How Trump could make the offshore industry great again

Jan. 13, 2017
The election of Donald Trump may have charted an unexpected course for the offshore oil and gas world in 2017. 

The election of Donald Trump may have charted an unexpected course for the offshore oil and gas world in 2017. After eight years of “just trying to hang on” through the onslaught of new regulations and the removal of more offshore areas from leasing consideration, the offshore industry could receive an emotional and economic boost from the new administration. I say “could” because it is yet to be seen what concrete proposals come forth and to what degree some of the existing regulations can be stayed or rolled back. I also say “could” because a commodity price recovery is necessary for the industry to really get back on its feet. Fortunately, most prognosticators predict a gradual rise in prices throughout 2017, a prediction bolstered by OPEC’s announced plans for a production cut-back. Regardless, a vital ingredient for a successful industry turnaround will be regulatory relief.

More regulation means increased costs of doing business. Our industry welcomes smart and effective regulation, but many of the recent rules and guidance appear to have marginal, if any, safety and environmental benefits and thus needlessly add significant operational costs. The increased cost of doing business prevents companies from growing and investing in exploration, further delaying our nation’s energy and economic turnaround. As the commodity market slowly recovers, true regulatory relief will provide an opportunity for greater efficiency and the ability to produce vital energy sources at lower costs.

What can the new administration do for regulatory relief within its first 100 days? To begin with, it should set reasonable expectations. Right now, expectations are unrealistically high that an ever growing list of rules across the federal spectrum will be rolled back, canceled, or modified. The reality is that the curtailment of existing rules, even with a Republican-controlled Congress and White House, will have to be targeted like a rifle shot rather than a shotgun blast. Rules that can be revoked must fit certain parameters. For instance, rules finalized before May 30, 2016, will remain in place, meaning that most of the rules implemented by the Obama administration are here to stay, at least in the near term. Congress can do little, if anything, to change that category of rules. The executive agencies could initiate a repeal and/or replacement process, but as with any rule-making process, that would take months to accomplish.

However, there are some rules the incoming Trump administration could target. One such rule is the Air Quality Rule concerning emissions from offshore facilities. The development of this rule has been flawed from the start due to inadequate consultation with affected states and incomplete studies used to inform the rule. While touted as a much needed “update” to air quality standards, the rule does much more. The rule is based heavily on the assumption that offshore activities have a significant impact on onshore air. With the industry barely limping along for the last two years, it is difficult to imagine the possibility of significant air impact. In addition, most of the studies under way to quantify any impact have not yet been finalized. Thus, a reasonable approach would be for the new administration to simply halt efforts to complete this rule until the studies are finalized and vetted for scientific soundness.

President Trump could impose a similar stay on the implementation of the Financial Assurance and Bonding Notice to Lessees, NTL 2016-N01, allowing regulators and industry time to develop a more responsible and sustainable program through a proper rulemaking process.

As for the 2017-2022 OCS Oil and Gas Leasing Program, which was released in November, there is at least one avenue to rollback President Obama’s politically-driven decision to drop proposed lease sales in the Beaufort and Chukchi seas. The Trump administration could actually expedite a new five-year program. While a new leasing program would still take about two years to complete, it could replace the current five-year plan well before it expires in 2022. This has been attempted before. An off cycle five-year program for 2010-2015 was expedited by the George W. Bush administration before leaving office, but the incoming Obama administration failed to adopt it.

Congress provides another avenue for stemming Obama’s final regulatory assault. With Republicans controlling the Senate and the House, Congress could use the Congressional Review Act (CRA) to roll back some of the 11th hour Obama regulations. The CRA allows Congress to review federal regulations through an expedited legislative process. Congress has a period of 60 “session days” to overturn regulations via the CRA. However, Congress can only use the CRA to address regulations on an individual basis, which complicates things. If the CRA option is on the table, you can bet every business that has suffered under the onslaught of new regulations will be banging on the congressional door with a list of rules they would like to see gone.

Finally, the underlying fabric of the Trump administration will be determined by those who actually staff it. This is the one time the quantity of gossip from Washington, D.C. media puts that of Hollywood tabloids to shame. Of importance to the offshore industry, will be a new Interior Secretary and new leadership at the Bureau of Ocean Energy Management (BOEM) and the Bureau of Safety and Environmental Enforcement (BSEE). While there have been some controversial cabinet appointments, the buzz surrounding the Interior Department and its bureaus have been relatively drama-free. Those floated for positions within Interior are thoughtful and well respected people who would likely perform well. (Official nominations had not been made by the time of this writing.)

While there are a lot of questions facing our industry, the outlook for 2017 is much brighter than it was for 2016. Commodity prices appear to have turned the corner, and, for the first time in years, we seem to have an administration that will give the offshore industry a fair shot at developing our oil and gas resources. The National Ocean Industries Association looks forward to working with the incoming administration to develop a truly balanced energy policy that creates a path forward for offshore growth and development.

Randall Luthi

President, National Ocean Industries Association