Trump's Offshore Oil Plan Will Struggle to Lure Rigs From Guyana
(Bloomberg) -- The world's hottest offshore prospect for oil companies is off the coast of Guyana, where a string of major discoveries has drawn hundreds of millions of dollars in a quest for crude.
The Trump administration is hoping to lure some of that investment to the U.S. with a proposal to sell leases in almost every inch of the nation's outer continental shelf -- including territory hugging the U.S. East Coast that share characteristics with Guyana, a tiny South American country.
Geologists speculate that those U.S. waters could hold an equally tantalizing amount of crude oil and natural gas. But oil companies may not be willing to endure the high production costs and public opposition to find out. Gushers of litigation are more likely than gushers of oil.
"The industry's focus is elsewhere, and just because the government says you can drill doesn't mean companies will do it," said Pavel Molchanov, senior vice president at Raymond James Financial Inc. Companies have no shortage of other prospects around the globe -- without the costs and risk of the American East Coast, Molchanov said.
Drilling there could mean overcoming -- or at least ignoring -- the objections of every state government on the East Coast except that of Georgia and Maine, as well as widespread public hostility. More than 140 municipalities from Florida to New York have declared their opposition to offshore drilling, according to the conservation group Oceana.
That's a significant barrier. Although the Interior Department can still sell offshore tracts over the objections of affected governors, states could make things difficult for oil companies that would have to stage equipment near offshore drilling operations.
Almost certain lawsuits by environmental groups, state attorneys general and other drilling opponents could undermine lease sales and stall drilling, mirroring how seven years of litigation threw into jeopardy leases in the Chukchi Sea off the coast of Alaska that were sold in 2008.
The Interior Department's draft leasing plan also includes southern California, where decades of oil production illustrate the existence of crude, but where there is deep local opposition to drilling that dates back to the 1969 Santa Barbara oil spill. And it includes the forbidding Arctic waters north of Alaska, where the technological challenges and high costs of doing business -- illustrated by Royal Dutch Shell Plc's unsuccessful multibillion dollar drilling campaign -- are enough to scare off many companies.
"The inevitable lawsuits will keep this in limbo." Molchanov said. "The East Coast and West Coast have the highest level of controversy over whether drilling is appropriate or not, and that's where the governors are opposed. The idea that companies would want to put actual capital dollars into those areas -- it's pure fantasy."
Interior Secretary Ryan Zinke already vowed to take Florida off the table after complaints from the state's governor, Rick Scott, ruling out lease sales in the most logical new region for oil companies to explore: The eastern Gulf of Mexico, which is near existing oil production, pipelines and processing facilities.
By contrast, little is known about potential resources along the East Coast, because existing data stems largely from decades-old geological surveys and more than four-dozen wells drilled in the 1970s and 1980s. The old wells generally turned up natural gas and some indications of oil -- too little to be considered commercially viable at the time. But a new generation of sophisticated three-dimensional seismic studies and drilling could pinpoint more.
"It's just unknown territory," said James Knapp, a geophysicist at the University of South Carolina. "Nobody can reasonably say that we know what's out there."
Petroleum geologists say there's reason to be hopeful, however, based on discoveries in other parts of the Atlantic Ocean near Ghana, Angola, Brazil and Guyana -- places that once butted up against what is now the continental U.S.
"There have been major discoveries up in Canada and across the Atlantic over in western Africa and South America -- a very similar geologic setting -- so one has to wonder why there wouldn't be those kind of resources on the U.S. Atlantic," Knapp said.
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