Ruling complicates US offshore drilling, further delays five-year plan: sources


Ruling complicates US offshore drilling, further delays five-year plan: sources

A US judge has dealt the latest blow to President Donald Trump’s domestic energy agenda, creating another hurdle to offshore oil and natural gas development his administration has been working to dramatically expand and potentially complicating the release of a plan opening nearly all federal waters to drilling.

While analysts and lobbyists said Monday it is too soon to tell what impact this and other court decisions may have on future production, the legal uncertainty surrounding production in frontier areas further complicates the proposed, sweeping expansion of drilling to new federal lands and waters.

The ruling “clearly puts some new questions there,” one oil and gas industry lobbyist said. “It’s a risk and it clearly increases the likelihood that interest will go elsewhere.”

The ruling, coupled with the high costs of development in the Arctic, the lack of infrastructure and the $7 billion failure of Shell in the region, will likely prevent any significant production in the Chukchi and Beaufort seas for the foreseeable future, analysts said.

“At this time, we do not foresee any major offshore oil developments in the Artic,” said Rene Santos, senior director, E&P analysis, S&P Global Platts Analytics. “Due to the remoteness of the area and also uncertainties on the regulatory/environmental side, it is unlikely that developments will be happening soon.”

On Friday, Judge Sharon Gleason of the US District Court for the District of Alaska ruled that a permanent ban on drilling in about 115 million acres of the US Arctic Ocean and 3.8 million acres in the north and mid-Atlantic Ocean off the East Coast “will remain in full force and effect unless and until revoked by Congress.”

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The ban had been put in place by then-President Obama in his final days in office, but Trump had attempted to reverse the order as part of his plan to offer oil and gas leasing in nearly all federal waters. Obama had withdrawn the entire US Chukchi Sea and most of the Beaufort Sea from future oil and gas drilling.

In January 2018, the Trump administration released a draft proposed plan for offshore oil and gas lease sales which included three sales in the Beaufort and three in the Chukchi over the next five years. The plan was expected to be released late last year and finalized before the end of 2019.

But the formal, proposed plan has been delayed for weeks and is now not expected to be released until after David Bernhardt, the nominee to head the US Department of the Interior, is confirmed by the Senate, which Republican leaders hope to do within the next two weeks.

The plan, however, will now not be finalized until January 2020, at the earliest, sources said Monday.

In addition, Friday’s ruling complicates the six planned Chuckhi and Beaufort sales currently in the draft proposed plan. The legal standing of including these six sales in federal waters now blocked, by law, to oil and gas development, may further delay the release of the proposed five-year plan, one source said.

An Interior spokesman declined to comment Monday.

Kevin Book, managing director with ClearView Energy Partners, said the ruling may complicate the path forward on the offshore plan, but was unlikely to derail the overall push towards expansion of US offshore drilling.

“The ruling might force a hurried revision of the next drilling plan iteration, but it seems unlikely to change the administration’s overall momentum toward opening up new offshore resources,” Book said. “They seem poised to succeed directionally, and perhaps substantially.”

Industry groups said they expect the Trump administration to appeal Friday’s ruling.

“It’s a questionable decision that, I believe, no doubt, other courts will take a look at,” said Christopher Guith, president of the US Chamber of Commerce’s Global Energy Institute.

“A court with more experience and knowledge of the full breadth of the executive branch may very well come to a different conclusion,” said Randall Luthi, president of the National Ocean Industries Association, in a statement.

Friday’s ruling follows a March decision by US District Court for the District of Columbia Judge Rudolph Contreras who blocked new drilling on 300,000 acres in Wyoming after he said that Interior did not sufficiently consider climate change when leasing those lands.

In December, environmental groups sued to block seismic testing in the Atlantic Ocean that is needed to measure oil and gas reserves off the East Coast.

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