How Much Oil, Gas Is Out There?
ROBERT SIEGEL, host:
For a sense of how the new offshore drilling policy might look to the oil and gas industry and how companies view the opportunities offshore, we're joined by Ben Cahill, head of the Petroleum Risk Manager service at PFC Energy. And that's a Washington, D.C. consulting firm. Welcome to the program.
Mr. BEN CAHILL (Petroleum Risk Manager, PFC Energy): Thank you.
SIEGEL: And first, what do we know about how much more oil or gas might be found under the Gulf of Mexico or off the Atlantic Coast?
Mr. CAHILL: Well, there's a lot that we don't know about how much is actually there. Most of the estimates for the areas that are currently off-limits are very preliminary, and they're based on simple surveys that were done by the U.S. geological service and other government agencies decades ago. So in terms of what that means for the resources under the ground, we're really at the very preliminary stages of determining what's actually out there.
SIEGEL: Now, do you say the Gulf and the Atlantic Coast look very different as areas for potential drilling?
Mr. CAHILL: Well, the eastern Gulf of Mexico is relatively close to a very heavily explored area. That's the Gulf of Mexico, which is managed by the Minerals Management Service of the government. There's been active exploration and production there for decades. There are lots of companies that are active there. The fact that the eastern Gulf of Mexico is so close to an area that has, you know, significant reserves is promising in terms of what might actually be there.
The Mid-Atlantic and South Atlantic states offshore of Virginia - Delaware, North Carolina, South Carolina - those are areas where there's really been very little exploration, to none at all. So it's much more difficult to say what might there.
SIEGEL: And the Arctic areas that are now opening up.
Mr. CAHILL: Right. In Alaska, there are two areas in particular, the Chukchi Sea and the Beaufort Sea, which are off the north coast. And those are areas that are really viewed by the oil and gas sector as having lots of potential. Those are areas that were just recently opened to new leasing back in 2008. And you saw a lot of activity there.
SIEGEL: Now, I would assume that, say, in the Gulf, given the history of drilling in the - in other parts of the Gulf of Mexico, that there's more infrastructure nearby to work with, say, than there is off the Atlantic Coast.
Mr. CAHILL: Exactly. And that is a big factor for oil and gas companies. I think there is a perception out there that oil and gas companies can simply sign leases, develop resources, and that's all they need to do. But there's actually a very complicated supply chain involved - you know, engineering companies, companies that contract rigs out, infrastructure, all of those bits and pieces that you need in the supply chain in order to be able to sell your oil and gas and make money. So being able to operate in a new area that's close to all that infrastructure is a big plus for the industry.
SIEGEL: So it sounds like the thought of drilling 125 miles, say, off the Atlantic Coast without a lot of existing infrastructure would be very, very capital intensive. Does the price of oil have to be especially high to make that kind of operation profitable?
Mr. CAHILL: Well, deep-water exploration activity anywhere around the world is expensive. You need special rigs to be able to drill very deep wells. You tend to have to build infrastructure to tie back any discoveries that you made. So you're definitely looking at a different cost threshold. It's simply more expensive to operate there. The fact that the new plan for Florida would potential restrict drilling to only areas that are 125 miles out or farther does introduce some of these cost calculations. And that's something that companies would consider, certainly, before they would decide to bid on a block that's not far out.
SIEGEL: But is it a knock-out blow, in your view, saying you can drill off Florida, but only 125 miles offshore?
Mr. CAHILL: I don't think it's a knock-out blow. The industry operates in deep water in many reasons around the world - you know, in the Gulf of Mexico, in Brazil, in West Africa. That's a hurdle that can be overcome. It just forces companies to think about what they view as the price of oil moving forward as they make these calculations about whether or not they want to operate there.
SIEGEL: So your sense of what the policy announced today looks like, to the oil and gas industries, would you say it's a two cheers? Two-and-a-half cheers? One cheer for this policy?
(Soundbite of laughter)
Mr. CAHILL: I would say maybe two mildly enthusiastic cheers. I do think that the eastern Gulf of Mexico will be intriguing to people in the industry. I think the fact that the Obama administration is willing to make some concessions on offshore drilling is certainly promising to them. It shows that the administration doesn't want to shut off access entirely to new areas. But, you know, there are certainly still significant areas that are still off-limits, like the Pacific Northwest, like the coast of California. Some of the industry will be disappointed with those restrictions.
SIEGEL: Ben Cahill, thanks for talking with us.
Mr. CAHILL: Thank you very much.
SIEGEL: Mr. Cahill is head of the Petroleum Risk Manager service at the Washington, D.C. consulting firm PFC Energy.