In a bid to revolutionize the energy sector, President Trump recently unveiled his ambitious five-year drilling plan. Per the plan, Trump has proposed to initiate drilling activities in the Atlantic, the Pacific and the Arctic Ocean, which had been off limits for decades. The 2019-2024 plan will replace the current five-year program (scheduled to run through 2022) introduced by Obama last year. The latest plan will nullify Obama’s indefinite ban on drilling in the Arctic and the Atlantic Ocean. Trump believes that Obama’s five-year offshore drilling plan, which bans new leases in the Arctic and the Atlantic, has marred the nation’s revenue-generating opportunities.
The proposed plan will make over 90 percent of the outer continental shelf (OCS) open for leasing, bringing in a radical change in the offshore leasing policy. It will open 25 of the 26 continental shelves for drilling. The plan is likely to schedule 47 lease sales starting from 2019 up to 2024, marking the largest number of lease sales ever proposed for the OCS. It includes 19 sales off the coast of Alaska, seven in the Pacific region, 12 in the Gulf of Mexico and nine in the Atlantic region.
If the latest plan comes into effect, it is likely to be a boon for various offshore drilling companies including Transocean Limited (RIG - Free Report) , Parker Drilling Company (PKD - Free Report) , Noble Corporation (NE - Free Report) and Rowan Companies plc (RDC - Free Report) , among others. All the above-mentioned companies carry a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Pros and Cons of the Plan
Though the plan is likely to find favor among industry advocates, environmental groups and democrats have already started expressing their concerns about the catastrophic effects it will have on indigenous communities.
With the increasing demand for oil and gas, the Arctic, the Atlantic and the Pacific ocean are of crucial importance. Estimated to hold vast untapped oil and gas reserves, increased drilling and exploration activities in these regions will bolster the economy of United States by creating jobs and supplying cheap oil. This will help the nation become self-reliant for energy sources. It will also generate substantial revenues needed for coastal conservation.
However, the environmentalists are of the opinion that the drilling program will pose a serious threat to indigenous marine life, coastal communities as well as public health. Questions are also being raised on the viability of the project as it will lead to huge capital investment in new offshore projects when there are opportunities to tap on the abundant resources on the U.S. mainland. Many of the offshore drilling regions has been off-limits for decades and will now require huge capital investments for infrastructural upgradation. Thus, they claim that the gains have been estimated without taking market conditions as well as excessive production and operating costs into account.
Trump is not the first one to propose the opening of America’s waters for drilling. Similar attempts have been made earlier by George W. Bush, John McCain and Barack Obama as well. In 2008, Bush lifted a presidential moratorium to open Florida’s coast for drilling. However, the proposal got shelved amid opposition from the state governor and green campaigners. In 2010, Obama proposed the opening of new coastal areas to oil production in a bid to reduce oil imports. However, the plan had to be abandoned just weeks after its release owing to BP plc’s (BP - Free Report) deepwater horizon oil spill which is touted as one of the worst environmental disasters in the nation’s history.
Will the Plan See the Light of Day?
The proposal has already drawn much opposition from the governors of California, Oregon, Washington, Florida and Virginia and other prominent politicians who believe that offshore drilling will have implication on the environment as well as the economy.
Interestingly, following Florida’s governor — Rick Scott’s — strong opposition, Trump has exempted Florida from the massive drilling expansion plans. Scott believes that the drilling expansion can severely damage the environment and wreck an otherwise booming tourist destination.
Trump’s stance has drawn severe censure from other states that have not been granted a similar privilege. Many local governors are leaving no stone unturned to get their states off Trump’s list as they view the drilling expansion hazardous to the natural resources and local economies.
Whether the plan actually comes into existence, however, remains a wait-and-watch story, given the negotiations and public consultations that have stemmed from the same. However, thanks to this move, the amount of acreage open for offshore drilling will significantly increase.
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