From 'Drill, Baby, Drill' to OMG 'Yes, They Can!'

What the frack is up with that!

That seems to sum up the reaction from both the oil and gas industry and environmentalists to President Obama’s announcement that he would consider adding shallow areas off the Atlantic seaboard from Delaware to mid-Florida plus certain deepwater areas in the eastern Gulf of Mexico to coming federal lease sales.

The final decision on which specific areas would be offered for lease to oil companies will be included in the US Department of the Interior’s 2012-2017 lease plan still being developed. Congress would have to approve action to open the eastern Gulf of Mexico because a 2006 law putting the area off limits.  Left out of the decision was additional drilling in Alaska or the California coast.

So why did he do it?

It’s politics.  I know you are shocked by that analysis, but “drill, baby, drill” turned out to be an easy to remember TEA party slogan.  So President Obama’s political advisors wagered that this announcement made on April fool’s day would strike the right balance, take away the drilling issue from the right and still leave the environmental advocates on the left no place to go.

In short, it seemed like the perfect solution to the political problem, besides the government’s seismic analysis of these Atlantic areas opened to exploration suggest the economics may not support drilling because the federal government estimates there is between 7.5 billion and 40 billion barrels of oil and gas equivalent in the areas under consideration for lease. That is about one to four years of U.S. consumption at current rates.  The GOM tracks offer promise for more oil and gas but the public is likely to accept more drilling since there is already so much of it there.

But this is where the President may be rolling the dice.

These seismic studies of the Atlantic coastline production potential are 30 years old, and 3D seismic, horizontal drilling and hydraulic fracturing technology has dramatically changed seismic analysis since these areas were last studied.  The Houston Chronicle ran a story shortly after the President’s announcement quoting Roger Sassen, a Texas A&M professor, as saying that those old seismic studies are “harmful junk” because they have been used by opponents of drilling to “minimize the potential benefits of offshore to the national energy picture. For example, the 30-year-old seismic data suggest a three-year supply of oil and a two-year supply of natural gas at current consumption rates. With new technology, estimates of recoverable reserves of oil range up to 65 billion barrels and nearly 300 trillion cubic feet of natural gas, several times what the old seismic work depicted.” [1]

There is no realistic intent to allow offshore drilling in these areas by the Administration.  And he is betting that the hurdles required to make drilling practicable are so far out and so costly that the oil & gas industry will look elsewhere.  That would be a win-win for him.

The problem with that strategy is the President has turned a political stunt into a science and technology experiment with much bigger consequences.  Updated seismic studies using the latest technology is more likely than not to show substantially greater offshore production potential for oil and gas and will discredit the 30 year old seismic analysis creating a new floor for debate in years to come.

President Obama is betting that permitting delays will push that debate beyond his term of office, but his strategy risks turning “Drill, Baby, Drill” into “Yes, We Can!”