William O'Keefe: Is the offshore leasing rhetoric much ado about not much?

By William O’Keefe

From the sturm und drang reaction to the Department of Interior’s announcement of a five-year gas and oil leasing plan that would open most offshore areas, it could be concluded that leasing was imminent. It is not — and the hand-wringing reactions are another reflection of the polarization that exists in the country.

To begin with, this is a proposal affecting what could take place between 2019 and 2024 if the leasing plan is approved and implemented, which is less than certain.

There are a number of steps that a proposal must go through before it is final.

The Jan. 4 announcement was an early step in an iterative process. The next step involves collecting and analyzing public comments — and then publishing a revision for further comment and analysis.

The final proposal must be submitted to Congress and the president before being approved by the secretary of interior.

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There is one thing that is absolutely certain: Congress and the affected states will be very active in attempting to limit the scope of the final leasing plan.

Virginia representatives whose districts include eastern shorelines will most likely be opposed because they are up for re-election in 2018, and there is little public support for offshore drilling.

It has been reported that the plan is opposed “by governors from New Jersey to Florida, nearly a dozen attorneys general, more than 100 U.S. lawmakers and the Defense Department.”

As is evident from the decision to remove Florida from the plan, politics will be a major criterion in shaping the final plan.

Even if the plan is approved and leases are offered off the coast of Virginia, there is no guarantee that there will be bids or that leased tracts will be developed.

First and foremost, companies would have to assess the geology to determine the probability of commercial quantities of oil and gas. Based on past assessments, any commercial deposits are likely natural gas.

Interest in leasing today will be different than in the past because of the oil and gas renaissance brought about by fracking. Based on a cost-benefit calculation, a company’s perspective will be influenced by whether an investment in an offshore tract will produce more oil and gas than an equal investment onshore.

Part of that calculation includes political risk and almost certain litigation. Offshore platforms can cost anywhere from $600 million to several billion dollars, while onshore fracking costs per well range from $3 million to $9 million.

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In today’s environment, companies are not likely to find offshore leases as attractive as they did a decade or so ago.

And even then, there was a great deal of reluctance to develop leases on the East Coast because exploration and production operations must comply with the consistency provisions of the Coastal Zone Management Act. A consistency finding must be approved by both federal agencies and the state.

Since any discovered oil and gas would have to be transported to shore, permits would have to comply with Virginia’s Coastal Zone Management Program.

Since there are a number of hurdles that must be overcome before any tract off the Virginia coast can be leased and developed, citizens should take a deep breath and recognize that the rhetoric over the announcement reflects the fact that members of the House of Representatives are up for re-election and that environmental organizations never pass up a fundraising opportunity.