Oil and gas industry organizations Friday were joining Louisiana's Sen. Mary Landrieu in urging President Obama to rescind the blanket moratorium on deepwater operations in the Gulf of Mexico (GOM), calling it a "one-size-fits-all" moratorium that will add further job loss and economic woes to a region already dealing with the devastation of the GOM oil spill.
Landrieu proposed a series of steps to "demonstrably improve the safety of deepwater drilling without shutting down the Gulf Coast economy for more than six months." Landrieu's letter to the president urged him to reconsider the six-month suspension of deepwater drilling activity announced late last month by Interior Secretary Ken Salazar (see NGI, May 31).
Her letter came as scientists participating in an advisory task force said the recommendation for a six-month moratorium had been added to their report, which the secretary used as a backup in announcing the moratorium, after they had signed it. They had never recommended a moratorium, they said, in a flap that one pundit already had labeled "DeepWatergate." And an analyst suggested that an extended moratorium would have more of an impact on the natural gas market than on the oil market.
Since the secretary's order prohibiting new drilling projects and requiring those already operating to find a safe stopping place to shut down operations, producers have enacted force majeure on some of rig contracts, and plans are being made to move the drilling rigs out of the Gulf and send them to foreign drilling locations.
"Unfortunately, I fear that this action could exacerbate, rather than alleviate, the impacts of this spill upon both our economy and our environment. Therefore, I write to urge your immediate reconsideration of the blanket six-month moratorium on deepwater drilling projects and ask that you consider instead a series of fundamental changes to offshore drilling practices that will serve to demonstrably reduce the risk of deepwater drilling while sparing the Gulf Coast's economic vitality," the Louisiana senator said.
Landrieu acknowledged the importance of ensuring against another accident of the magnitude of the blowout of BP's Maconda well, which continues to spill thousands of barrels of oil, devastating sea life and the livelihood and lifestyles of all those who depend on the GOM.
In terms of job losses the ordered idling the 33 rigs that were operating in the Gulf was "like closing 12 large motor vehicle assembly plants in one state all at once." The oil and gas sector directly employs 15% of Louisiana's workforce, and there will be a ripple effect through the rest of the state's economy, already battered by the devastation of its fishing and recreational industries.
She identified eight recommendations that could achieve the administration's safety and oversight goals without crippling Gulf states' economies. These include:
Landrieu also released a letter from eight scientists who served on the Interior Department task force that produced a report recommending new safety measures for Outer Continental Shelf drilling, saying they had no part in the recommendation for a six-month drilling moratorium. "The secretary should be free to recommend whatever he thinks is correct, but he should not be free to use our names to justify his political decisions." The scientists who had represented the National Academy of Engineering and National Research Council said the report had been changed after they had signed their names to it.
While they agreed with most of the report, "A blanket moratorium is not the answer. It will not measurably reduce the risk further and it will have a lasting impact on the nation's economy which may be greater than that of the oil spill," the scientists said.
In another forum, Dave Pursell, managing director of Tudor, Pickering, Holt & Co., said the deepwater moratorium could be more disruptive for the natural gas market than for oil. "I hear a lot of people talk about the impact [of a moratorium] on global oil supply. Well, let's think about deepwater. Deepwater is 3.5 Bcf/d and about 1.2 million barrels a day. Let's assume there's a one-year drilling moratorium. You might lose 300,000 b/d of oil production, and in an 85 million b/d global oil market it is inconsequential.
"But I could lose up to a Bcf/d if we have a one-year drilling moratorium. A Bcf/d in a 60 Bcf/d market is a bigger deal. It's not a game-changer, but it's interesting to talk about. It's a bigger deal for gas than oil, in my opinion.
And there is another impact. It [the oil spill] has certainly emboldened the environmental movement. Not only was there a bad cement job offshore, but it was a bad Halliburton cement job. You couldn't have a worse combination. So, bad Halliburton cement job; environmentalists run with that; fracing is bad. And it creates and emboldens the anti-frac crowd because at the end of the day what stands between environmentalists and the solar and wind nirvana is $5 natural gas. So how do you get around that? You stop fracturing."
Another firm of Wall Street analysts, FBR Capital Markets, said it was aware of five to six rigs "already preparing to depart the U.S. GOM for other markets," but "it remains unclear how many will leave in total...Should operators begin to fear a longer hiatus, we believe that the vast majority of deepwater rigs would depart the U.S. GOM, likely for at least several years on average. This would deal a severe blow to royalties on existing production as it declines, as well as dramatically reduce or eliminate federal lease sale revenue."
The length of the moratorium is key. FBR said, "We are hesitant to see the rationale for an extended moratorium," adding "it is possible that the moratorium is being used to give the perception that the current administration is in control and acting responsibly."
Industry organizations Friday also were ramping up the attack on the moratorium. "The White House continues to put politics and poll numbers ahead of sound policy and the tens of thousands of Gulf families" affected by the industry shutdown, said the Independent Petroleum Association of America (IPAA) This "moratoria will only ensure that our nation's dependence on unstable regions of the world to fuel our economy will compound, and that the supplies of energy that the American people rely on will become far less stable."
IPAA was joining with the National Ocean Industries Association (NOIA) and the American Petroleum Institute in developing two task forces to review the ongoing spill response actions both on the surface and subsea and to make recommendations to the president on how to improve future response and containment efforts.
"A recurring theme raised by the ongoing spill in the Gulf of Mexico is that the technology exists to drill successfully in deeper and deeper water, but the technology to respond to the release of oil in these environments appears not to have kept pace," said NOIA President Randall Luthi. "These new task forces will address that question and others."
NOIA included in a press release issued Friday a review of individual organization members and how the moratorium was causing them to close down operations and lay off workers. In the case of Cobalt International Energy Inc., the company has put its 2010 and 2011 deepwater exploration program on hold, enacted force majeure on a rig contract, incurring legal costs, and will shift its capital spending program and resources to its West Africa business. "Resumption of [the company's] investment program in the United States is completely dependent on the termination of the GOM drilling moratorium," it said.
Some companies may not be able to redirect their efforts. Laborde Marine LLC -- a family-owned business headquartered in New Orleans that owns and/or operates 21 vessels employing more than 300 people with a $14 million annual payroll -- can't afford to compete overseas and will have to "park" its vessels for six months. "The moratorium may well be the death-knell for U.S. businesses engaged in the energy service sector," it said.
Stone Energy Corp. has shut down one shelf platform rig and has a half-dozen exploratory wells that will be delayed a year or more. One rig that was going to be used in this exploratory program, the Deepwater Mariannas, is expected to be leaving the Gulf for opportunities in foreign countries.
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