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Obama's offshore drilling ban 'a stick in the spokes' of Trump's energy plans

President Barack Obama's attempt to burnish his environmental legacy with a last-minute ban on drilling in some federal waters will make life complicated for President-elect Donald Trump, who campaigned on rolling back energy regulations but likely will not have a quick way to reverse this policy, Washington energy observers said.

Industry groups and the Alaska congressional delegation howled after the Dec. 20 announcement by the Obama administration that drilling would be off limits in federal waters offshore of Alaska and the Atlantic, with the exception of previously leased acreage in the Arctic.

"The only thing more shocking than this reckless, short-sighted, last-minute gift to the extreme environmental agenda is that President Obama had the nerve to claim he is doing Alaska a favor," Sen. Lisa Murkowski, R-Alaska, said in a statement. "President Obama has once again treated the Arctic like a snow globe, ignoring the desires of the people who live, work, and raise a family there. I cannot wait to work with the next administration to reverse this decision." Murkowski chairs the Senate Energy and Natural Resources Committee.

But changing Obama's decision may not be as easy as having Trump sign another piece of paper. Observers differ on the particulars but agree that Obama's move was meant to cement his environmental legacy while slowing any Trump attempt to roll back regulations on oil and gas drilling.

"This is sticking a stick in the spokes of the Trump administration," Bracewell LLP energy attorney Jason Hutt said.

"I don't see anything in the law that would prevent the withdrawal of the withdrawal," Hutt observed in an interview, noting that the language of the relevant statute implies time limits. "What it does is stymie the ability of the Trump administration to get things done right out of the gate."

ClearView Energy Partners Managing Director Kevin Book sees it similarly. "We regard today's action as yet another strategic effort by the outgoing Obama administration to overwhelm the Trump administration and Republican lawmakers with restrictive 'midnight' rules and related actions," he told his clients in a Dec. 20 note after the announcement.

"Because the [Outer Continental Shelf Lands Act] includes no statutory mechanism to reverse indefinite Section 12(a) withdrawals, rolling back President Obama's actions will likely require a more significant congressional or executive branch intervention than merely rewriting the Five Year Program the Obama administration finalized on November 18," Book said.

Ultimately, Hutt, Book and others agree: Any move by Trump to end the ban will be up to the courts to decide — probably the U.S. Court of Appeals for the District of Columbia Circuit or the U.S. Supreme Court.

A legislative fix might not have the 60 votes needed to move forward in the Senate unless Republicans show that leasing bans are a revenue issue, by way of bonus and royalty payments, that can use the fast-track budget reconciliation path with its simple majority requirements, Book said. Even that interpretation will be challenged by environmental groups, he said.

The indefinite ban puts 3.8 million acres in the Atlantic and 115 million acres in the Arctic off limits to drilling. Although estimates of the amount of oil and gas offshore in these two federal waters areas are sketchy because of a lack of active drilling or seismic testing, the U.S. Bureau of Ocean Energy Management, which runs the federal offshore leasing program, estimated that there is 50 billion barrels of oil equivalent of technically recoverable oil and gas offshore Alaska and 11.4 billion boe in the Atlantic. By comparison, the more thoroughly explored Gulf of Mexico has 152 billion boe of technically recoverable oil and gas, according to the agency's estimates.

The bureau's December fact sheet also forecast that crude oil and natural gas prices would need to be $100 per barrel or $5.34/Mcf for the bulk of those resources to be economically extracted. As of Dec. 20, natural gas was trading at $3.26 at the Henry Hub, and West Texas Intermediate crude oil was $52.23.

Bracewell's Hutt admonished that while Obama's ban is mostly "atmospherics" in its immediate effects, the principle is critical to offshore oil and gas drillers, which must plan decades in advance for projects that produce for decades. "This just introduces uncertainty."