Virginia sale to test Atlantic interest

May 20, 2010

The scheduled 2012 lease sale offshore Virginia will proceed, even without the environmental impact studies necessary to allow oil & gas exploration in place, according to MMS director Liz Burnham.

The sale – the first on the US Atlantic OCS since the lifting of a decades-old ban on offshore drilling in 2008 – would help gauge interest among companies in the exploration potential of a stretch of the Atlantic from Georgia to Delaware that the Obama administration would open to drilling under the MMS's proposed 2012-2017 five-year leasing plan, said Birnbaum.

‘In some ways, this lease sale was devised to be sort of a test sale,' Birnbaum told OE last month. ‘It's a very limitedsize sale.'

Virginia Lease Sale 220 will include about 2.9 million acres in the Mid-Atlantic Planning Area, which the agency says could contain 130 million barrels of oil and 1.14tcf natural gas. The closest block to shore is 50 miles off the coast of Virginia.

Virginia was the only Atlantic state to express interest in offshore exploration when the MMS, under the former administration, developed the current OCS leasing plan, which expires 2012.

During the longstanding ban, regulators could not allow activities that might be seen as aiding oil and gas exploration, including environmental impact studies that must be completed before issuing seismic permits, Birnbaum said. An environmental impact study for the area is under way but will not be completed before the sale, she said. Some companies have nevertheless expressed interest in the sale based on existing geological data, she added.

The lease sale ‘is, in a way, going to give us an idea of how much interest there is offshore the Atlantic at this point,' Birnbaum said.

The MMS and the US Bureau of Land Management, which administers lease sales on land, confirmed this week that they are reviewing the terms under which oil & gas companies pay royalties to the government.

A 2008 Government Accounting Office report said the US was collecting much less in royalties than other oil-producing countries and recommended the government conduct an international comparison of remuneration practices. Offshore royalties increased during the George W Bush administration, but royalties for onshore permits did not.

‘Our job is to make sure we're doing the best thing for the American people,' Birnbaum said. The agencies are examining royalty programs in other countries, which vary widely, and would use the information to refine policies in the US. ‘Internationally, there are so many different systems,' she said.

‘So you have to look at a really complicated, broad range of factors when trying to determine what's fair for the government. And that's why it's going to take a significant, in-depth study.' OE



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