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Royal Dutch Shell biggest winner in Obama’s Lackluster Oil Plan

Obama’s Lackluster Oil Plan

Christopher Helman, 03.31.10, 07:26 PM EDT

In Texas parlance, it’s a classic case of all hat, no cattle.

HOUSTON — Royal Dutch Shell appears to be the biggest winner in Wednesday’s much-heralded but underwhelming announcement by President Barack Obama about opening up new offshore areas of the U.S. to oil and gas drilling.

Finally, after three years of wrangling, Royal Dutch Shell ( RDSA news people ) will be allowed to drill test wells in Alaska’s Chukchi Sea. But while the president giveth, he also taketh away. Interior Secretary Ken Salazar said on a conference call Wednesday that the government would cancel another set of leases in the Chukchi and Beaufort seas pending further environmental study. The administration banned altogether any future drilling in Alaska’s Bristol Bay.

Shell President Marvin Odum was upbeat about the announcement in a conference call Wednesday afternoon. At least Shell would get to drill something. The company has paid more than $2 billion to the government since 2006 to lease blocks in the Chukchi, and it has invested $3 billion more since then on seismic testing, overhauling drilling ships to meet draconian air standards and environmental testing.

Shell’s vice president for Alaska, Pete Slaiby, explained in an interview with Forbes late last year that Shell had invested more than $15 million to install more than 60 sound recorders on the seafloor to study the movements of whales, walruses and seals. It has made agreements with the captains of Eskimo whaling boats to move drilling ships out of hunting grounds during the open-water period so they can hunt Bowhead whales. Even if Shell ever gets the clearance to fully develop its Chukchi leases, the costs of the buildout would top $15 billion.

As for the rest of Obama’s oil plan, it is (in Texas parlance) a classic case of all hat, no cattle. Even under the best circumstances it will be a couple years before the feds will auction off new acreage to oil companies offshore Virginia and Florida. Expect environmentalists to try to block the proposals all the way.

Let’s break it down. Obama’s plan envisions leasing areas off the coast of Virginia. But before that can happen, the Department of the Interior will have to conduct more than a year’s worth of environmental impact studies. Only once it’s determined that any Atlantic sea creatures 50 miles offshore can withstand the racket of a few drilling rigs will the department even consider scheduling a lease sale.

As for Florida, no leases would even be considered for areas less than 125 miles off Florida’s west coast. But this promises to take even longer than the Virginia piece because the area is still off limits under a congressional moratorium. First lawmakers would have to drop that drilling ban; this could mean months of wrangling between Florida politicians, environmentalists and oil companies seeking to convince both parties that their activities won’t sully sandy beaches. Again, only after a thorough environmental study would the government schedule a Florida lease sale. Never mind that Cuba has leased its own Caribbean coasts for oil exploration.

“We are skeptical about how quickly this administration will execute the new lease plan,” says Whitney Stanco, an analyst with Concept Capital ( CTCY.OB news people ) in Washington. She sees the administration’s dedication to environmental goals as trumping any real commitment to reducing America’s reliance on foreign oil through new drilling.

The administration never even considered opening waters off the West Coast, which, according to government, has at least 10 billion barrels of oil and 18 trillion cubic feet of natural gas. “The Pacific Coast is too special and needs to be protected,” said Salazar, adding that there was strong opposition from governors and politicians. So much for reducing America’s reliance on foreign oil.

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