exploration in the Atlantic was cleared on July 18, 2014, when the BOEM issued a record of decision (ROD) for its environmental review of geological and geophysical (G&G) surveys on the Mid and South Atlantic OCS. The ROD itself does not authorize G&G activities, but it is a key step since it allows the BOEM to consider permit applications or other proposed authorizations for G&G activities. The public comment and hearing process undertaken to get to this point lasted more than a year and began when the BOEM published a draft PEIS regarding G&G activities in the Atlantic in March 2012.

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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