The drilling moratorium may have been lifted in the Gulf of Mexico (GOM) to allow operators to get back to work, but in reality, that's hardly the case, Chevron Corp. CEO John Watson said on Friday.

In a quarterly earnings conference call with financial analysts the Chevron chief minced no words in criticizing how federal officials have handled permitting since the Macondo well blowout last April.

The Interior Department's Bureau of Ocean Management, Regulation and Enforcement earlier this month notified 13 operators that they might be able to resume previously approved activities in the offshore without submitting revised exploration and development plans (see Daily GPI, Jan. 4). However, the operators were reminded that they first have to comply with Interior's new policies and regulations.

"The progress in getting back to work is slower than we would have expected," Watson said. "There's some maintenance work going on, but the moratorium is not off...They are trying to get it perfect in terms of some regulations they are putting in place. We are getting more thrown at us."

In 2010 "industry and regulators were doing an enormous amount of work on the standards for all enormous amount of progress to include prevention -- in the very unlikely event -- that had been undocumented...and on containment and cleanup procedures. A number of companies...have been trying to engage the government, trying to improve the standards and get back to work.

"Time's about up. We can operate very safely. Our industry has an outstanding record," versus other manufacturing industries regarding fatality rates and major accidents, "than just about any you could name."

The government, he charged, "took the unprecedented step of shutting down an entire business. It's reached the point of diminishing returns. The [Obama] administration wants to create jobs; we can create thousands of them."

Watson pointed to industry estimates, which indicate that 300,000 boe/d is being lost from inaction in the GOM, and "that's only going to grow. It represents a sizable chunk of the industry...that will retard economic growth...We can operate safely, we can create jobs, we can reduce our dependence on imports. It's time to get back to work."

Some well design changes were implemented by the BOEM, but that's had little effect on Chevron.

"We're incorporating some design changes now that have come about," said Watson. "But I wouldn't advertise it as 'material.' We were operating at a high standard already so we haven't been significantly impacted."

The American Petroleum Institute last Wednesday said nearly one-third of U.S. deepwater production could be rendered uneconomic if GOM permitting deadlines were extended (see Daily GPI, Jan. 27).

Asked when he thought the industry would be back to its pre-Macondo operating status, Watson was unsure.

"It seems we take one step forward and then one step back. We engage, try to be of assistance..but the bottom line is, they aren't issuing permits. For the most part wells won't be drilled..."

Chevron made assumptions in its 2011 production forecasts that include a slower pace in the GOM. And most of the operator's GOM drilling isn't scheduled until later this year.

"There are development wells that we expect to drill, activity on the Shelf that we have expectations for. More importantly, exploration wells won't be drilled. They've been suspended. We'd like to finish some of those and move on to others."

Chevron, which is the second largest U.S.-based producer after ExxonMobil Corp., "can deal with this," Watson said. The drilling moratorium "cost us $100 million [in operating expenses] last year. We can deal with it in the short run. It's very different for smaller companies and service providers...We are seeing rigs leaving the area."

The producer has made some assumptions on what would happen if it could not return to the GOM this year.

"What I would say if we went a whole year without activity, first is that the [production] numbers would be lower than what we put forward." Despite the moratorium, which officially shut down business for most of the second half of last year, Chevron exceeded its GOM production guidance "for several reasons," said the CEO. There weren't as many exploration wells scheduled to be drilled in the latter half of 2010. "The base business was very good, we had higher market demand than hurricane season to speak of, and good performance...So there are ebbs and flows that have to be taken into account."

In the GOM "it will be important for us to get back to work, to continue drilling on deepwater projects...additional development wells. It's important to us...We are keeping a lot of people and equipment busy doing maintenance, but deepwater progress has slowed significantly."

Chevron has scheduled the startup of two big deepwater projects in 2014: Jack and St. Malo, which are in the Lower Tertiary. For now the date remains the same, said Watson. Facility work is proceeding, but "the issue is how many wells come on line at startup.

"We have three deepwater rigs that we use for exploration and development. We will have to prioritize them once we get back to work...It could be exploration wells, it could be development wells...It might push off the ramp up, not so much the first oil date."

Chevron reported a profit in 4Q2010 of $5.3 billion ($2.64/share), well ahead of the year-ago earnings of $3.1 billion ($1.53). The latest quarter's profits included a $400 million gain from the sale of an interest in U.S. oil pipeline operator Colonial Pipeline Co. Revenue jumped 11% year/year to $54 billion.

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