A confluence of events in Washington, D.C. and growing activity in non-U.S. Atlantic hydrocarbon basins in recent years could signal an opportunity for oil and exploration in the U.S. Mid- and South Atlantic.

A major reason for increased interest in the U.S. Atlantic has been industry’s global interest in the Atlantic margin. Discoveries offshore West Africa over the past several decades have provided a great deal of understanding about its geology. In recent years, the connection has been made between West Africa and the pre-salt discoveries offshore Brazil. We now know that the sediments that were laid down in both regions more than 100 million years ago occurred when the two continents—Africa and South America—separated from each other. Thus they have similar geologic structures.

The same geological connections that exist in the South Atlantic also apply to the North Atlantic. For instance, hydrocarbon-bearing rocks off Canada are similar to those in North Africa (Senegal, Mauritania, Western Sahara and Morocco). The Canadian Maritimes and Newfoundland have seen an influx of offshore oil and gas activity. Newfoundland has had several announced expansions at producing areas as well as drilling in new areas such as the Flemish Pass Basin and the Laurentian Sub-Basin.

falseAll told, Newfoundland’s oil production was valued at $8 billion in 2013 with royalty revenues of $2 billion. To date, more than $8 billion has been spent to develop Nova Scotia’s offshore oil and natural gas resources. Shell Canada successfully bid $970 million for four deepwater blocks in January 2012 and has made work commitments for seismic and wells there totaling around $1 billion. The Shelburne Basin deepwater exploration program started in 2013 and drilling could begin in late 2015. BP Exploration Operating Co. Ltd. successfully bid $1.049 billion for exploration rights for four deepwater blocks in November 2012.

Elsewhere in the Atlantic, oil exploration activities are taking place off the coasts of Mexico, Cuba, Nicaragua, Colombia, Trinidad and Tobago, Guyana, Suriname, French Guiana, Brazil, Uruguay and the Falkland Islands. Noticeably absent from that list is the U.S., where Atlantic exploration ceased in the early 1980s. Now, due to higher oil prices and growing industry interest in lower-risk, high-yield offshore resources, interest in the Atlantic is rising.

Geologists can use exploration successes on one side of the Atlantic as analogues for potential discoveries on the conjugate margin. Two hundred to 300 million years ago, a large supercontinent now referred to as Pangea joined North and South America with Africa and Europe. This supercontinent began to break apart 200 million years ago.

“The hydrocarbon accumulations in West Africa and Brazil have been correlated and determined to be sourced by rocks of the same age and are trapped in structures with similar styles,” noted Richie Miller, president of Spectrum Geo Inc. “Accumulations in North Africa are similar in age and style to those that exist along the Canadian and the U.S. East Coast margins. Further investigation along the U.S. East Coast will likely encounter reservoirs of similar style and sourced by rocks of similar age to those in Canada and Africa.”

Miller has testified twice before Congress about the need to have modern seismic data along the Atlantic Outer Continental Shelf (OCS).

“Oil and gas producers are expressing increased interest in the U.S. Atlantic OCS,” he said. “Companies have limited access all over the world and there is interest from industry to see new data and to be able to explore this virtually virgin area. The conjugant margin is a hot play between Africa and South America. We expect to see these plays imaged once there is new modern seismic data acquired off the U.S. East Coast.”

Further, he said, “if they don’t get access to the U.S. East Coast, they will take their investments to other parts of the world.”

Seismic data will be critical to the opening of the Atlantic OCS. “Seismic surveys are the only feasible technology available to accurately image the subsurface before a single well is drilled,” said Chip Gill, president of the International Association of Geophysical Contractors (IAGC). “Modern seismic data will allow policymakers to make informed decisions using the best available scientific data generated by modern seismic imaging using the latest technology.”

Gathering seismic data has a “risk reduction role” for new areas like the Atlantic OCS, explained Gill. “Modern seismic
imaging increases the likelihood that exploration wells will successfully tap hydrocarbons.” He noted that seismic data serves to reduce the number of wells that are drilled as well as the disturbance.

As for the Atlantic resource base, Gill points to the example of the Gulf of Mexico, where in 1987 the Minerals Management Service estimated only 9.57 billion barrels of oil (Bbo) existed. But with recent seismic data acquisition and additional exploratory drilling, that estimate rose in 2011 to 48.4 Bbo—a 500% increase. The same can be said for the deepwater pre-salt offshore Brazil.

Updated resource estimate

According to a resource assessment by the Interior Department’s Bureau of Ocean Energy Management (BOEM), nearly half of the estimated U.S. OCS resources are outside the Western and Central Gulf of Mexico. However, abundant resources in the Atlantic, Pacific, off shore Alaska and Eastern Gulf of Mexico are currently not available for new leasing.

In May, BOEM updated its resource estimates for the Atlantic OCS. Using a geologic play-based assessment methodology, the bureau estimated a mean of 4.72 Bbbl of undiscovered technically recoverable oil and a mean of 37.51 trillion cubic feet (Tcf) of undiscovered technically recoverable natural gas in the Atlantic OCS.

The assessment involved an area within 200 nautical miles of the U.S., the Exclusive Economic Zone (EEZ), where mineral resources fall under U.S. federal jurisdiction. BOEM assessed 10 Atlantic geologic plays, nine of which were conceptual, and one where hydrocarbon resources are known to exist. Water depths ranged from fewer than 100 feet to more than 10,000 feet with drill depths ranging from 7,000 to 30,000 feet below the ocean floor.

The BOEM assessment represents a 43% increase in Atlantic undiscovered oil and a 20% increase in undiscovered gas over the last resource assessment, which took place in 2011. A big reason for the increase is the application of improved data analysis techniques and “the analogous newfield discoveries that are located offshore East Africa and West Africa,” stated the BOEM assessment. “They display similar geologic settings and petroleum system elements to what is observed in the Atlantic OCS.” It is widely believed that modern seismic imaging using the latest technology will show that much greater resources exist.

Atlantic access

Oil and gas exploration activities took place in the U.S. Atlantic offshore from 1947 until the 1980s. Five wells were drilled in Florida state waters and 51 were drilled on federal leases in the Atlantic OCS. Some of the more notable areas where drilling took place include:

  • The Baltimore Canyon, about 100 miles off the coast of New Jersey, Maryland and Virginia, where 30 wells were drilled and five showed significant natural gas present;
  • The Carolina Trough, offshore Virginia, North Carolina and South Carolina, where the Manteo prospect exists and oil and gas resources have been found;
  • The Georges Bank, where between 1976 and 1982, 10 exploratory wells were drilled.

In 1982, the U.S. Congress began taking action through provisions in the appropriations process that prohibited oil and gas leasing on the OCS off of the Atlantic, Pacific and Eastern Gulf of Mexico. In 1990, President George H.W. Bush issued an executive order banning offshore drilling in the same areas. President Clinton extended the ban from 1998 to 2012.

falseHowever, following price spikes and in the aftermath of Hurricane Katrina in 2005, Congress and the White House under President George W. Bush began taking steps to lift the moratoria. Congress allowed the appropriations moratorium to expire and President Bush rescinded the executive order. An interim federal offshore leasing plan included a lease sale for acreage offshore Virginia that was then canceled in May of 2010 by President Obama, in response to the Deepwater Horizon oil spill.

The opportunity

With congressional and presidential moratoria no longer in place for the Atlantic, opportunities exist for the inclusion of Atlantic lease sales in the Federal Five-Year Oil and Gas Leasing Program 2017-2022. On June 13, 2014, Secretary of the Interior Sally Jewell and acting BOEM Director Walter Cruickshank initiated the first step in a three-year public process to develop the next five-year plan by calling on the public to suggest acreage to be offered. This scoping period will help determine what acreage will be offered in a draft proposed plan, all part of a multistage process that can take up to three years to complete.

There are already signals that the process for including Atlantic lease sales in the five-year plan could prove contentious.

“The development of the next five-year program will be a thorough and open process that incorporates stakeholder input and uses the best available science to develop a proposed offshore oil and gas program that creates jobs and safely and responsibly meets the energy needs of the nation,” Secretary Jewell said in announcing the comment period.

Historically, as the process makes its way through five stages, areas and proposed lease sales are removed, not added. For that reason it is essential to the oil and gas industry that Atlantic lease sales are included in a draft proposed plan, likely to be released early next year. “The current five-year program that expires in 2017 included no new access and has put the

U.S. far behind other nations that are actively pursuing offshore oil and natural gas energy development,” said National Ocean Industry Association (NOIA) President Randall Luthi, who noted the need for access in the Atlantic Basin and the Arctic.

“Canada, Mexico, Venezuela, Brazil, Norway, Russia, Cuba and western African nations are examples of countries actually moving ahead with Atlantic and Arctic offshore exploration and development,” said Luthi.

At the same time, a very important process is underway regarding seismic acquisition in the Atlantic. BOEM is currently finalizing a Programmatic Environmental Impact Statement (PEIS) “to evaluate potential significant environmental effects of multiple geological and geophysical activities on the Atlantic Outer Continental Shelf, pursuant to the National Environmental Policy Act (NEPA).”

The PEIS will focus on environmental impacts of three program areas (oil and gas, renewable energy and marine minerals) for activity levels that might take place between 2012 and 2020. The PEIS stems from a request from Congress to evaluate impacts that seismic surveys would have in the Mid- and South Atlantic on Atlantic resources.

According to BOEM, the PEIS establishes a framework for future NEPA evaluations of site-specific actions, while identifying and analyzing mitigation measures for future programmatic use. These mitigation measures are more stringent than those that industry has had to comply with in the Gulf of Mexico, a fact that some in industry believe establishes a dangerous precedent that is not scientifically supported and will make future seismic acquisition more difficult.

In May, IAGC, the American Petroleum Institute (API) and NOIA filed joint comments with BOEM regarding their concerns. The trade associations stated that the PEIS does not incorporate all of the best available science, including data that contradicts the data used to quantify impacts, the use of a “worst-case scenario” in making assumptions and the recommendations of mitigation measures (shutdowns, exclusion zones, acoustic criteria) that are not justified by science and may deter the future collection of seismic data.

The industry also expressed concern over the role that the National Marine Fisheries Service will play in issuing required Incidental Harassment Authorizations (IHAs) for marine mammals prior to receiving a G&G permit from BOEM.

The timing regarding the completion of NEPA requirements and permitting for seismic data is important for seismic and other types of geophysical surveys to be acquired in time to be available should BOEM include an Atlantic lease sale in the five-year plan. A record of decision (ROD) for the PEIS came out on July 18, 2014, starting the clock for the issuance of IHAs by the fisheries service, performance of site-specific environmental assessments, and ultimately the issuance of permits for seismic data acquisition. While BOEM has stated that Atlantic seismic data collection is not needed prior to inclusion of Atlantic acreage in the next five-year plan, the successful acquisition and interpretation of seismic data will improve the likelihood that it stay in the plan.

Local support

Ultimately, success will require the support of elected officials and citizens in North Carolina, South Carolina and Virginia, where leasing would occur. In the not-too-distant past, these states have not supported Atlantic offshore oil and gas development, but that has changed. Today, the governors of all three of these states (Pat McCrory (R-NC), Nikki Haley (R-SC) and Terry McAuliffe (D-VA), support offshore development, as do much of their congressional delegations, public and business communities.

false“We have the technology and the environmental expertise to responsibly explore the oil, gas and wind resources off our coast,” said Gov. McCrory, who chairs the OCS Governors Coalition, a group from eight coastal states who work together in support of robust offshore energy development and sensible policies to support it. “It’s time the states be allowed to get off the sidelines and start producing jobs and energy for our economy.

“Coastal governors understand the importance of offshore energy to a state’s economy but also best comprehend what it means to be good stewards of our coastal resources. Opening up the waters off North Carolina to sensible oil, natural gas and renewable energy development is a vital part of our state’s energy policy.”

South Carolina U.S. Rep. Jeff Duncan (R- SC) and Sen. Tim Scott (R-SC) have introduced legislation that would open the South Atlantic to offshore oil and gas development. Upon introducing the SEA Jobs Act, Sen. Scott stated, “By unleashing the potential of America’s vast energy resources in the Atlantic, we can continue the long overdue process of reducing our national dependency on fuel produced in some of our world’s most dangerous areas. Additionally, by enacting the SEA Jobs Act, we can potentially create more than 280,000 jobs and add $24 billion to the economy. In South Carolina alone, this legislation could create more than 35,000 new jobs.”

It is the opportunity for jobs and economic growth that has caught the eye of policymakers and the public in the Southeast and Mid-Atlantic U.S. The region was among the hardest hit in the latest economic downturn, with many communities still suffering from the loss of jobs in the financial services, textile and other manufacturing sectors.

In December 2013, NOIA and API released a study that found opening the Atlantic OCS to oil and gas development could create 215,000 jobs by 2035 in the Atlantic coast region as a result of offshore activity, with the largest employment impact going to North Carolina, South Carolina and Virginia.

For the domestic steel industry, and for the manufacturing sector as a whole, access to a reliable and affordable supply of energy is critical, said Jennifer Diggins, director of public affairs at Nucor Steel, which is based in Charlotte, North Carolina.

“A new supply of energy resources off the Atlantic Coast could ensure a long-term, affordable supply that could help manufacturing plants, like our steel mill in Berkeley, South Carolina, stay competitive for years to come,” she said. Diggins also serves as chairwoman of the Consumer Energy Alliance (CEA).

Growing support

While there appears to be a solid opportunity for Atlantic oil and gas leasing in the next OCS five-year plan, achieving it won’t be easy. Opposition groups, such as Oceana, are already establishing campaigns to mobilize opposition against Atlantic oil and gas development. Oceana is opposing all seismic in the Atlantic, claiming it will threaten marine life. Several NGOs have referred to seismic surveys as a “gateway drug” that leads to oil and gas development. Their strategy is clear: Stop the seismic, and you stop everything that follows.

In order for proponents of offshore development to be successful, they will need to counter these NGO campaigns in the Southeast region and nationally. “The prospect of Atlantic oil and gas leasing is truly exciting as it could have tremendous impacts on our nation and the region,” said David Holt, CEA president. The advocacy association represents more than 240 companies and organizations and 400,000 consumer-energy advocates who support sound policies that ensure reliable and affordable supplies of domestic energy.

“We are already working with our members, with governors, lawmakers, businesses and citizens to grow support and balance the record for the next five-year plan,” he said.

Formed in 2006, CEA’s first major advocacy campaign was in support of expanded offshore oil and gas access, and CEA has since generated more than 1 million public comments in support of expanded access for offshore energy. CEA has also launched the Offshore Advocacy Program, which will focus on growing support, grassroots and grasstops, for an expansive five-year plan with opportunities in the Mid- and South Atlantic, Eastern Gulf of Mexico and Alaska.

“Critical to success in the Atlantic will be mobilizing local citizens, businesses and organizations to take part in public meetings and to comment on the plan,” said Holt, noting that one way to help grow support and awareness in the region is to bring in business owners, civic leaders and elected officials from the Gulf Coast states to talk with their counterparts in the Southeast and Mid-Atlantic.

A group from Port Fourchon in Louisiana is already communicating with people in the Hampton Roads region of Virginia about the opportunities for ports and infrastructure development that support exploration and production. “Success will require a concerted effort over several years,” Holt said. “But this effort is absolutely vital to our nation’s future economic
growth.”

Jack Belcher is executive vice president of HBW Resources LLC, Houston, where he consults on energy and transportation issues.