Republican lawmakers, led by the country's most famous failed oilman, are pushing hard to lift the prohibition on drilling offshore. Joined by a chorus of petroleum companies, trade groups, "independent advocates" and media puppets, they claim that changing the law will allow oil interests to begin drilling "now" and lower oil prices.
Many on the left oppose lifting the ban, sensing that the talk of "increased supply" and "energy independence" are smokescreens to hide a change in law that amounts to a massive giveaway to the oil companies. They are right, but they've only heard half the story.
Drill deep with me on this one.
Disclaimers: IANAGLAEOGR. I am not a geologist, lawyer, accountant, engineer or government regulator. In researching this diary, I've spoken to all of the above and done my best to carefully record their thoughts. Any mistakes and misstatements herein are entirely my own.
I've broken this discussion up into two diaries, one, an overview of proposed changes in regulations controlling how oil companies report the reserves they control, and a longer examination of some implications of those changes.
Reserves, Proved or Probable
Last December, the Securities and Exchange Commission began soliciting public comment on a "concept release," asking industry actors whether the methods used to "prove" oil reserves should be revised.
When an oil company leases rights to drill on a stretch of land or seafloor, there are no assurances that it will actually find oil there. The oil reserves on the lease are only "possible." When geological analysis and seismic measurements return favorable results, the reserves in a field can be upgraded from possible to "probable."
Under current SEC regulations, only when an exploratory well is drilled and actual hydrocarbons are extracted in some amount can the reserves be represented to investors as "proved." Proved reserves are supremely important to oil companies, as they can be counted as real assets when touting the value of their stock to investors.
Real assets. Money in the bank. Value on the books, hence the other common term for proved reserves: bookable.
Changing the Proof of Proved
Earlier this month, the SEC published in the Federal Register their proposal (pdf) for the revisions of reserve reporting regulations, for the purpose of public study and comment.
There are many positive provisions in the new regulations, not least of which is the requirement that companies detail to investors the steps they took in the process of bringing a leased field to proved status.
Of concern to some geologists and engineers is the fact that drilling an exploratory well and pulling up a "wet bit" is no longer one of them. Under the new regs, a company can argue that, on the basis of conventional seismic and "wire line" (a variety of methods used to establish the composition and fluid capacity of geological strata from within a bore hole) tests, a field can be declared proved without actually recovering oil or other hydrocarbons in any amount.
Instead, claims of proved reserves will be judged on the combination of technologies used to evaluate the field and the reliability of those technologies, based on prevailing engineering art.
These regulatory changes are part of an effort to bring the definitions of proved reserves of every regulating government around the world into line with standards developed by the Society of Petroleum Engineers called the Petroleum Resources Management System (pdf).
A unified, worldwide classification system for oil reserves is a laudable goal, and this system is quite possibly worthy of support.
However, the timing of these proposed changes in regulations, combined with a powerful push by the current administration to strike down restrictions on drilling, merits a closer look.
Before drilling even deeper, I should note that the time for ACTION on this matter is short. The period for public comment on the proposed changes ends September 8, 2008, just over one month away.
If you think that proof of oil reserves should include actual oil on a stick, NOW would be a good time to tell the SEC (important pdf with contact info) about it.
An SEC source I spoke with yesterday confirmed that, once the public comment period closes, the changes are likely to be published and implemented quickly, "before the end of the year." The haste was understandable, as a new administration would appoint new personnel to the SEC, who might see the proposed changes differently than the current administration's regulators.
Deep Waters
In the followup diary on this issue (tomorrow, I hope), I'll discuss in greater depth the technology, geology and economics of drilling for oil in the deep waters of the Outer Continental Shelf, and why lifting the current bans on offshore drilling, combined with new reporting regulations, could mean a jackpot for oil companies, whether or not they ever actually pump a drop of oil.
I'll try to find some cool pictures to make it more interesting.
For now, I'm going to risk being labeled a complete boor and ask that you give this diary some recs. I'm becoming more and more convinced that this issue is the unseen reason why the oil companies and their media and political surrogates are pushing as hard as they are to lift the drilling ban now, before the Bush administration leaves office.