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Obama’s Arctic Drilling Ban Is Reversible, But The GOP And Big Oil Are Likely In No Rush To Fight It

David Blackmon: Contributor. Dec 21, 2016

The hits just keep on coming from our outgoing President. On Wednesday, Mr. Obama took one more of many parting shots at the domestic oil and gas industry at the behest of his supporters in the anti-development lobby, setting aside much of the northeastern Atlantic coast, all U.S. waters off the North Slope of Alaska in the Beaufort Sea and almost all of the federal waters in the adjacent Chukchi Sea “indefinitely off-limits for future oil and gas leasing.”

In taking this action, Mr. Obama cited an obscure provision of the 1953 Outer Continental Shelf Lands Act, which allows presidents to remove certain areas from consideration for development. Supporters of the action proclaimed the action to be “irreversible.”

Well, no. Nothing in the world of public policy is irreversible, though some actions are more difficult to turn around than others, as Mr. Obama is about to find out about much of the policies he has put in place via executive orders. The question here is whether, given all the competing priorities they will face come Jan. 20, President Trump and Republicans in Congress will want to spend the legislative time and political capital that would be necessary to reverse this latest bit of executive fiat by President Obama.

It’s a good question. The vast majority of the waters involved in this action are of little or no interest to most domestic oil and gas producers. The acreage in the Beaufort and Chukchi seas has been of interest to Shell in recent years, but few others have made efforts to explore that region.

The truth is that few oil and gas companies on earth possess the capital resources necessary to invest in projects in the Arctic region. Shell itself has invested billions of dollars over the last decade and a half in infrastructure, technology and regulatory and court battles in its efforts to access what it believe are huge potential resources beneath the Beaufort and Chukchi waters. Despite all of that investment, the company has yet to successfully drill a producing well.

The incoming administration is going to want to get as much accomplished as quickly as possible upon assuming office — you can bet that they will want to make a big splash early in order to prove that things are really going to be different. So, for the first half of 2017, up until the August recess, you can expect them to focus on low-hanging fruit in the energy space, like killing the BLM fracking rule that is already tied up in the courts, killing the EPA’s Waters of the United States regulation which also has suffered setbacks in the courts, halting work on the EPA’s “existing source” rule, and on other regulations that can be reversed under the Congressional Review Act. By the time August comes around, this latest action by Mr. Obama will likely be old news.

The oil and gas industry and its representatives in Washington, D.C., will also have to decide how much of their own political capital they want to invest in efforts to reverse this decision.  The “indefinite” nature of the decision no doubt demands an effort towards reversal, just as a matter of principle. But, like the incoming Trump Administration, these companies also want to get as much done as quickly as possible in their business endeavors. Their investors and shareholders demand that they do so.

That means that, in the current price environment, the reality is that most independent producers are more interested in finding a good acquisition in the Permian Basin, or in raising the capital to drill their acreage in the Eagle Ford or the Bakken Shales than they are in spending the next 7 years getting ready to drill offshore Massachusetts, or the next decade and more preparing to get something done in the Arctic.

So, the political machinations around all of this will be interesting to observe in the coming months.

But here is what everyone should really be focused on related to this decision:  By making it, a sitting President of the United States is attempting to permanently cede development of vast Arctic energy resources to other nations.  Most notable among these is Russia, which, as we pointed out in August, has assembled the world’s largest fleet of icebreakers in its efforts to enable its own oil companies to explore for oil and gas in the Arctic region.

Mr. Obama has in recent weeks spent a great deal of his personal time and his own remaining political capital in efforts to convince the American public that Russia somehow influenced this year’s presidential election.  He apparently believes that cyber-security as it relates to Russia is a real national security threat.

Yet, when it comes to ceding energy dominance throughout the Arctic region of the world to Russia, he obviously sees no national security issues at all.  That is truly amazing, and more than a little disturbing.

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