There May Be Oil Offshore, But…

Oil and gas firms covet U.S. offshore reserves, but with oil prices so volatile it's unclear how much would be tapped—or where it would end up

by Moira Herbst

Breaking with an 18-year ban imposed by his father, President George W. Bush recently lifted an executive order prohibiting oil exploration in U.S. coastal waters. With that act, Bush said on July 15 at a Rose Garden news conference, "the only thing standing between the American people and these vast oil resources is action from the U.S. Congress." Meanwhile, an organization led by former U.S. House Speaker Newt Gingrich, American Solutions, is promoting a "Drill Here. Drill Now. Pay Less." campaign, collecting more than 1 million signatures to petition Congress to "act immediately to lower gasoline prices" by allowing exploration off America's coasts.

Told in political sound bites, the message is simple: Many people believe the U.S. has walled off a vast gold mine of oil in coastal areas that could be tapped to lower prices. "We have reserves that aren't being explored or developed, and this environment of high energy prices presents a great opportunity," says Charles Davidson, CEO of Houston-based Noble Energy (NBL), an oil and natural gas producer. He says it "would be a great win for the country" if Congress follows Bush's lead and lifts the ban.

The reality, as usual, is far more complicated. Drilling in the now-restricted areas would require years of extensive seismic research before a single rig could operate. Even then, companies would not embark on such massive projects unless the profitability were clear. What's more, the federal Energy Information Administration estimates that access to new U.S. deposits would not significantly affect overall domestic production for 22 years.

Still, the extreme crimp of high fuel prices has mobilized efforts to expand U.S. oil production. "If the ban is lifted, more studies can be done to find out where the best resources are," says Cathy Landry, a spokeswoman for the American Petroleum Institute. "Every day we wait is a day further from more oil production. We need to get started."

Enough to Make Us Energy-Independent?

How much oil and natural gas is there offshore? No one really knows. According to estimates from the Interior Dept.'s Minerals Management Service (MMS), the U.S. has roughly 18 billion undiscovered and technically recoverable bbl. of oil and 76 trillion cubic feet of natural gas. Eric Potter, associate director of the Bureau of Economic Geology at the University of Texas at Austin, says that if these areas are opened up now, by 2025, 1 million additional bbl. per day could potentially be added to the market. Using International Energy Agency demand forecasts, by 2030 this production would equal less than 5% of U.S. daily consumption, and less than 1% of global daily consumption. "It would certainly help," says Potter. "But it won't make us energy-independent."

Still, lifting the ban is politically popular among Americans desperate for action on soaring energy costs. Almost three-quarters of American adults "strongly" or "mildly" favored increased drilling for oil and natural gas in offshore water, according to a CNN/Opinion Research poll conducted on June 26-29, higher than in previous polling.

Potential Hot Spots

The oil-services industry is capitalizing on the political momentum, targeting several coveted areas where it wants the freedom to explore. One is the eastern Gulf of Mexico off the coast of Florida, where the MMS says about 3 billion bbl. of oil could be recovered. This area, which includes the natural gas-rich Destin Dome 30 miles from Pensacola, could prove most accessible because of existing equipment in other parts of the Gulf. In addition, there's the currently off-limits Atlantic coastline's estimated 3.8 billion recoverable bbl., and a potential 10 billion recoverable bbl.