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January 2014 Issue

The Year of the Government Shutdown And Beyond

By Randall Luthi
President, National Ocean Industries Association
In October, all eyes were focused on Washington as the drama over the government shutdown, defunding of the Affordable Care Act and raising the debt limit played out. With approximately 800,000 federal workers, the two-week government shutdown was a big deal in Washington, but not so big offshore.

While a prolonged government shutdown could have had serious consequences for the offshore oil and gas industry, the two-week shutdown appeared to have little impact. Offshore permitting was apparently minimally affected, and overall exploration for oil and gas continued pretty much unabated.

However, there are regulations in the works that have been delayed by the government shutdown, including new requirements for blowout preventers, and new standards for oil and gas activity in U.S. Arctic waters, which the Bureau of Safety and Environmental Enforcement's (BSEE) now says will not be unveiled until early 2014. Of course, from industry's perspective, delayed regulations are not always a bad thing; indeed, industry trade groups, including the National Ocean Industries Association (NOIA), successfully petitioned BSEE for an extension of the initial comment period on the proposed offshore production safety systems rule.

Likewise, industry was successful in obtaining more time to comment on the U.S. Coast Guard's advanced notice of proposed rulemaking on Safety and Environmental Systems (SEMS) regulations for vessels. BSEE's own SEMS regulations, which extend beyond operating companies to offshore contractors as well, are already being strictly enforced. In November 2012, a dozen producers were cited for not complying with the regulations—five of those were ordered to shut down operations until compliance could be verified.

National Ocean Policy, MSP
In summer 2013, the Barack Obama administration released a 'Guide to Regional Marine Planning.' A key National Ocean Policy (NOP) tool in the marine planning handbook is coastal marine spatial planning (CMSP). The stated aim is for ocean users and federal regulators to spend less time contemplating the where and focus instead on the when. In principle, it sounds good. However, the reality is more complex.

Technically, almost all of the Outer Continental Shelf (OCS) has been available for energy exploration and development since 2008, when moratoria were allowed to lapse. However, exploration and development cannot occur without federal approval, which is generally granted through five-year OCS oil and gas leasing under the Outer Continental Shelf Lands Act. The last five-year plan covered 2007 to 2012 and was developed before the entire OCS was technically open. In 2012, the administration had the opportunity to include much more of the OCS in the 2012 to 2017 leasing plan, yet decided to leave more than 85 percent of the OCS closed to oil and gas exploration and development. The entire Atlantic, Pacific and eastern Gulf of Mexico remain locked down tight.

There is legitimate concern that CMSP is biased against oil and natural gas as resources for much of the oceans. This concern is compounded since there is not a good understanding of the potential location or extent of oil and natural gas reserves throughout much of the OCS. There has not been any geological and geophysical work, including seismic surveys, done in more than 85 percent of the OCS for more than 20 years. Since that time, technological advancements have rendered previous findings of limited use. Yet, despite that lack of knowledge, regional councils under the NOP can zone off entire areas. Thus, industry should be concerned that, if misused, CMSP could serve as a political tool to hinder commercial development of ocean resources, including offshore energy.

Seismic Surveys
The Department of the Interior (DOI) is completing an environmental impact statement (EIS) on Atlantic seismic activities. Originally scheduled for the fall of 2012, the decision has been delayed until 2014. A decision is critical because DOI is expected to begin work on the 2017 to 2021 leasing plan in 2014. Interior Secretary Sally Jewell has said that the decision to include new areas in the plan will depend on what is known about the resource potential. This creates a Catch-22 situation. Continued delays of the EIS could result in the Atlantic being left out of the planning process.

Some environmental groups have targeted seismic operations, with the goal of stopping all oil and gas development. Oceana has a campaign in place to stop seismic surveys in the Atlantic. Frankly, the science does not support its position. History shows that seismic surveys can be done safely with great deference to ocean ecosystems. Industry has been performing seismic surveys around the world for decades, and there has never been a documented case where sound from a seismic survey has caused the death of an animal.

A report by the National Academy of Sciences' National Research Council stated that: 'No scientific studies have conclusively demonstrated a link between exposure to sound and adverse effects on a marine mammal population.'

Hydraulic Fracturing
A new and similar attack is underway regarding the use of hydraulic fracturing offshore California. Hydraulic fracturing has been used safely for decades by oil and natural gas companies to increase and enhance production of oil and natural gas both onshore and offshore. This is not a new technology. On the contrary, it is well-understood by industry and is carefully monitored and regulated by the U.S. government—namely, BSEE, the Bureau of Ocean Energy Management and the Environmental Protection Agency.

Ironically, one of the reasons hydraulic fracturing is being used offshore is because new exploration is prohibited, and everything is being done to squeeze the last drops out of existing wells. There is no new exploration taking place anywhere in federal waters off the Pacific Coast of the United States, and there has not been for more than 30 years.

Offshore Access
The good news is that there was movement in 2013 on offshore access. Both the U.S. Senate and the House passed similar versions of the U.S.-Mexico Transboundary Agreement, and it seems possible that partisanship may be pushed aside to continue our economic relationship with Mexico and open more than 1.5 million U.S. acres. There are ongoing negotiations to hopefully resolve the Dodd-Frank provision regarding payments to federal governments.

The House also passed a bill providing sales in the Atlantic, Eastern Gulf of Mexico, Pacific and offshore Alaska. While this is not new, what is new is that the state delegations from Virginia and South Carolina also have bills providing for sales off their coasts. The Senate has not been cooperative to date, but there is hope in that chamber. Sens. Mary Landrieu (D-La.) and Lisa Murkowski (R-Alaska) introduced a revenue sharing bill, which would increase the amount of revenues to be received by coastal states. This bill holds the possibility of being amended to open up more areas offshore in order to increase revenues.

America's energy revolution has created an economic boon for families and business all across America. We stand on the brink of being a world leader in oil and natural gas production. Our offshore resources can make that potential a reality. The federal government should recognize the extraordinary potential that lies off our shores. With the right energy strategy that opens up our vast energy resources in the OCS, we can achieve energy security and create good jobs, all while addressing our national deficit in the process.

Speaking of the national deficit, we will soon have another opportunity to watch Congress duke it out over the debt-limit ceiling and another possible government shutdown. The government is funded through January 15, and we will hit the debt-limit ceiling again around February 5. At the very least, it will be interesting to watch.

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