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The offshore? Good luck, bad luck and mukluk

Ending the federal moratorium that prohibits drilling off the east and west coasts has grabbed headlines as a way to lower gasoline prices. Around and around, like bumper cars at an amusement park, opponents and proponents of leasing the Outer Continental Shelf (OCS) bash into each other. But as ASPO-USA contributors have repeatedly noted, drilling the OCS will not materially impact oil supplies for a decade or more. The U.S. Energy Information Administration forecasts that these areas might provide 200,000 barrels/day by 2020-around 2 percent of our current consumption, or as much as we use every 15 minutes.

ASPO-USA, a non-partisan non-profit organization, does not have a position on whether to end the decades-old Congressional moratorium on OCS drilling. We do think that decision-makers, reporters, and editorial writers should realistically describe how much difference the moratoria areas might make. "Drill here, drill now, pay less" is a great slogan-but if the media spent as much time investigating the OCS as they have on whether Sarah Palin once shot a moose, we would all be better served.

The attached graphic, developed by the Minerals Management Service of the U.S. Department of the Interior, and sent to us by Kyriacos Zigorakis, shed some light on the question.

Look at the map. Areas already open for leasing are show in dark blue; areas currently closed to leasing are in light blue. The numbers indicate billions of prospective barrels yet to be found. The first take-home is that there's four times more oil and natural gas to be found in areas of the OCS that are already open than in closed areas. The latter might hold up to 19 billion barrels of oil, but those barrels are prospective, not "proven."

It's been decades since some of the moratoria areas have been explored. Advanced seismic can reduce the risks, but this is a wildcat frontier. Consider Mukluk. People familiar with Alaskan petroleum exploration remember this well. In 1983 12 companies spent $100 million to build an artificial gravel island in the Beaufort Sea. Drilling the well cost another $150 million. But the big bucks-rumors of $1.5 billion-had been spent earlier by Sohio to secure the lease. Depending on who you believe, the structure of interest appeared to contain 1-2 billion barrels or possibly as much as 10 billion barrels.

Mukluk #1 was drilled into formations that closely resembled the sandstones at Prudhoe Bay, North America's greatest oil field located nearby. Oil stains were found in the target rocks, but in hindsight it became clear that the hoped-for oil had leaked out millions of years earlier. Mukluk went down as the most expensive dry hole in history. The enormous failure dampened industry enthusiasm for the Beaufort Sea, though there are still untested traps that could hold substantial amounts of oil. More recently, much smaller fields-Northstar, a winner, and Badami, a disappointment-have come on stream. But no second Prudhoe Bay has ever been found.

In the late 1970s, before the congressional moratorium was in place, there was some exploration off Delaware, New Jersey and Virginia. In 1978 Time magazine reported that oil companies paid $1.8 billion for offshore leases. In the same year, Gulf Oil and others drilled the Baltimore Canyon area, followed a few years later with exploratory wells drilled by Shell and Texaco. While the results were proprietary, no substantial oil finds were announced; some modest natural gas discoveries were apparently made but were not economic to produce. Not much to show for a $1.8 billion bet.

The bottom line is that the OCS is not a panacea for today's higher oil prices. The best prospects in US waters-including most of the Gulf of Mexico and a thousand miles of Alaskan shoreline--are already open for leasing. As for the moratoria areas, it's been decades since the East and West coasts were explored. There's probably some oil there, somewhere, but it is a decade or more from market. In short, hope is one thing, hype another, and both must be seasoned with a strong dose of reality.


Steve Andrews and Randy Udall are two of the co-founders of ASPO-USA.

(Note: Commentaries do not necessarily represent ASPO-USA's positions; they are personal statements and observations by informed commentators.)

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