The People of America's Oil and Natural Gas Indusry

Energy Tomorrow Radio: Episode 104 - Obama's Offshore Drilling Announcement: A Step in the Right Dir

Jane Van Ryan

Jane Van Ryan
Posted April 6, 2010

In today's episode, I interview Erik Milito, API's group director of upstream and industry operations, about President Obama's plan to open areas on the Outer Continental Shelf for offshore drilling. Erik says this is a step in the right direction, and explains how opening even more areas offshore could benefit the economy.

Use the audio player below to listen to information about the article and follow along with the show notes. I hope you find the podcast informative.

00:17 Last week, President Obama announced that the United States will open certain areas of the Outer Continental Shelf (OCS) to oil and natural gas development. He explained that the nation will need more oil and natural gas while it develops new fuels for the future. To explain the possible impacts of expanded oil and natural gas development, I've invited Erik Milito to the studio today. Erik is API's group director of upstream and industry operations.

00:47 Erik, what portions of the U.S. coastline are slated to be opened to energy development under the president's plan?

00:54 Erik: This plan will continue oil and natural gas exploration activities in the western and central Gulf of Mexico and allows for additional access in the eastern Gulf, but that's also contingent upon Congress taking action. Beyond that, the president is looking to open up much of the Atlantic seaboard south of Delaware and north of the middle part of Florida. With regard to Alaska, the Chukchi and Beaufort Seas would be made available for leasing. Bristol Bay would be put off limits from leasing. In addition to this, the Pacific coast would be off limits.

01:40 How has the oil and natural gas industry responded to the president's offshore plan?

01:44 Erik: We see this as a very positive step in the right direction for our country's energy security. It's a decision that will lead to significant increases in jobs and economic activity for the country, but it's a measured response because there's still a lot of work that has to be done. First, in terms of actually moving forward with the permitting and leasing that has to be done, but also with regard to the places that aren't on the table. When we talk about the eastern Gulf, we're only talking about an area 125 miles beyond the coast. Congress needs to act to lift the current moratorium on drilling in the eastern Gulf, and we'd like to see a very expansive opportunity for industry there. In the Pacific, we think there's a lot of opportunity for significant oil resources to be developed off the Pacific coast.

02:37 A lot has been said about the potential that exists off Virginia's coastline. Virginia's elected officials have worked hard for offshore development; both Democrats and Republicans have supported holding a lease sale encompassing approximately 30 million acres and about 50 miles off Virginia's coast. That sale was scheduled for 2011. How does this new announcement affect that lease sale?

03:03 Erik: Our understanding is that the administration is going to move forward with the Virginia Lease Sale 220 under the current program. This announcement was a mix of two programs because the 2007 to 2012 program was under litigation and the administration had to go back and look at that. Then the majority of the announcement pertains to the leasing from 2012 to 2017. It is our understanding that in regard to Virginia, which is in the 2007 to 2012 plan, we'll see a lease sale sometime in 2012. This is great because it's coming along within the next year and half or so. And it's something that can really boost the Virginia economy in terms of jobs and economic activity. We're hoping Congress will move to provide revenue sharing to the coastal states, which would allow Virginia to share in the money that comes into the federal government. Currently, with the way that the law is written, only the federal government will see the revenues that come in through the bonuses--the bids that companies pay, the rentals that the companies pay, as well as the royalties. So Virginia has a lot to gain and hopefully that will occur within the near future.

04:17 It would not set a precedent, would it? If there was revenue sharing in Virginia?

04:22 Erik: No. The Gulf of Mexico Energy Security Act, which was passed in December 2006, took a similar step with regard to the Gulf states. Texas, Louisiana, Mississippi, Alabama, where the revenues flow from a lot of these lease tracts, will now be flowing to those four coastal states. It makes a lot of sense to do the same for any coastal state that has allowed oil and natural gas exploration to occur off the coastline. The Governor of Virginia and the two senators of Virginia are all in support of revenue sharing and our industry thinks it's a great idea to provide the benefits to not only the federal government, but the state that supports the activity.

04:59 How much oil and natural gas are believed to exist off Virginia's shores?

05:04 Erik: According to the government's estimates on this lease sale, alone, we're looking at about 130 million barrels of oil and 1.1 trillion cubic feet of natural gas. That's really a restricted leasing area. It begins 50 miles off the coastline. If you take the whole Virginia area into account and you look at an estimate that focuses on the ability of our industry to advance technologically and find resources in a new and really advanced way, we see estimates of as much as a half billion barrels of oil and more than 2.5 trillion cubic feet of natural gas. To put those in layman's terms, half a billion barrels is enough to fuel all 4 million cars in Virginia for over four years and the 2.5 trillion cubic feet of natural gas could heat all the homes in Virginia for more than 11 years. When we have the actual opportunity to explore, we dwarf those estimates by finding a lot more than was originally estimated. If you look at the Gulf of Mexico, the original estimate was around 9 billion barrels and we're already up to 45 billion barrels. Prudhoe Bay, Alaska, is also close to doubling in terms of the amount of oil resources. So we think once we get the opportunity to explore, we're going to be able to find a lot more than these estimates have shown.

06:40 But drilling critics have said that Virginia's oil amounts to only a few day's supply based on current U.S. consumption data. How do you respond to that claim?

06:50 Erik: There are a couple of things you have to look at. These estimates are based upon technology and research that is over 30 years old. We need to have the opportunity to explore those areas. The government and administration needs to allow companies to do new seismic work, so they can put the technology to work to and really focus on the resources based upon today's technology. Second, we need a comprehensive energy plan that takes into account all the oil and natural gas resources, including offshore, onshore, on federal lands and on private lands. This is essentially a library of oil and natural gas resources that should be available to the public. When you put off one section of that library that will put off a lot of books off limits to the public. We really need to have access to all of the volumes of oil and natural gas. Every bit counts. With some of those statistics you're talking about fueling all of Virginia's cars and all their homes for several years. I think that's a lot of economic benefit. Plus you can't forget the jobs and revenues that are going to be created and those are certainly needed in a time of economic instability that we're in right now.

08:08 So how do you respond to critics who say that despite the economic benefits, offshore development could harm the environment?

08:15 Erik: You have to look at our record. We've gone more than 40 years without a significant event from an offshore oil and natural gas platform. Our operations have been conducted in an environmentally safe and responsible manner for decades now, and you have to look what's in place to make sure that happens. Technology is in place and there are also stacks of blowout preventers. If there's any pressure when the companies are drilling, operations shut off so no fluids will get into the environment when it's in production. There are subsurface safety valves in place, so that they too prevent any kind of spillage or any kind of environmental impacts during the production phase. The operators are also certified in well control. Oil spill contingency plans are required and there are layer upon layer of regulations. The Mineral Management Service (MMS) does thousands of inspections of offshore operations--I think the latest count was close to 25,000 inspections. We have a very stringent regulatory framework, sound technology, and companies that have been great stewards. We've created a regime that's very low risk, and the benefits are so substantial that they outweigh these very small risks. This also allows the public to have access to these oil and natural gas resources, provides jobs, and has a very minimal risk to the environment.

09:54 None of it requires a government handout, is that correct?

09:57 Erik: That is correct. Essentially the government holds a lease sale and then a company starts paying money to the government. A lot of people might not be aware of this, but outside of IRS tax collections, these revenues are the most flowing to the government. Two years ago, in terms of the bids and royalties, we had close to $20 billion from oil and natural gas. In recent years we've been close to $10 billion. It's a lot of money that you want to have an opportunity to tap into for the government and to the benefit of the American taxpayer. Recent studies have shown that if off-limit areas were opened up, it would create approximately 100,000 to 200,000 jobs for the American public. This is something we cannot pass up in these economic times.

10:47 Sounds like offshore development could be a win-win for all Americans. Would you agree?

10:51 Definitely.

10:52 Thank you very much for joining us today on Energy Tomorrow Radio.