(Bloomberg) — President Barack Obama is preparing to block the sale of new offshore drilling rights in much of the U.S. Arctic and parts of the Atlantic, a move that could indefinitely restrict oil production there, according to two people familiar with the decision.
Obama will invoke a provision in a 1953 law that gives him wide latitude to withdraw U.S. waters from future oil and gas leasing, said the people who spoke on condition of anonymity because the decision had not been announced. Until now the law has been used sparingly to permanently preserve coral reefs, walrus feeding grounds and marine sanctuaries.
Related actions by Canada, including a possible five-year pause on some activity in its share of the Beaufort Sea north of Canada’s Northwest Territories, will be announced at the same time as the U.S. action, the people said.
"If the reports are right, then this is a gift to the public and to our kids that will rank with any in the history of American conservation," said Niel Lawrence, Alaska director of the Natural Resources Defense Council.
Coming in the waning days of his administration, Obama’s move — set to be announced Tuesday — responds to a clamor from environmental activists who have looked for a way to lock in protections before President-elect Donald Trump takes office.
Environmentalists said the action would further bolster Obama’s legacy as the president who has done more than any other to combat climate change, because it would illustrate he believes the warming Earth can’t afford the oil and gas locked under the Arctic and Atlantic waters targeted for protection.
“If President Obama acts to permanently protect important areas of the Atlantic Ocean from offshore drilling, he will be making a good decision — a smart business decision — based on science and facts," said Jacqueline Savitz, a senior vice president with the conservation group Oceana. "This decision would help to protect existing lucrative coastal tourism and fishing businesses from offshore drilling, which promises smaller, short-lived returns and threatens coastal livelihoods."
Spokesmen for the White House and the Canadian prime minister’s office declined to comment.
Using the so-called 12(a) provision of Outer Continental Shelf Lands Act to keep drilling out of big chunks of the nation’s territorial oceans is sure to draw a legal challenge, and there is scant legal precedent on the matter. Trump may rescind Obama’s order, but the statute doesn’t include a provision for reversal and that action may take years to work its way through court.
"I see no evidence that Congress ever intended for these withdrawals to be reversible; courts should respect that," Lawrence said.
The Republican-led Congress could advance legislation to undo the ocean withdrawals and eliminate the underlying provision empowering Obama’s move.
‘Short-sighted’
Although oil companies have struggled to tap resources at the top of the globe, industry leaders say they will be needed to meet the world’s energy needs. The industry’s top trade group, the American Petroleum Institute, cast the idea of permanently withdrawing offshore waters as detrimental to national security.
"Blocking offshore exploration would weaken our national security, destroy good-paying jobs and could make energy less affordable for consumers," said Erik Milito, an upstream director for the group. "Fortunately, there is no such thing as a permanent ban, and we look forward to working with the new administration on fulfilling the will of American voters on energy production."
Lucas Frances, spokesperson for the oil industry-supported Arctic Energy Center, said company bidding in recent sales of Alaska and federal territory — including $870,000 for state waters hugging the coastline — illustrate there is continued interest in exploring the area.
“The administration has always justified a ban on Arctic development because of an alleged lack of local support or industry interest," Frances said, adding that polling of Native Alaskans shows that is unfounded.
“If reports are true, it is hard to avoid the conclusion that the Obama administration is playing politics with the future of Alaska,” Francis said.
Obama’s withdrawals would block the sale of new oil and gas leases in portions of the U.S. Atlantic and most of the Chukchi and Beaufort seas north of Alaska. They are not expected to affect drilling or production under existing leases, including 42 parcels that Royal Dutch Shell Plc, Hilcorp Energy Co., Eni Spa, Repsol Sa and other companies own in the Beaufort, according to a government registry last updated in June.
The action also doesn’t affect waters under state jurisdiction, including part of the Beaufort Sea where a Texas company recently trumpeted a potential 6 billion barrel discovery.
Obama had already ruled out selling new leases in the Arctic, Atlantic and Pacific from 2017 to 2022. This is different: It would explicitly put certain areas off limits for oil exploration and production.
Trudeau Pledge
The U.S. move is expected to be paired with action from Canada, following a March pledge by Canadian Prime Minister Justin Trudeau and Obama to collaborate in managing the Arctic, including taking unspecified “concrete steps” to protect at least 10 percent of its water.
Although some oil companies hold exploration rights in Canada’s Beaufort waters, no drilling is currently taking place. Activity there is now stalled or uneconomical, said Michael Byers, a University of British Columbia professor.
Obama’s decision takes advantage of oil and gas companies’ relatively lackluster interest in Arctic waters, where exploration costs are high and development can take a decade or more. Oil companies spent more than $2.5 billion nabbing drilling rights in the region, but relinquished many of those claims as low crude prices forced them to cut spending.
Continental Shelf
The U.S. Arctic is estimated to hold 27 billion barrels of oil and 132 trillion cu. ft. of natural gas.
Obama previously used the 1953 law to withdraw three areas from future oil and gas leasing for more discrete, local concerns, including ecologically rich areas of Alaska’s Bristol Bay, part of the Chukchi Sea, and, earlier this month, Bering Sea waters for which Alaska Natives had sought protection.
Prior to Obama, presidents had permanently protected waters from oil and gas leasing just three times under section 12(a) of the law, which governs energy development in U.S. coastal waters. That 24-word provision empowers presidents to “from time to time, withdraw from disposition any of the unleased lands of the outer continental shelf.”
Presidents have modified decisions from predecessors to indefinitely withdraw areas from drilling but have never rescinded them altogether. It’s not clear they would have the power to. A legal opinion from the U.S. attorney general in 1938 on similar designations under a different law said they “do not imply a power to undo.” And there have been no federal court rulings on the offshore energy statute.
Prior Withdrawals
Former President George H.W. Bush used the provision to withdraw large swaths off the West Coast, the north Atlantic and southern Florida from oil and gas leasing — but only for a decade. Former President Bill Clinton expanded and extended those Bush withdrawals through 2012, though his successor, George W. Bush, moved up the expiration date when oil prices spiked in 2008.
Environmentalists have been laying the groundwork for Obama’s decision by circulating memos on the legal strategy and highlighting how oil spills could devastate wildlife in the Arctic and tourism on the U.S. East Coast.
“The Trump administration has the potential to do serious damage to our climate — but in the last few months of his presidency, President Obama can take concrete steps to secure his environmental legacy,” NextGen Climate President Tom Steyer said in a recent letter.
Bloomberg News by Jennifer A. Dlouhy
