The Geology of Georgia

Part Two of a Very Occasional Series:
Oil

It's a well known fact among geologists that there are no producing oil wells in the State of Georgia. This is a little odd, as there is at least some oil in adjacent Alabama and Florida, but there has not yet been a producing well drilled in Georgia. I've heard that there is a one-million dollar award for the first producing well in the state, but at today's costs that's really superfluous - the oil would be its own reward, but the prize itself might cover one day of drilling.

But there are abundant oil reserves beneath the Gulf of Mexico and, unfortunately, now floating on the Gulf of Mexico. All of the major oil companies have reserved drilling rights for exploratory wells at the available off-shore tracts, and recently the Obama Administration has opened up the rights to drill on new tracts along the Gulf and Atlantic coasts, a move criticized by many environmentalists.

Despite the catastrophe from BP's Deepwater Horizon, I do not share that criticism, and my reasons are not just cynical more opportunities for geologists. The nation absolutely has to ween itself from our addiction to oil, but the reality of the situation is that even as we develop alternative fuel sources, the economy has to continue to function. And for that to happen, we will continue to need some oil, and it's better to develop reliable domestic sources than to continue to send our money off to unstable parts of the world.

Politically (and this might be a somewhat cynical opinion), it was a shrewd move by Obama. The opening of some tracts was probably inevitable anyway, but by taking the initiative and proposing it first, Obama defused some of the criticism from the "Drill, baby, drill" crowd and positioned himself smartly to begin the debate on a national energy policy.

But most importantly, one has to realize that the oil companies haven't nearly begun to explore the tracts to which they've already secured rights to drill. There are huge swaths of already authorized off-shore tracts to drill, but the oil companies are leaving them in reserve, even as they encourage Washington to open up new areas.

So why is that? Why do they want to buy the rights to drill in new areas when they haven't even got their money's worth from the areas to which they've already purchased drilling rights? The reason is simple: having "potential reserves" on their books increases the book value of their corporations and hence their stock price, bringing in more revenue. And that, in turn, creates bigger bonuses for the oil executives. It doesn't matter in the least whether there's oil out there or not, or if they ever intend to drill for it at all. What matters is that they can show that they have x-million barrels of potential reserves available to be developed, and the value of that is instantly realized on their balance sheets.

So the reality of the situation is that Washington can sell drilling rights to as many areas as they want and collect some handsome revenues at a time when they need them, and it is highly unlikely that we will see drilling rigs on those tracts anytime soon. And as we develop new alternative energy sources and petroleum becomes more and more economically unattractive, the potential for new drilling continues to go down. As does the potential for another Deepwater Horizon disaster.

So the "Drill, baby, drill" crowd are not actually cheering for more abundant petroleum and lower prices for gasoline at their fuel pumps (although that's obviously their hope), but instead for greater profits for the petroleum companies. And it should be noted that they've been recording record profits recently.

As for the Georgia coast, there's no evidence to suggest that there's any oil at all out there, so the potential for massive oil slicks to wash ashore on Tybee, Cumberland, or St. Simon's Islands is pretty near zero, even in the highly unlikely event that any of the oil companies were so foolish as to decrease their profit margins by actually spending money for off-shore drilling on top of the dollars already spent to secure the drilling rights.

Now, as for the BP Deepwater Horizon slick, my heart goes out to the residents of the Louisiana, Mississippi, and Alabama coasts who are going to be hit by a release that looks like it's going to be larger than that of the Exxon Valdez. I saw first hand some of the devastation caused by Hurricane Katrina, and even at that, I was not at the hardest hit areas, and I cannot image the additional hardship 5,000 barrels a day of crude washing on shore will create. I understand that fishing has already been banned from Louisiana to Florida, which will only increase the difficulties in an area already racked by higher-than-average unemployment.

As the picture above suggests, the slick can already be seen from space. U.S. EPA is concerned about the impacts to air quality the slick will cause, and I wonder about the release of greenhouse gases, especially following the massive release from the Icelandic volcano (perhaps you've heard about that one, too).