Offshore drilling operations being carried out in the Gulf Of Mexico.
Source: EIA
Offshore drilling in the U.S.’ Outer Continental Shelf (OCS), which the Federal Government vastly oversees, has a heightened exposure to a potential drilling ban when compared to drilling on Federal land. Said exposure is linked to the offshore Submerged Lands Act of 1953, and the Gulf Of Mexico’s (GOM) drilling moratorium of 2010. Importantly, targeting the Federal space has been alluded to by the contenders to the current Administration, headed by Joe Biden, who has yet to be sworn in.
Moreover, in 2019 the GOM was the second highest producing region in the U.S., accounting for 15% of the country’s production, per the EIA. This, in turn, raises the following questions: what does a potential ban mean for offshore, and state land?
The Importance Of 1953
In 2010, the offshore sector via the GOM was unilaterally targeted on a Federal level—via the previous Administration—leading to a drilling moratorium or quasi-ban, as drilling permits were not granted. The aforementioned sets a legal precedent for an incoming Administration to reference and follow. Regarding drilling on Federal land, a legal and unilateral precedent that encompasses all states does not exist.
The offshore Submerged Lands Act of 1953 was the catalyst that gave the Federal Government a pronounced oversight of the OCS, which essentially limited coastal states’ title to natural resources, including offshore oil and gas, to a distance of 9 nautical miles for coastal states such as Texas and Florida’s Gulf Coast, for example. However, other coastal states are at 3 nautical miles.
For context, the Jack/St. Malo platform/facility is nearly 280 miles south of New Orleans Louisiana, and the Perdido facility is located approximately 200 miles off the Texas coast. Additionally, both facilities—are a solely a snapshot—of the GOM’s deepwater infrastructure. Importantly, “approximately 87% of total OCS production comes from the deepwater production facilities in the [GOM],’’ as reported by the Bureau of Safety and Environmental Enforcement in October 2020.
Offshore Drilling In 2010
Keeping with the theme of 2010, despite the Administration targeting Federal waters, the oil industry contested the moratorium in Louisiana’s courts when “[the New Orleans] District Court Judge…blocked implementation of the drilling ban on June 22’’ as reported by Reuters in 2010, when ‘‘[offshore] companies sued the [previous Administration] on June 7.’’
Nonetheless, a second drilling moratorium was imposed, as highlighted by the Texas Tribune in 2010: “Texas filed suit today [August 11]…saying the Federal government failed to consult with Texas before implementing [the moratorium]—[as] required to do under the OCS Lands Act, because Texas will be affected by the ban.’’ The 2010 moratorium period—is linked to the Deepwater Horizon incident—and it would ultimately begin to be lifted on October 12 of that year. Conversely, the drilling ban that is presently being alluded to, is mainly rooted in Energy Transition endeavors.
Offshore And The Emergence Of Shale
The year after the moratorium would prove to be a watershed moment, as Texas surpassed the GOM as the top producing region in the U.S. in April 2011, as fracturing technologies and methodologies advanced. Said moment would see the rise of Texas as the U.S.’ number one producing region: a position that it holds to this present day. Prior to this occurring, the GOM’s output in September of 2010 commenced at 1.59 million barrels, and in August 2019 a monthly production record was set via 2.05 million barrels, per the EIA (all production referenced in this section comes from the EIA). In the span of nearly 9 years the GOM maintained a relatively tempered production ouput.
On the other hand, U.S. land production grew bullishly, as monthly production started at 5.62 million barrels in September 2010, and by November 2019 production peaked at a record 12.86 million barrels, which demonstrates a sector that is finding the shifting floor and ceiling. Moreover, only 3 regions in the U.S. produced more than 1 Million Barrels Per Day (MPBD) in 2019, and they are as follows:
- Texas: 5.07 MBPD
- GOM: 1.88 MBPD
- North Dakota: 1.40 MBPD
Furthermore, the GOM’s production was crucial in the U.S. becoming the world’s highest ranked producing country. If the GOM’s 1.88 MBPD were removed, the country rank for 2019 would have Russia as the top oil producing country, as shown below:
- Russia: 10.85 MBPD
- U.S.: 10.35 MBPD
- Saudi Arabia: 9.82 MBPD
Oil production rank by country in 2019. Without offshore GOM production the U.S. would not have been … [+]
Source: EIA
Beyond 2021 Offshore Drilling
The offshore space can once more be a potential target in 2021, as shown in this article, should the banning of drilling on Federal offshore waters be implemented. That said, 2019 provides a glimpse of the GOM’s future potential if unimpeded, and its contribution to U.S.’s total oil output. In closing, 2021 will be a very key year, as it pertains to a potential drilling ban that can also impact Federal land, and how this may potentially evolve to the non-Federal sector.