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Why We Must Expand Drilling in the Outer Continental Shelf

Until we drill, we're just arguing about how many angels can dance on the head of a pin.

By: Steve Maley (Diary)  |  August 4th, 2008 at 09:21 PM  | 

RESIZE: AAA

“Why don’t we just go drill the 86 billions of barrels we know we have?!”

So goes the argument for expanding drilling in the OCS (or in ANWR, or any other unexplored basin, for that matter) – as if there is an existing inventory of “proved reserves” just waiting to be exploited. The problem is, many of the places where those 86 billion barrels supposedly reside have never had a well drilled. There is absolutely no way to know whether or not a petroleum prospect actually contains oil and natural gas, and in what quantities, until you actually gut up and drill a well.

Hey, don’t get me wrong, I’m all for drilling, and drilling ASAP, but for a reason contrary to the one usually put forward in these pages: the best geologic science, employing the most sophisticated statistical methods, gives us nothing better than a S.W.A.G. as to the quantity, or for that matter the existence, of the resource.

America needs to assess its resource base, and to do that, America must drill.

I come to this judgment after reviewing the Assessment of Undiscovered Technically Recoverable Oil and Gas Resources of the Nation’s Outer Continental Shelf, 2006, the official government assessment of undiscovered offshore reserves conducted periodically by the Minerals Management Service.

A few observations:

It’s hard enough to determine the reserves of a producing field with any degree of certainty. Estimates performed by different engineers using the same data are frequently greatly different. Here, the MMS took on an entirely different task: resource assessment in sparsely-drilled or completely undrilled basins depends completely on conjecture and statistical methods. To wit:

The estimates represent a 66 percent increase in oil resources and a 33 percent increase in gas resources in the Atlantic OCS, when compared with the MMS 2001 assessment. … [S]ignificant new analog information was available as the result of recent exploration in the Scotian Shelf offshore Canada and the West African Continental Slope offshore Mauritania.

*
Now, I’m certain that the geologic science employed was sound, but it points up how little we know about the Atlantic OCS, if we are extrapolating all the way from Nova Scotia and across the Atlantic Ocean.*

The 2006 Assessment was based on data available through the end of 2003. Statistically, the resource estimates are expressed in terms of confidence: the authors of the study had 95% confidence that the “Undiscovered Technically Recoverable Resource” (UTRR) was 67 billion barrels. The chance of exceeding 115 billion barrels was only 5%. The mean of that distribution was 86 billion barrels, the number you’ve heard widely quoted lately.

But an interesting graph in the study reveals what the corresponding estimates were in 1996: 38 billion at 95%, 57 billion at 5%, with a mean of 46 billion barrels.

In other words, the maximum reasonable estimate from 1996 (57 BBO at 5% confidence) was 10 billion barrels less than the minimum reasonable estimate (57 BBO at 5% confidence) just 10 years later!

What changed? For one thing, we drilled wells. For another, technology improved:

Significant increases in the estimates for the deepwater areas were the major contributor to the overall growth in the estimates of UTRR for oil. … This increase in UTRR was also accompanied by approximately 4.5 Bbo and 14 Tcfg that were discovered in [deepwater] fields such as Thunder Horse and Holstein, whose resources were moved to the reserve category during this time period.

Successful drilling in the deepwater disproved some geologists’ strongly-held opinions that the prospects for large fields in the deepwater was poor due to their location, far from continental sources of sediment. Those theories could only be proven wrong with a drill bit.

Significantly, due to the timing of the data cutoff of this assessment (late 2003), little if any of the Lower Tertiary Trend data could be included. There has been speculation that the reserves attributable to this trend are in the 3 to 15 billion barrel range. I strongly suspect that an updated assessment of OCS reserves will once again trend to the upside.

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COMMENTS

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  • gamecock

    nt

  • Dave_in_Fla

    An expert diary on this topic to point to. I am so sick of those EIA and MMS reports being thrown in our faces are proof that drilling is a waste of time.

    • mbauer

      nt

  • janis

    better than keeping/emailing your diary this evening would be to have had you around when we got several “experts” in a row today on this topic.

    You would have sliced and diced them quite handily.

    • pilgrim

      Petrobras CEO Sergio Gabrielli

      Over the past decade, Petrobras has been one of the world?s most successful oil firms. That success has been due almost entirely to its expertise at finding vast amounts of oil in Brazil?s offshore territory, often in water depths exceeding 5,000 feet. Responding to a question from an American reporter about oil prices, Gabrielli pointed out that Petrobras is actively drilling in the Gulf of Mexico. He then said that the offshore United States ?is an area that may have large volumes of recoverable oil. We think that the Outer Continental Shelf will give access to new areas. We think that part of this constraint on supply right now comes from areas that you cannot go. And the U.S. is one area that is limited to increased exploration.?
      source

      • Vladimir

        Text? None.

        • gamecock

          is the ICS?

          • ironchapman

            There are three subdivisions to the continental shelf: the inner, mid, and outer continental shelf. Maybe some others can fill you in on how exactly the three are defined.

            There’s an interesting Wikipedia article on the OCs of the United States specifically that can be found here.

            Hope that helps some.

  • Achance

    Couldn’t resist the title though I generally hate the show.

    Other than Prudhoe Bay/Kapurak and Cook Inlet, Alaska is hardly explored and very little drilling has been done. Alaska’s early oil industry was on the Gulf of Alaska coast and was small and primitive. After WWII, Phillips and Union began development in Cook Inlet near Anchorage in South Central Alaska. Productive wells there formed the basis of the territorial economic development that enabled Statehood in 1959. Oil prospects in far north Alaska had been known since the 1920s when Naval Petroleum Reserve Four on the North Slope (of the Brooks Range) was set aside. Understand that designating lands in Alaska for a specific purpose was (and is) the method of choice for keeping those lands from being developed. A sucession of companies came up with dry hole after dry hole on the North Slope and Arco-Humble was literally drilling the last hole it was willing to spend the money for when on December 16, 1967, a well called Prudhoe Bay State 1 came through. The “State” in the name is for the fact that it was on State of Alaska land, not federal land. Less than one third of the land mass you see designated as Alaska on a map is actually State or private land, the other two-thirds are either federal or Indian lands.

    Unfortunately, Alaska oil in massive quantities was discovered almost concurrently with the rise of “environmentalism” in the US. While Prudhoe Bay itself was on State land, the pipeline needed to bring that oil to market would traverse largely federal land and was tied up for years in environmental and Native Claims litigation and legislation. The TransAlaska Pipeline System (TAPS) that brings it to market was authorized only by the vote of then-VP, Spiro Agnew over intense Democrat opposition. Since Prudhoe Bay and TAPS in the Seventies, there has been some development and exploration on State lands, Kupurak and North Star, adjacent to Prudhoe Bay, and a little probing just offshore in the Arctic Ocean on State lands, but almost no exploration on federal lands or the federally controlled Arctic OCS.

    The OCS off Northwest Alaska is sufficiently promising geologically that the Industry just paid the US over $2Billion for leases there, but it is an unknown province and will be fraught with both technological difficulties and environmental litigation. As I stated here back while the matter was pending, the Greenies were desperate to get some Arctic marine mammal designated as endangered so they could use the powerful provisions of the ESA to stop Arctic coastal and offshore development. They could rely on their friends in Congress to stop any development on federal prospects, but the greedy and rapacious State of Alaska rarely kowtows to them, so they had to be able to sue us. The Bush Administration probably made the best of a bad situation by declaring the Polar Bear merely threatened rather than endangered. Had the DOI refused to do anything, the Greenies would have just found a federal judge, Alaska is in the 9th Soviet, to declare the bear endangered. With the State and the DOI now parties to any litigation, we go straight to the DC Circuit or, depending on subject, straight to the USSC, bypassing the 9th Soviet.

    So, any development on State lands will have to run a gauntlet of environmental litigation, but is technologically fairly straightforward by Alaska standards and reasonably close to infrastructure and to a distribution network. Development on federal lands such as ANWR and NPRA will have to run first a political gauntlet, then an environmental litigation gauntlet and it is those impediments, not technology, that put those prospects far into the future. Arctic OCS development is a virtual terra incognita and in addition to the technological problems and political and environmental impediments, there is no infrastructure in Northwest Alaska and not even the most rudimentary surface access except by summer only ship and barge. Just as with the North Slope forty years ago, almost all initial work will have to be expensively supported by air.

    And finally, Alaska itself will not be friendly to federal offshore development unless the money is right. Under the Statehood Act, we’re entitled to as much as 90% of the revenue from development on federal lands. I’m confident that if there is ever an authorization to proceed on these prospects, it will include little or no money for Alaska. So, this time the State will be among the plaintiffs trying to stop OCS development unless and until the US ponies up a reasonable share of the revenue.