1982 report looked into coastal drilling

Detailed costs, reserves, and impact
Fri, 03/02/2018 - 9:45am

A study of the economic and environmental impacts of offshore oil and natural gas drilling that was prepared more than 35 years ago indicates that even if coastal Atlantic waters are opened up to that industry, finding enough oil or gas to make drilling economically sustainable is still an unknown.

The study, issued in May 1982,  called “Regional Onshore Impacts from Offshore Oil and Natural Gas Drilling In the State of Rhode Island,” was found online by The Block Island Times during research on the recently-announced “2019-2024 National Outer Continental Shelf Oil and Gas Leasing Program,” which will open waters in the North and Mid-Atlantic to oil and natural gas drilling.

The report was prepared by a group called the Coalition of Coastal Communities and was financed in part by the Office of Coastal Zone Management, National Oceanic and Atmospheric Administration in the U.S. Department of Commerce.

The study not only looks at the impacts offshore drilling would have on several coastal communities —  North Kingstown, Narragansett, East Greenwich, South Kingstown, and Jamestown — but it also provides a detailed look into what kind of oil and gas reserves there are in the North and Mid-Atlantic, and the expense required to find those oil-rich fields to make oil and gas drilling worthwhile.

The report looks at a variety of mainland factors that could be impacted by offshore drilling, including water quality management, drinking water supply, population and housing controls, transportation, economic development, land-use planning, and energy. 

According to the study, the possible benefits of offshore drilling in the North and Mid-Atlantic appear to be not only challenging but expensive — even in 1981 dollars. But the technology and sophistication of offshore oil rigs and exploration have also changed in the past 35 years, making some of the projections included in the report very much a reflection of their own time. 

As an example, drilling in 6,000 to 7,000 feet of water was the maximum limit deepwater rigs could drill in the early 1980s. In 2016, it was reported that an offshore oil rig had successfully drilled in a little more than 11,100 feet of water off the coast of Uruguay.

How much oil is there?

Chapter one of the 280 page report is called simply “Offshore oil and gas drilling” and lays the groundwork for what kind of mainland infrastructure would be needed to support a functioning offshore industry.

“The history of offshore oil and gas drilling in the Atlantic Outer Continental Shelf has consisted of a relatively long-term, high-risk exploration phase. Most of the Atlantic drilling history has occurred in the outer continental shelf off the coast of Canada,” the report states. “The significance of the exploration of the Canadian OCS was that it took ten years before a major commercial discovery occurred. Yet, the patience and commitment of the offshore oil and gas industry resulted in a discovery estimated to contain 50 percent more recoverable oil and gas than the giant field in Alaska’s Prudhoe Bay.”

Forty years ago, the ability to find and estimate the size of available oil fields was uncertain at best. The report indicates that estimates of the Canadian resources fluctuated between 3.7 billion barrels to 16 billion to 29 billion barrels.

“An examination of the history of estimating offshore oil and natural gas resources for the Atlantic Outer Continental Shelf reveals a great amount of uncertainty,” the report states.

As a result, the report admits that “the unreliability of OCS oil and gas resources estimates prior to commercial discoveries makes planning for onshore impacts difficult and often inaccurate.” 

Exploratory drilling for oil began on Georges Bank on July 24, 1981, according to the report, using ships leased by Exxon and Shell. By November,  “Exxon announced a dry hole and moved to a new location… Shell temporarily suspended drilling on December 6th…” the report states.

According to the report, the presence of natural gas in the Atlantic Ocean may be lower than what is required to make drilling profitable.

“In 1978, several major oil companies indicated that a minimum of 1 – 1.2 trillion cubic feet of gas was necessary for a commercial discovery. Estimates for natural gas in the Mid-Atlantic shelf lands leased in Sales 40 and 49 was .86 trillion cubic feet,” the report stated.

What’s the cost?

By the early 1980s, oil companies were expressing interest in drilling in “significantly deeper waters” in what was called in the report “an ancient reef structure running from Maine to Georgia approximately 50 to 200 miles off the eastern seaboard.” The majority of tracts purchased in 1981 were in 6,000 to 7,000 feet of water. Drilling in such deep waters required “tremendous initial capital investments… that may prevent the largest oil companies from entering into more than a few of these risky capital-intensive projects,” the report states. 

In 1981 dollars, the report estimated that it cost between $10 million and $25 million per well in those depths, according to the report.

“The total costs for exploration and development of oil and gas resources of the mid-Atlantic continental slope could run as high as $10 billion,” the report stated, but the return by then was not promising. “Oil companies have invested $5.4 billion in deepwater drilling without showing a profitable return yet.”

Noting that these projects would have to compete with other, more oil-rich territories such as the Grand Bank, Hudson Bay and Beaufort Sea, “extremely large oil fields in the deep water of the U.S. continental slope are required to offset the high development cost and out-compete other oil-rich OCS areas for capital investments.”

The oil industry estimated that “three hundred million barrels of oil have been shown to be the minimum reserve level to support deepwater oil and gas production,” the report stated. “As of April, 1980, sixty-four OCS oil fields in the world had such reserve levels. Only fifteen were located outside the Middle East and the North Sea.”

“A low probability of discovering a commercial field which will be able to offset initial development investments, in conjunction with the extreme shortages of deepwater exploration rigs, frames a pessimistic picture for an immediate high-level of deepwater OCS activity on the eastern continental slope.”

The conclusion of the introduction recognizes that as technology evolves, so will the future of oil and gas drilling in the North and Mid-Atlantic.

“In summary, deepwater drilling is a new development in the industry which may significantly determine the future of offshore oil and gas drilling on the Atlantic OCS. Greater potential exists in these deeper waters for commercial finds than in the shallow waters above the shelf. Outside factors such as world market supply of oil, the availability of deepwater exploratory rigs, industrial priorities for siting rigs, and progress in deepwater drilling technology, will have an effect on the rate and extent of offshore drilling in the North and Mid-Atlantic. But the most important factor determining the onshore activities will be the actual amount of commercially recoverable oil and natural gas in the North and Mid-Atlantic Outer Continental Region.”