Trump to expand offshore drilling, review post-spill rules

WASHINGTON D.C. (Bloomberg) -- President Donald Trump is moving aggressively to expand offshore oil drilling and to reconsider rules that safeguard the activity -- including mandates designed to prevent a repeat of the Deepwater Horizon blowout.

Trump is set to order Interior Secretary Ryan Zinke on Friday to revise a five-year schedule for auctioning offshore drilling rights with the aim of potentially including territory left out by former President Barack Obama. Trump’s order also seeks to reverse a potentially more enduring decision by Obama to indefinitely withdraw most U.S. Arctic waters and some Atlantic Ocean areas from leasing forever.

"It is better to produce energy here under reasonable regulations than to have it produced overseas with no regulations," Zinke told reporters at a White House briefing to describe the order Trump is slated to sign Friday.

The executive order will instruct Zinke to review a raft of protections governing offshore drilling, including a measure designed to address shortcomings revealed by the 2010 Deepwater Horizon disaster, triggered when a BP well blew out in the Gulf of Mexico. The resulting explosion killed 11 workers and spewed millions of bbl of crude.

That rule review will take years to unfold, even if it results in only modest changes to the regulation of offshore wells. Zinke told reporters it would also take "a couple years" before the government could auction off new drilling rights in Pacific, Atlantic or Arctic waters. Even then, it’s not clear whether oil and natural gas companies would line up to buy them. 

Important Signal

But energy analysts say Trump’s announcement sends an important signal to oil and gas companies that U.S. waters are open for business. The offshore-focused effort follows Trump’s previous moves to reverse a raft of Obama-era policies limiting the extraction, transportation and use of fossil fuels.

"It shows the industry the administration is listening," said David Pursell, a managing director at investment bank Tudor Pickering Holt & Co, "The industry ought to feel pretty good given what Trump is doing inside the EPA and with these rules."

The well-control regulation, estimated to cost the industry $890 million over a decade, requires oil companies to keep a close watch on distant, deep-water drilling operations and conduct more frequent inspections of emergency equipment.

Industry lobbyists have focused their complaints on provisions requiring them to get special permission to drill through potentially more treacherous terrain -- after already investing in the territory. Without confidence of getting those approvals, companies may be reluctant to invest in offshore projects where the issue could arise, said Erik Milito, a policy director for the American Petroleum Institute.

Prevents Mishaps

Environmentalists say the 2016 rule -- imposed after six years of development -- is already working to prevent mishaps offshore.

The very technical regulation is "reducing dangerous offshore events like the Deepwater Horizon tragedy in the Gulf of Mexico," said Lois Epstein, an engineer and Arctic Program Director with the Wilderness Society. "It only will help unsafe offshore operators if these important protections are changed."

Zinke said that essential safeguards would not be eroded as part of the broad assessment set to cover regulations "from bow to stern."

"We will find ways to look at our regulatory requirements that strengthen our safety and environmental policies," Zinke told reporters. "America leads the world in environmental and safety protections, and I assure you we will continue that mission."

The order also is set to prohibit the expansion of marine monuments and seeks to streamline government permitting of the seismic research that energy companies use to hunt out possible oil and gas reserves offshore. Geological contractors have been seeking permits to conduct the seismic studies off the U.S. East Coast, updating research last conducted there decades ago.

Legal Obstacles

The Trump administration could face major legal obstacles in trying to swiftly sell drilling rights in areas Obama put off limits, much less reversing Obama’s order that indefinitely ruled out the activity in broad swaths of the Arctic and Atlantic.

Both would be tough to accomplish, said former offshore regulator Tommy Beaudreau and Jason Bordoff, a former special assistant to Obama. In a paper issued by Columbia University’s Center on Global Energy Policy, they note that the Trump administration can only make broad changes to the five-year leasing plan if it subjects them to extensive environmental scrutiny and public comment. And environmentalists argue it would be unprecedented for any president to rescind a predecessor’s leasing withdrawal -- a move they vow to fight in court.

The order does not explicitly compel additional oil and gas lease in any specific area, nor will the Trump administration abandon planned sales of tracts in the Gulf of Mexico and in Alaska’s Cook Inlet. And Zinke said he would ensure local communities have a voice in the process.

Zinke said he would recommend including lease sales for "areas that are acceptable, that have the resources," and where both industry and local communities support drilling.

Oil companies awash in crude from onshore drilling into dense shale formations in Texas, New Mexico and North Dakota may have little appetite for leases in the Atlantic or the Arctic. Those onshore wells generally don’t yield crude for nearly as long as their offshore counterparts, but they also cost much less. By contrast, in the Arctic, Atlantic and the Pacific Ocean, development costs are high -- as are the risks of a "dry hole" lacking commercially viable quantities of crude.

"Even as President Trump opens up drilling almost everywhere, risk-averse companies are looking at the low-hanging fruit," said Phil Flynn, a senior market analyst with the Price Futures Group. “It’s a lot cheaper to ramp up shale production turn a quick profit without any vision about long-term sustainable offshore projects."

Conservationists blasted Trump’s plans. “The president’s efforts to benefit energy producers won’t make America great again; it will simply enable corner-cutting and set us up for another havoc-wreaking environmental disaster,” said Jacqueline Savitz, senior vice president for U.S. oceans at the conservation group Oceana. “But this time it could be along the popular Outer Banks or in remote Barrow, Alaska, where there’s no proven way to remove oil from sea ice.”

Local governments, politicians and activists who banded together to fight off Obama’s initial plans to sell drilling rights in the mid- and south-Atlantic are vowing to do battle again.

“Pushing to open the Atlantic to offshore drilling is a slap in the face to towns and cities up and down the coast that have already made clear that they do not want this for their communities,” said Sierra Weaver, a senior attorney with the Southern Environmental Law Center. “Offshore drilling threatens our beautiful beaches and pristine waters and jeopardizes the backbone of our economy -- the southeast’s billion-dollar tourism and recreation industry."