Drilling on the Outer Continental Shelf

Stacy Linden, Managing Counsel
 American Petroleum Institute

By John Cimino

Ms. Linden has been working for API for the past three years, prior to which she worked in the corporate world as corporate counsel.

Ms. Linden began her presentation with an introduction into who API is.  API was formed in 1919, has been engaged in standard setting since 1924, and has been engaged in advocacy since around 25 years after this.

She then discussed global demand growth.  Future energy demand suggests that the world will require 49 percent more energy in 2035 than it did in 2007.  The United States will require 21 percent more energy in 2035 than it did in 2009.  Oil and natural gas will continue to be a significant source of the energy needs of the United States, as well as the rest of the world.

Because renewable energy makes up a very small base of our energy needs, it will take a while for it to catch up to anywhere near the importance of oil and gas.  Oil, therefore, will continue to be an important source of energy for decades to come.

Ms. Linden then discussed the risks inherent in relying on imported oil.  She then discussed the oil and natural gas resources of the United States.  The current estimates of available oil and natural gas are likely underestimated because of limited exploration.

Ms. Linden explained that global deepwater production has more than tripled since 2000. Continued deepwater discoveries, however, are important to continue to meet our growing demand for oil.

Ms. Linden then spoke specifically about the process of deepwater exploration/drilling, which consists of 4 steps: exploration, lease plan, auction, development and production.  First there is the planning stage, which generally takes about 18 months to 2 years and requires a significant investment.  Then a five year lease plan, which may take 2 years to develop.  This requires a draft lease plan to be developed, which is open to public comment for 60 days.  States are consulted as to their impact of coastal development plans.  States are afforded a 90 day period with which to challenge the plan.  There are about 20-30 steps to move forward with a leasing plan.

There are tremendous risks involved in an exploration: there are very high upfront investments required, and there is no guarantee that the exploration will pay off.

Ms. Linden then addressed the current regulatory climate for offshore drilling, in light of the regulatory reaction to Deepwater Horizon.  The Obama Administration announced its revised 5 year plan on March 31, 2010, which allows for continued exploration.  It curtailed some Alaska sales, but allows for some exploration in Alaska.

The Administration has cancelled or postponed a number of sales and exploration plans post Deep Water Horizon.  The Administation, for instance, cancelled a leasing plan in Virginia post-Deepwater Horizon.

Though the Administration has dropped the moratorium that was enacted immediately post Deepwater Horizon, there continues to be a de facto moratorium in place in some areas.

Ms. Linden intimated that though Deepwater Horizon was a tragedy, it is important to remember that it was the only such disaster of its nature.

Ms. Linden then discussed the industry response to Deepwater Horizon.  A Joint industry taskforce formed standards for deepwater operations, provided safety recommendations, and continues to review safety practices:  the industry is highly concerned about safety practices, and continues to review safety procedures in offshore drilling.

Post Deepwater Horizon, President Obama announced a National Ocean Policy that created nine regional planning bodies to help develop coastal and marine spacial plans to guide plans for regional ocean use, and address concerns over the plans’ conflicts with state laws.

Ms. Linden then addressed a number of lawsuits filed since Deepwater Horizon seeking to set aside drilling plans, and require greater procedural hurdles to exploration and drilling projects.  These claims were filed under NEPA, the Endangered Species Act, and other environmental protection statutes.

Ms. Linden ended by stressing that, in light of these new regulatory hurdles, and the prospect of additional litigation, the risks inherent in offshore drilling projects have increased significantly.