US East Coast OCS: Past, Present, and Future Hydrocarbon Potential

Dr. Robert Erlich

Washington, D.C.

15 April 2015

For Additional Background Google: Erlich AAPG Explorer May 2014

First, Two Brief Definitions…..

2

• The US Outer Continental Shelf (OCS) is divided into Planning Areas based on administrative boundaries o Planning Area Examples: North Atlantic, Mid-Atlantic, South Atlantic

MMS (1983)

Sales are held for Planning Areas on an annual basis; Sale 40 was the first sale held along the US East Coast OCS (Mid-Atlantic, August 17, 1976)

…..and Two More

3

• Planning Areas are subdivided into Protraction Areas based on geographic locations o Protraction Area Examples: Hudson Canyon, Wilmington Canyon,

Baltimore Rise

Protraction areas are further subdivided into 9 square mile Blocks, which are sequentially numbered within each Protraction Area (ex. Lease Number OCS-A-0028, Hudson Canyon Block 598)

MMS (2008)

Success! Not So Fast…..

4

NEW GAS DISCOVERY IS MADE BY TEXACO OFF JERSEY'S COAST; Baltimore Canyon's Biggest Find Stimulates Fresh Speculation on Commercial Potential, 'Starting to Shape Up.' Texaco Finds More Gas Off Coast of New Jersey; Flow Tests Always Made Gas Found in Two Zones. – NY Times, November 24, 1979

Opposing Viewpoints

5

• Standing on the Atlantic Coast but with his thoughts straying to the Pacific,

Democratic presidential contender Michael S. Dukakis on Monday denounced offshore oil drilling and called for an expanded moratorium on further drilling off the Massachusetts coast..…………But though Dukakis first claimed that his position would "in effect" establish a national moratorium on further drilling, he wavered when pressed on the point during a session with reporters at the end of a Boston fish pier. "I'll get back to you on that," Dukakis said. LA Times, May 17, 1988

• Governor Chris Christie: “Whether it’s standing against offshore drilling or

liquefied natural gas facilities that would industrialize the coastline……….protecting New Jersey’s shore is a top priority of my Administration.” – Press Release, August 23, 2012

Seismic Acquisition: Fact or Fiction?

6

Scientists to Obama: Stop Controversial Sound Blasting Threatening Atlantic Whales, Fish

WASHINGTON (March 5, 2015)—Leading ocean scientists from the U.S. and around the world today urged President Obama to halt a planned oil and gas exploration program off the Atlantic coast involving millions of underwater sound blasts that would have “significant, long-lasting and widespread impacts on the reproduction and survival” of threatened whales and commercial fish populations. (Natural Resources Defense Council PR) >124,000 kilometers (77,050 miles)

on/adjacent to the shelf

For more information on seismic acquisition visit www.api.org

US EIA Energy Use Projections (2014)

7

Oil and natural gas are projected to contribute >60% of US energy needs over the next 25 years

Qua

drill

ion

Btu

Resource Assessments

8

Bureau of Ocean Energy Management (BOEM) Assessment (2014, Pmean) • 4.72 billion barrels of oil conventionally recoverable* • 37.5 trillion cubic feet of gas conventionally recoverable*

• Oil Comparison** o A bit more than 13% of US proved reserves (end 2013)

• Gas Comparison** o A bit more than 10% of US proved reserves (2013)

*Data from BOEM, April 2014 **Data from US EIA 2013, 2014

Quest Offshore Resources Inc. Study*

9

Economic Benefits of Oil and Gas Development along the Atlantic OCS, 2017-2035

Federal lease sales would:

• Generate 280,000 new jobs along the East Coast

• Require $195 billion of spending by oil and gas companies in the region

• Contribute $23.5 billion/year to the US economy *Prepared for the API and NOIA (2013)

The Past: US East Coast OCS Leasing

10

US Department of the Interior OCS planning areas, circa 1979 (from the Federal Register, 1980)

BLM map of leased acreage in the Mid Atlantic OCS, Sales 40, 49, 59 (proposed area), August 1981 (from McCord, 1981)

Department of the Interior Administrative Changes Since 1976 • USGS (United States Geological Survey) • BLM (Bureau of Land Management) • MMS (Minerals Management Service) • BOEM (Bureau of Ocean Energy Management)

Sales 40, 49 (1976, 1979)

Sale 59 (December 1981)

Historical Drilling

11

Blake Basin

George’s Bank

S. Atlantic

Mid-Atlantic

Baltimore Canyon

N. Atlantic

Carolina Trough

SE Georgia Embayment

Scotian Shelf

Bahama Platform

Straits of Florida

54 Total Wells Drilled in OCS* • 46 industry wells (1978-1984);

only 3 wells drilled in 1000+ meters WD

• 5 COST (Continental Offshore Stratigraphic Test) wells drilled (1976-1979)

• 3 industry wells in the Straits of Florida (OCS Sale 5, 1959)

22 additional wells and core holes by USGS and industry onshore and offshore, Virginia to Long Island

6 industry, 1 COST well in SE Georgia Embayment;

no oil shows

32 industry, 2 COST wells in Mid-Atlantic; 5 discoveries, 750 bcf,

50 mmbo/c

8 industry, 2 COST wells in North

Atlantic; no oil shows

*Data from BOEM (2015)

No wells drilled

Milestones

12

• First Sale: 1976 (Mid-Atlantic, Sale 40); $1 billion in high bids ($4.6 billion in 2014)

• Largest Single Block Bid: 1981 (Sale 56, South Atlantic); $103.8 million ($266 million in 2014) by Mobil, Hess, and Marathon

• Largest Company or Consortium High Bids: 1981 (Sale 56, South Atlantic); $234.7 million ($602 million in 2014) by Mobil, Hess, and Marathon

• First Well Spud: 1978, by Exxon (Mid-Atlantic, Hudson Canyon; dry hole)

• Last Well Spud: 1984, by Shell, Amoco, Murphy (Mid-Atlantic; dry hole)

• Water Depth Record: 1984, by Shell, Amoco, Sun (Mid-Atlantic, Wilmington Canyon), 2,119 meters (6,952 feet) water depth, Discoverer Seven Seas

• Moratorium: 1984 (officially 1990) – Present

Discoverer Seven Seas drillship, 1997 photo (from Oil and Gas Journal, December 1, 1997)

First Exploration Phase (1978-1984): Results

13

A Commercial Failure: What Went Wrong? • Industry suffered from over-

optimism

• Poor understanding of basic geologic risks

• Incorrect exploration play concepts were tested

Lower 48 OCS planning area map, 1990-Present, showing drilling moratoriums supported by Presidents G. H. W. Bush,

W. H. Clinton, G. W. Bush, and B. H. Obama II

(MMS, 2007)

The Present (OCS Leasing as Proposed)

14 Maps from BOEM (2015)

The Future: What’s Next In Exploration?

15

• Interest will be mainly offshore North and South Carolina, focused on the Carolina Trough Salt Basin

o Drilling targets Include:

Rotated Mesozoic shelf margin structures with gas clouds

Mesozoic sandstones associated with salt diapirs (crest and flank amplitudes and dim spots)

Baltimore, Lydonia, Wilmington Canyon Area

Discoveries

SE Georgia Embayment

Georges Bank

200 km

Carolina Trough Salt Basin

USGS IPOD Seismic Line

Generalized Play Model, Carolina Trough Area

16 *International Phase of Ocean Drilling

Jurassic

Basement

Cretaceous

Dim Spots

Bright Amplitudes?

2

4

6

8

10

12

14

16

18

Depth (km)

NW SE

10 km

Tertiary

Salt

USGS IPOD* Seismic Line Gas Clouds?

2000 m

Rotated Mesozoic Shelf Margin Salt Diapirs

Triassic?

The Path Forward: A Realistic Timeline

17

A Timeline to First Oil (assumes a 2017 start)

• Geophysical surveys (seismic, airborne, and satellite programs) o Acquisition: 3 – 6 months o Processing: 12 – 18 months+ o Interpretation: 6 – 12 months+

• Leasing begins: 2019 – 2020

• Drill site-specific environmental surveys: 2020 – 2021

• First wells drilled: 2021 – 2022

• First oil (upside success case): 2024 – 2029 (assumes FPSO, no pipelines)

So, How Do We Envision the Future?

18

“The best way to predict your future is to create it.” Abraham Lincoln

NASA Earth Observatory image by Jesse Allen and Robert Simmon, using Suomi NPP VIIRS and DMSP OLS data provided courtesy of Chris Elvidge (NOAA National Geophysical Data Center). Suomi NPP is the result of a partnership between NASA, NOAA, and the Department of Defense. Caption by Mike Carlowicz.