US oil and gas producers need clarity on OCS status

US oil and gas companies will need clarity from the next president and Congress soon as to whether a recent lapse in the moratorium that has limited most offshore oil drilling on the Outer Continental Shelf is more than just a "temporary aberration," Red Cavaney, president and CEO of American Petroleum Institute, said.
"We need some signal that the moratorium is not a temporary measure, but a permanent measure," Cavaney said at a Platts Energy Podium in Washington. "Many companies want to see a positive, proactive signal," he said.

Cavaney, who is stepping down this month as president of API to work in the Washington office of ConocoPhillips, said that the new Congress will likely take up the exploration issue again when it returns in January, after an effort this fall failed on disagreements over the size and scope of OCS territory to be opened. About 18 bn barrels of crude oil and 700 tn cf of natural gas are estimated to lie offshore in the US in restricted areas, according to the US Energy Information Administration.
While President George W. Bush in July lifted the presidential moratorium on offshore oil drilling that had been in place since 1990, congressional Democrats and Republicans were unable to agree on a legislative package that would have opened up more drilling in the OCS. Nevertheless, Democrats let the perennial congressional moratorium expire to avoid a showdown with Republicans, who demanded an up-or-down vote on expanded offshore drilling.

Opening up the OCS would also allow US companies to get more leasing rights abroad in areas where oil reserves are owned by national oil companies, Cavaney said. National oil companies now hold more than 90 % of global reserves, and investor-owned companies control only about 6 %, he said.
"It's also an example to the rest of the world because when we open the OCS it's an open, competitive bid," Cavaney said. "And anyone can bid, including national oil companies. And hopefully there will be some reciprocity in that regard."

Cavaney said that key provisions of new legislation should include drilling access within less than 50 miles offshore. Earlier legislation proposed by the so-called "Gang of 10" in the US Senate would have permitted oil drilling no closer than 100 miles from shore.
"The majority of the undiscovered, exploitable oil and natural gas is within 50 miles or less," offshore, Cavaney said, noting that at 18 miles offshore, most rigs would disappear over the horizon.

Cavaney said that if drilling is not permitted closer in, the industry would have to use ultra deepwater rigs, which would force companies to hire from outside of the US for expertise, potentially letting an opportunity to boost US employment go unfulfilled. Drilling beyond 100 miles would also preclude states from sharing revenue from oil production, Cavaney said.
Closer-to-shore exploration "would provide states the ability to put gas processing plants right offshore and provide jobs," he said.