Offshore Opens Up

Will access to the outer continental shelf change oil and gas exploration and production in the US?

“For decades now, the industry has successfully explored resources in a responsible manner”
-Bruce Vincent, IPAA

One of the major issues that the US oil and gas industry face is access to resources. And when the extension of the ban on drilling the outer continental shelf lapsed in September, the opportunity to access a huge amount of energy resources shot sky high. Eighty-five percent of America's continental shelf has been off limits since 1985, in other words the industry has been unable to get access to those areas that contain an abundant amount of natural resources.

Bruce Vincent, VP of the Independent Petroleum Association of America (IPAA), believes that much of the outer continental shelf has potential. "The United States Geological Service has estimated the amount of available resources throughout the US, finding substantial resources," he says. "The interesting thing about their estimates is that they're based on decades-old data. Now, the industry has made great strides with technology in the last 10 to 20 years, so our belief is that using modern technology, particularly with regard to the ability to process and analyze seismic data, that the resource base is probably larger than what's currently estimated."

Vincent believes that California has a big part to play, as it is an offshore area that is known for its tremendous amount of natural resources. As infrastructure is already in place here it is possible for a development to spring up fairly quickly, compared to some of the places on the East coast for example. "California is attractive because it has previously been drilled in, and there's a lot of data about the area, particularly offshore of the south. It terms of getting resources to market more quickly, California would be one of the places that would prioritized," explains Vincent.

It would be possible to get products to market within two to four years, believes Vincent, compared to five to 10 years if you look offshore of the east coast. "It's a matter of where the opportunities are, the existing data sets and the infrastructure that may or may not be in place," says Vincent.

While the ban expired in September, it will take time before the industry is able to start making things happen. Firstly, the Minerals Management Service, which oversees the Offshore Leasing Service, has to revise the 2007/2012 five-year plan, which means it will probably take about two years for any new leases to be issued. "It could be 2010 before exploration production companies can begin activity on the outer continental shelf," confirms Vincent.

But while some areas may take up to a decade to produce new resources, the sooner it is started the better. "I learned a long time ago that things take time to do, and if we don't eve start we will never get there," says Vincent. "We need to give industry access to these areas. The industry is an incredibly technologically advanced, nimble industry that, given time, will tap the resources and make them available to the US and improve its energy security position."

There has been a shift in public opinion towards the offshore drilling ban, and in recent polls, the majority want Congress to lift their ban on offshore drilling. Vincent believes that there are a couple of reasons for this. Firstly, the American public realizes the need for the industry to develop additional resources, both in reducing imports into American and to create more supplies for the world. "The supply/demand balance for oil and natural gas is fairly thinly balanced, and we've seen how oil just this year alone shot up to almost $150 a barrel, and the best solution for that is to increase more supply, as well as try and become more efficient and conserve to reduce demand," says Vincent.

Secondly, Vincent believes that the American public is aware that the industry has a 99% record of exploiting oil and gas production in an environmentally responsible way. People flock to the beaches offshore in Texas and Louisiana where the industry has drilled successfully for decades. "The last real offshore oil spill of significance was back in 1969," explains Vincent. "It was in Santa Barbara off the coast of California, and that still rings in some people's memories, but for decades now, the industry has successfully explored resources in a responsible manner."

Technology
One reason that the industry has been able to successfully exploit offshore is technology, if it wasn't for technology then the industry wouldn't be where it is today. Vincent believes that without the technology he easily sees oil at $250 a barrel. "Tough times help drive people to be creative and innovative," he says. "The 80s and much of the 90s were difficult times for the oil and natural gas industry, and what they did is say, 'We can't do anything about the price, but we need to focus on the things we can control'."

The oil and gas industry is a technologically advanced business and the leaders have created many new technologies from the geoscience/geophysical side to understanding where oil and gas might be, to completion technologies that enable you to get hydrocarbons out of the ground in places that you couldn't before.  "It's been those technological advances that have allowed the industry to continue to grow reserves in production and exploit the vast resources that are available to us today," says Vincent. "The best example of that is natural gas, which is projected to grow 4% in 2008 alone. It's remarkable quite frankly, to be able to grow production on a base that big. But it's due to the development of technologies that have allowed the industry to tap into unconventional resources."

These are resources that the industry has known about for decades, but it is only now that they are about to extract the hydrocarbons in a commercial and economically viable way. It is through horizontal drilling, completion activities and multistage fracture simulation technologies, for example, that these unconventional resources have been able to become economic.

However, challenges still exist in the industry. Drilling tens of thousands of feet underground in high-pressure, high-temperature environments is extremely challenging and it as you go deeper the better you need to be. "We have to become more efficient in order to drive costs down. The financial crisis has triggered an economic downturn and triggered a significant reduction in the price of oil and gas out there. In terms of the industry's perspective, we've been through these cycles for decades and we know how to deal with it - by driving expenses down," explains Vincent. "You need to drive costs down so that you can continue activities and continue what you are best at. Technology is one of the things we can do with that. As technology improves for going deeper, we'll be able to continue to unlock resources that are available, particularly in places like the Gulf Coast."

Fast Facts: Pacific OCS region

Acres under lease: 400,505
Active leases: 79
Producing leases: 43
Barrels of oil per day: 63,000
Cubid feet of gas per day: 130,000,000
Total oil and gas wells drilled: 1290
Total development wells drilled: 999
Total exploration wells drilled: 328
Oil and gas platforms: 23
Miles of pipeline: 188
Companies operating Pacific OCS facilities: 7

[Source: www.mms.gov]