In Oil & Companies News 15/03/2016
The clearest indication yet that the Obama administration has little intention of allowing oil and gas exploration off the coast of Virginia is contained in the president’s proposed 2017 budget.
President Obama is proposing a “Coastal Climate Resilience” program that would help communities “prepare for and adapt to climate change.”
To pay for it, the administration proposes to redirect “roughly half of the savings that result from repealing unnecessary and costly offshore oil and gas revenue sharing payments that are set to be paid to a handful of States under current law.”
That “handful of states” includes Texas, Louisiana, Mississippi and Alabama, which are poised to begin receiving 37.5% of revenue from offshore production in federal waters staring next year. That deal was included in the Gulf of Mexico Energy Security Act (GOMESA), passed in 2006 and the four coastal states have been waiting patiently for that provision—and the roughly $600 million that comes with it—to kick in.
Obama’s proposal to repeal that portion of GOMESA, like the rest of his lame-duck budget, is dead on arrival.
“Depriving the Gulf states of revenue sharing from offshore production is just a nonstarter,” Alaska Senator Lisa Murkowski said during a recent hearing on the Interior Department’s budget.
Murkowski is the chairman of the powerful Senate Energy and Natural Resources Committee.
“It would upend a deal that 71 senators supported and take money away from states that are counting on it to protect their coastline. The effort to repeal revenue sharing is not going to go anywhere.”
It may not go anywhere, but it reveals a fundamental opposition to federal revenue sharing that is almost certain to sink any attempt to expand offshore drilling to Atlantic coast states, including Virginia, which has supported such expansion for years.
In February, Virginia Lt. Governor Ralph Northam, a Democrat, sent a letter to Interior asking that a proposed lease sale off Virginia’s coast be removed from the draft federal five-year leasing plan. That position puts him at odds with the state’s two Democratic senators and Gov. Terry McCauliffe, also a Democrat, all of whom support the lease sale.
Crucial seismic studies are also being delayed
Northam cited environmental reasons and possible interference with military exercises in his letter. But he also noted that, under current law, Virginia would not profit from oil and gas production off its shore.
“Given the uncertainty over how royalties would be disbursed, the concerns I have cited above and the overall risk assumed by the commonwealth, it would be best to take a conservative approach and exclude Virginia from the proposed leasing program,” he wrote.
With California opting out of new federal leasing and Alaska exploration on indefinite hold, the Atlantic is essentially America’s last frontier for oil and gas exploration. The US estimates that the area offshore Virginia alone may contain 130 million barrels of oil and 1.14 trillion cubic feet of natural gas.
Even if Interior decides to include a Virginia sale in the 2017-2022 leasing plan, the administration is under no obligation to hold the sale.
The opposition to sharing federal revenue with the Gulf states is just the latest indication that the Obama administration does not support expanding offshore exploration to the Atlantic coast.
Interior said it would work to issue permits for seismic studies in the area in an effort to update decades-old data on the oil and gas potential. But only one of those permits has actually been issued and none have yet been issued for the kind of detailed 2-D and 3-D seismic studies that would reveal the actual resource potential in the mid- and southern Atlantic.
Those permits are languishing while other agencies weigh in on them, a process that shows no sign of wrapping up anytime soon.
The final version of the 2017-2022 federal offshore leasing program has yet to be issued. But given the Obama administration’s push to make combating climate change an important part of his legacy, it would not be surprising if the Virginia sale, tentatively scheduled for 2021, is removed.
But even if it’s included, without a plan to share federal revenue with the states, that sale is going nowhere.
Source: Platts
