An Obama administration study contends that the economic impact of the six-month moratorium on deepwater drilling in the Gulf of Mexico has not been as devastating as some economists projected.

"At this time, employment effects from the moratorium appear to be limited," according to an inter-agency economic report, which was issued Thursday during a hearing of the Senate Small Business Committee.

"Almost all of the deepwater rigs in the Gulf of Mexico at the time of the first moratorium [which was imposed in late May] remain in the Gulf of Mexico; drilling contractors have decided, to date, to retain most of their crews; rig operators have implemented only minimal layoffs; and well servicing firms have largely retained their employees, though some have been deployed to work in regions outside of the Gulf of Mexico," the report said (see Daily GPI, May 28).

Moreover, aggregate employment data do not show a meaningful adverse effect in the five Louisiana parishes -- Terrebonne, Lafourche, Lafayette, Iberia and St. Mary -- that support most deepwater drilling activities. In fact, the number of workers employed in those parishes was higher in July, two months into the moratorium, than in April, it noted.

The Obama administration's economic projections are decidedly more optimistic than those of others. In late July, Moody's Analytics projected that an estimated $1.2 billion in economic output and 17,000 jobs would be lost in the Gulf Coast states by the end of the year, even if BP plc's busted Macondo well was plugged by its deadline (see Daily GPI, July 21).

And in the first six months of the drilling ban, Louisiana State University economist Joseph F. Mason sees the moratorium causing a permanent loss of more than 8,000 jobs, nearly $500 million in wages and more than $2.1 billion in economic activity in the Gulf region alone.

The Obama administration's report "is little more than an unjustifiably optimistic attempt to glaze over the real, devastating impact of the ban on deepwater drilling. The report twists facts, makes unrealistic assumptions and wholly ignores the de facto moratorium on shallow-water drilling," said Jim Noe, executive director of the Shallow Water Energy Security Coalition.

The inter-agency report estimates that the moratorium may temporarily result in up to 8,000 to 12,000 fewer jobs in the Gulf Coast. "These jobs would not be permanently lost as a result of the moratorium; most would return following the resumption of deepwater drilling" in the Gulf, it said. This is primarily due to the fact that "many deepwater drilling operators and contractors have kept most of their employees on payroll."

And consistent with other studies, the Obama administration report estimates that the moratorium would reduce Gulf oil production by about 31,000 b/d in the fourth quarter and by about 82,000 b/d in 2011. "However none of this production is permanently lost as a result of the moratorium; instead, the production is simply delayed as these resources will be available for production following the resumption of deepwater drilling in the Gulf of Mexico," it said.

Noe was highly critical of the report's failure to examine the economic impact of the slow-down of drilling in shallow waters (500 feet or less). Currently, "15 of the 46 shallow-water rigs are idle due to a lack of the issuance of new drilling permits. By Halloween we will have over 70% of the shallow-water fleet idle unless the administration speeds up the issuance of permits," he said.

"The shallow water de facto moratorium is having a direct impact on the economies of the Gulf states, and no report claiming to measure the effects of the ban on drilling can be considered credible without analyzing shallow water as well. The shallow-water industry has already seen hundreds of layoffs and we have hundreds more on our payrolls but left without a job to do" he said.

Given that Gulf operators must make long-term capital expenditure decisions soon, American Petroleum Institute CEO Jack Gerard called on Interior to "establish a solid time line for putting our companies and highly skilled employees in the Gulf region back to work."

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