U.S. President Obama just made some dramatic changes to the offshore oil and gas landscape. Let’s take a look beneath some of the recent headlines to figure out just what Obama’s actions will mean for the offshore oil landscape.
Storm Clouds in the Arctic
First, the bad news for the oil industry. On January 27, the Obama administration moved to block oil and gas development in large swathes of the Arctic Ocean off the coast of Alaska. The Department of Interior issues five-year leasing plans, and under the next iteration (2017-2022), Obama withdrew areas within 25-miles of the Alaskan coastline in the Chukchi Sea. He also scrapped the Hanna Shoal, a biologically rich section of the Sea, as well as several sections that are used for subsistence by native groups.
The withdrawal of sensitive areas for leasing will not affect current leaseholders. While ConocoPhillips (NYSE: COP) and Statoil (NYSE: STO) still hold some offshore Arctic acreage, they do not have plans to drill in the near future. Only Royal Dutch Shell (NYSE: RDS.A) is actively pursuing Arctic oil. Shell reported disappointing fourth quarter results as oil prices crashed. In order to shore up its balance sheet, the Anglo-Dutch company vowed to leave its dividend unchanged, slash spending by an eye-popping $15 billion over the next three years, and avoid pricey investments. On January 29, Shell announced its sale of the Sean field in the North Sea, and is looking for further divestitures.
Nevertheless, despite cost pressure and shrinking revenues, Shell reiterated its interest in the Arctic. Already having sunk more than $6 billion in the region, Shell hopes that 2015 will prove to be different than past years. It hopes to resume drilling this summer. The Arctic remains a major prize for the industry, even as it poses significant technical challenges. Offshore Alaska holds upwards of 29 billion barrels of oil. The Interior’s decision to withdraw sensitive Arctic areas should not affect Shell’s drilling plans, but it will take hypothetically productive acreage off the table.
Next, the Department of Interior recommended setting aside 12.28 million acres of the Arctic National Wildlife Refuge (ANWR), advising Congress to designate it as a “wilderness” area, the highest level of conservation. As such, oil development would be off limits. Interior included the Coastal Plains in its proposal, an area thought to hold over 10 billion…