Companies begin quest for oil, gas off Fla. coast - East Valley Tribune: Business

Companies begin quest for oil, gas off Fla. coast

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Posted: Saturday, July 5, 2008 10:38 pm | Updated: 8:46 pm, Fri Oct 7, 2011.

PENSACOLA, Fla. - Oil companies once viewed drilling in the deep waters off Florida as cost prohibitive. Politicians feared even the slightest sign of support would be career suicide.

No more. Record crude oil prices are fueling support for oil and natural gas exploration off the nation's shores. In Florida, movement was underway even before President Bush called on Congress last month to lift a federal moratorium that's barred new offshore drilling since 1981.

The early activity here stems from a 2006 Congressional compromise that allows drilling on 8.3 million acres more than 125 miles off the Panhandle - an area that had been covered by the moratorium, which was enacted out of environmental concerns. In exchange, the state got a no-drilling buffer along the rest of its beaches.

Florida may turn out to be a prelude for other coastal states. If oil or natural gas deposits are found in the newly opened region, experts say it could further the push to explore other once-protected areas everywhere. It also could be a rallying point for critics, who say the new exploration isn't a license to expand exploration.

With gas topping $4 a gallon, recent polls show Americans, Floridians included, more supportive of drilling in protected areas. Some politicians - including Gov. Charlie Crist - have switched sides.

"We think the public is way out ahead of the politicians on these issues. People are more open to (offshore drilling) now," said Tom Moskitis, spokesman for the American Gas Association, a trade group.

At the same time, oil companies, driven by the record energy price, are more willing to risk $100 million or more to begin exploring new regions. The Interior Department estimates there could be 18 billion barrels of oil and 77 trillion cubic feet of natural gas beneath the 574 million acres of federal coastal waters that are now off-limits.

Drilling activity off the Florida Panhandle has started and sputtered for decades. Some companies had leases to drill off the Panhandle before the 1981 moratorium. They were grandfathered in when the moratorium passed because they were already actively exploring in their lease areas. They continued their activity off and on into the early 1990s.

In March, four companies - Australia-based BHP Billiton Petroleum Deepwater Inc., Houston-based Anadarko E&P Co., Shell Offshore Inc. and Italian oil and natural gas company Eni SpA - purchased leases on 36 Gulf of Mexico tracts under the 2006 compromise.

Jeb Bachmann, an analyst with New Orleans energy consultant Howard Wiel, said the four understand the shifting political and financial realities.

"It gives you an indication that some of these companies believe there is some light at the end of the tunnel," Bachmann said. "There is higher pricing and a belief that higher prices are going to ultimately drive some changes."

Anadarko bought seven of the recently opened tracts south of Pensacola because of their proximity to its Independence Hub, a major natural gas field off Alabama that supplies 1.5 to 2 percent of the natural gas consumed in the U.S. every day, said Stuart Strive, the company's vice president of exploration for the eastern Gulf. The newly leased tracts are between 50 and 75 miles east of the Independence Hub.

But finding and producing natural gas in the new site will be expensive. Three-dimensional mapping of the ocean floor, which must happen before any drilling, could take up to two years, Strive said. If a promising site is found, engineers must drill up to three miles below the ocean surface to extract the oil or natural gas.

And it will take years before the company begins producing anything at the site - and there is no guarantee of success. A company can have as much as $4 billion invested and a wait of up to five years before seeing any return on the investment, Strive said.

"We typically will have $100 to $200 million invested in a project before we know if it is an economic venture or not," he said. "Then, if you know you have made an economic discovery, you spend a billion dollars or more on a facility."

The 1981 moratorium - enacted out of environmental concerns in response to a massive oil spill off the Santa Barbara coast a decade earlier - has prevented the Interior Department from spending money on offshore oil or gas leases in virtually all coastal waters outside the western Gulf of Mexico and in some areas off Alaska.

But politicians who once supported the ban are changing their minds.

U.S. Sen. John McCain supports lifting the ban and allowing states to decide whether to approve drilling of their shores. Crist, Florida's Republican governor and a possible vice presidential candidate, reversed his long-standing opposition to lifting the ban last month.

The ban won't be lifted without a fight.

U.S. Sen. Bill Nelson, who has led opposition to offshore drilling among the state's Congressional delegation, criticized the governor for reversing his position, accusing Crist and McCain of putting oil company profits before protecting the state's $65 billion annual tourism industry.

"Oil companies and their allies are using the shockingly high price of oil and gasoline, which largely is the result not of a supply problem but speculative fever, to scare the public into thinking coastal drilling offers a real solution to our dependency on oil," he said in an e-mailed statement.

The 2006 Senate compromise opening up the Panhandle tracts made sense and should be honored by the oil companies, said Dan McLaughlin, Nelson's spokesman. Instead, the companies and Congressional Republicans are pushing to open more acreage, he said. Nelson helped broker the compromise.

"It was a compromise allowing them to go where they wanted to go, where there were some proven reserves, while also keeping them at a distance to save the economy, the environment and protect our military training areas," McLaughlin said.

"That compromise closed the door and kept the moratorium in place. Now you see the governor doing an about face, but we are confident we are going to fight it back again."

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