Early reactions suggest global oil and gas giants aren’t about to start the black gold rush that the U.S. administration was clearly hoping for when it opened most of America’s offshore waters to fossil drilling last week.
Couching the move in the aggressively militarized terms of “energy dominance” adopted by Donald Trump last year, a draft drilling plan released last week put nearly 50 parcels of seabed—many in long-protected areas of the eastern Gulf of Mexico and off California—up for auction to be explored for their hydrocarbon potential.
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Last month, as well, the Republican-dominated U.S. Congress approved a tax reform bill that, among much else, opened the Arctic National Wildlife Refuge to oil and gas seismic crews, road builders, rigs, and pipelines.
But despite some recent upticks in crude oil prices, a slowdown in discoveries of new conventional oil, and ongoing instability in key oil-supplying regions like the Persian Gulf and Venezuela, global fossils may not be in any rush to take up the proffered acreage, several analysts say.
“There are two big complications when it comes to capitalizing on America’s federal waters,” Bloomberg writes, “politics and time.”
The most attractive newly-available areas are those off the coasts of states that bitterly oppose marine fossil development, for fear of potential damage to such valuable environmental assets as Florida’s beaches and Maine’s lobster beds.
“In theory,” the news agency speculates, “a driller could develop a prospect using a self-contained floating, production, storage, and offloading vessel, dispensing with the need to secure state permission for pipelines and terminals to bring oil and gas ashore. In practice, that would be prohibitively expensive, even with oil having crept back above $60 a barrel.”
Meanwhile, any company bidding now to explore a newly-opened area must count on “the best part of a decade” before it begins delivering oil or gas—“even before factoring in the brake of legal challenges.” That puts off any possibility of revenue from a new offshore development to 2028 or beyond.
“Oil majors paid a heavy price for tying up capital in giant, multi-year projects, trashing their returns and threatening their dividends when prices crashed [in 2014],” Bloomberg notes. “Megaprojects are decidedly unfashionable at this point.”
Even before the Arctic National Wildlife Refuge was opened for exploration, meanwhile, Reuters reports that very few bidders responded to a permit auction 150 miles to the west. Only “seven bids were received, covering about 80,000 acres—or less than 1% of the 10.3 million acres offered in the National Petroleum Reserve,” the news agency notes.
Meanwhile, Bloomberg reports elsewhere that another purported Republican gift to corporate America is turning out to be less sweet for Big Oil than for some other sectors. The sweeping tax code rewrite that Trump signed into law just before the December holiday contained “caps on debt-interest payments and cuts to deductions from previous years’ losses” that “may hurt companies building capital-intensive projects with borrowed money. Time limits on expensing exploration could hem in drillers with long-term projects.”