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Lifting Drilling Moratoriums--One Important Step to Control Oil Imports

On July 14 President Bush lifted the executive order that banned drilling in U.S. offshore areas. His action left Congress to renew its own ban on offshore drilling on a year-to-year basis.

Congressional members reacted swiftly and negatively, arguing that lifting the moratorium would neither lower gasoline prices in the short term, nor free the U.S. from imported oil. House Speaker Nancy Pelosi referred to the president as “the oilman in the White House” and called his plan “a hoax.” Congressional members urged conservation and improved energy efficiency, development of alternative energy sources, and to release oil from the Strategic Petroleum Reserve. Democratic members repeated previous arguments that oil companies must explore on and produce from unused leases they already hold, and drill in areas that are not under moratorium.

Stepping aside from this debate, we must first recognize that the U.S. cannot break free from foreign oil in the foreseeable future. There simply is not enough domestic oil to do such a big job. The key point is that any oil we can discover and produce will back out an equal volume of oil that otherwise would be imported. Lifting drilling moratoriums is one part of a multifaceted program to rein in oil imports.

Short-term relief from high gasoline prices is not remotely achievable by lifting drilling moratoriums. Early oil might not be realized for ten years. But some anxiety in the oil market might dissipate to stabilize prices if the U.S. begins the lengthy process to open areas that have long been under moratorium. For long-term stability, the market will want to see government and industry progress toward exploration, discoveries, development, and new production.

Congressional Opposition to Lifting Moratoriums

A battle is shaping up in Congress over oil leasing in moratorium areas. On June 4, Democrats of the House Committee on Natural Resources promulgated their special report, The Truth about America’s Energy: Big Oil Stockpiles Supplies and Pockets Profits.

The title summarizes their conclusion: the oil industry is sitting on thousands of drilling permits and leases that could be producing oil and gas, while Americans pay more at the pump. Some highlights are:

  • “…there is no justification to open additional federal lands because oil and gas companies have shown that they cannot keep pace with the rate of drilling permits that the federal government is handing out.”
  • “…companies hold leases to nearly 68 million acres of federal land and waters that they are not producing oil and gas (from). (They) would not buy leases to this land without believing oil and gas can be produced there, yet these same companies are not producing oil and gas from these areas already under their control.”
  • “If we extrapolate from today’s production rates on federal land and waters, we can estimate that the 68 million acres of leased but currently inactive federal land and waters could produce an additional 4.8 million barrels of oil and 44.7 billion cubic feet of natural gas each day.”
  • “That would nearly double total U.S. oil production… (to) cut U.S. imports of oil by one-third.”

The Committee report led directly to proposed legislation compelling oil and gas companies to drill on leases they already hold before they can obtain new leases. But the Committee simplistically projected oil production rates from active leases onto non-producing leases. Such primitive “extrapolation,” and their conclusion that oil production would “nearly double,” contradicts the reality that oil and gas are highly concentrated in accumulations, frequently clustered, and always unevenly distributed. Reasons for rendering leases inactive are that initial drilling may have yielded poor results, or local lawsuits may have blocked drilling despite federal permits.

How the Leasing and Exploration Process Works

When a company decides to take the financial risk on a promising subsurface structure, they usually bid on a cluster of blocks to include the entire structure and its periphery. But if the first couple of exploratory wells are unsuccessful, the company may judge the remaining blocks as too risky for further drilling, and allow the leases to expire.

Much of the 68 million non-producing acres may be in the “risky” category. Legislation to force companies to drill on all leases is superfluous because those leases will eventually expire. The US Minerals Management Service (MMS) can then reoffer expired blocks to see if another company is willing to take the financial risk.

In order to discover major oil fields, the industry needs access to extensive areas where exploratory drilling has been minimal. Most such areas are offshore, currently under moratorium. With access to extensive areas, major companies capable of taking big financial risks can conduct and share geophysical surveys, from which they decipher geologic structures. They drill off-structure core holes to analyze sediments for oil-prone organic material. Companies assemble the data to develop hypotheses about the conversion of organic material into oil in source rock, and its migration and accumulation in commercial concentrations in postulated geologic structures.

MMS then issues a “call for nominations,” asking companies what areas their studies show are prospective. MMS compiles nominations and selects areas that comply with political and environmental issues. Companies bid competitively on blocks that are mapped in a 3-mile by 3-mile grid. High bid wins the right to drill on each block. MMS sets minimum bids for blocks based on prospective attractiveness, timetables for drilling the first well and subsequent wells, and expiration dates.

The “sweaty palms” stage is when a company drills its first well, the ultimate test of their hypothesis for the generation, migration, and accumulation of oil. To maximize data from the well, they conduct detailed seismic surveys to determine the most advantageous path for the well, and to locate depths for capturing samples of rock and fluids. All this takes time and money, but physical information from the subsurface is critical for developing a 3-D geologic picture, to determine subsequent drilling. If the well is a non-producer, the company may recompile all data, revise their hypothesis, and decide that nearby structures are worth testing. But if the sediments do not show promising features, the company may see the weakness of their hypothesis, and decide to abandon the area.

No Quick Fixes

Congressional leaders use the sound bite, “We can’t drill our way out of this oil mess.” Of course; who ever claimed we could? But we can’t conserve our way out either. Reducing demand is a long-term process; “evolution” may be a more accurate term. Tightening CAFE standards will ease demand, but the benefit would be spread over many years. For long-term reduction, we would have to overhaul our daily travel patterns through societal lifestyle changes while we restructure our cities and suburbs. Such fundamental changes will take a human generation or longer. It took decades for the car culture to evolve in the U.S. It will take that long to reverse it.

The popular alternatives (biofuels, wind, solar) could be the subject of another paper, but they have minimal potential to substitute for transportation fuels. We need to recognize the unique nature of liquid fuels, that the US will depend heavily on oil imports for decades, and that “energy independence” is a fanciful hope.

Opening prospective areas under moratorium would allow fresh exploration where little previous work has been done. It will offer us the best chance for significant discoveries that could stabilize domestic production. Every barrel of oil we produce domestically is one less barrel that we must import. And while they’re at it, Congress should approve leasing for the coastal plane of ANWR so we can learn what resources are really there.

Tom Standing began his career as a chemical engineer in refinery operations and later shifted to work as an engineer for the San Francisco water system. He is self-taught in the sciences of petroleum production, geology and geochemistry.

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