Gulf drilling, economies remain sluggish



The House Natural Resources Committee held a hearing recently on President Barack Obama‘s drilling moratorium in the Gulf of Mexico one year after the ban was lifted. The results are not pretty if you’re concerned about rising energy prices and lost jobs.

Though drilling in the Gulf is allowed again, slow permitting and burdensome regulations are hindering operations. Activity has yet to rebound to pre-moratorium rates. A study by Quest Offshore Resources shows the number of active rigs is 37 percent less than before the Deepwater Horizon oil spill.

Before Obama imposed the deepwater drilling moratorium, there were 33 floating rigs with 29 drilling wells operating in the Gulf. The number of operating rigs was expected to reach 44 by mid-2012. Analysts now hope that activity will just climb back to pre-ban levels by mid-2012.

A robust oil sector is vital to Gulf economies and the country. Expediting drilling permits, which have tumbled by 59 percent, and facilitating the full return of oil operations will prevent the loss of thousands of jobs, boost economic growth and yield substantial government revenue.

During the moratorium, many companies shifted work to other offshore regions. Eleven rigs left the Gulf. Seven went to African countries; three to South America, and one to Vietnam. This translated to 60 wells lost and 11,500 jobs destroyed.

And the rigs that remained in the Gulf are not operating at capacity. The use rate of offshore drilling units in Gulf waters is 54 percent. Worldwide use rates average 80 percent. In Europe, rates regularly approach 90 percent.

Gulf economies are clearly underperforming, and there is no urgency from the Obama administration to change this alarming course. Interior Secretary Ken Salazar postponed auctions of leases scheduled for the remainder of 2011 until next year, potentially making 2011 the first year since 1965 that the federal government didn’t sell a lease in the Gulf.

The drop in Gulf drilling also impacts federal revenues. The economic forecasting company IHS Global Insight estimates that royalties, lease bids and rent payments amounted to more than $6 billion in 2009. Federal, state and local taxes related to Gulf offshore oil and natural gas operations totaled $13 billion. If drilling continues to stagnate, so will these revenues.

The ripple effect from a hurting oil industry extends to other sectors of the economy and beyond the Gulf area. Bruce Craul with Legendary Hospitality explained at the oversight hearing how the moratorium and sluggish recovery have damaged his industry. Many visitors to Florida are traveling on energy-related business. Without a thriving oil industry, they don’t come.

Inland states are bleeding jobs too. In Oklahoma, the Consumer Energy Alliance estimates slow government permitting is costing about 20,000 jobs in various industries.

The crisis is now. If the Gulf region’s enormous potential is to be realized, government obstacles to recovery must be eliminated.

McQuillan is director of business and economic studies at the Pacific Research Institute (


Posted on November 30, 2011, in Drilling, Energy, Gulf of Mexico, Oil & Gas - offshore and tagged , , , , , , , , . Bookmark the permalink. 1 Comment.

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